Chronic Compliance failures within the big Australian banks

The Australian Securities and Investment Commission (ASIC) is launching  billion dollar lawsuit against Australia’s largest investment bank Macquarie Bank, along with the “Big 4” bank Commonwealth Bank and also Bank of Queensland. The suit is set to run for three months over claims, among other things, unconscionable conduct on the part of the bank for providing Storm Financial clients with high-risk margin loans.

ASIC also additionally had Macquarie Private Wealth under investigation for some time for ongoing compliance failures; for providing clients with inappropriate advice and for a raft of other alleged breaches of the Financial Services Reform Act (FSRA). As it has done with AMP, UBS and the Commonwealth Bank, the regulator has powers to require financial services firms to commit to “enforceable undertakings” in lieu of losing their licenses.

Storm Financial

Storm Financial was a financial advice company based in Townsville, Queensland, Australia which was liquidated in March 2009 due to the collapse of share prices which are primarily their business, and the high amount of margin lending utilized to fund the shares. Commonwealth Bank also held 30% of the business upon liquidation. Investors saw their money wiped off due to the high debt and gamble which led to the inevitable collapse of the firm. This episode led to reforms in financial governance including banning commissions for financial advice to clients on retail investment products and also instituting fiduciary duty when dealing with retail clients.

Macquarie Private Wealth

In 2008, a small team was formed to conduct internal audit over the compliance controls and Adviser Solutions was hired for the job. The result was tremendous with no less than 80% of advisors in the nation’s largest broking house were not in compliance with the industry standards prescribed in the FSRA.

Apparently the executives at MPW decided that it’s best to keep this report a secret, and later on hired external consultants, Ernst & Young to conduct a fresh report which said that there were no compliance failures.

Unfortunately for the big execs at MPW, ASIC decided to proceed with a double whammy – “enforceable undertakings” on both the MPW case and Macquarie’s role with Storm Financial.

Results could mean million of dollars in punitive settlement, compliance overhaul and some shift around MPW management. More on this story to come.

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