No AMP heads on pikes after ASIC drops criminal probe

July 17, 2021 â€" 5.00am

The corporate regulator ASIC raising the white flag on a criminal investigation into AMP’s fees for no services scandal should be a wake-up call to those who believed the bombshell findings of the banking royal commission would result in heads on pikes.

It was a hope that had been encouraged by our then Treasurer Scott Morrison, who in April 2018 at the height of the royal commission, held a press conference in Sydney recommending jail time for the wrongdoers.

ASIC drops criminal investigation into AMP.Credit:Getty

“They [AMP] have said that they basically charged people for services they didn’t provide and admitted to statements that were misleading to ASIC and to their own customers … and this type of behaviour can attract penalties which include jail time. That’s how serious these things are,” Morrison told the media, after the shocking revelations from AMP that it had misled the regulator up to 20 times.

The royal commission followed years of financial scandals. It ran for a year in 2018 and exposed unfettered greed, systemic gouging of the living and the dead, billions of dollars milked from retirement savings, shoddy life insurance policies and financial advisers behaving badly.

It also showed regulators either asleep at the wheel or, in the case of ASIC, inappropriately sending financial institutions draft press releases for checking.

The message from the man presiding over the inquiry, Kenneth Hayne, to the regulators was less consultation and more action. His final report was, “Why not litigate?”

A reasonable enough question given ASIC was shown up as being too timid and too cosy with the institutions it was supposed to regulate and therefore gun-shy when it came to enforcement.

Banking royal commissioner Kenneth Hayne.Credit:Eddie Jim

To rebuild its reputation, the regulator launched a series of investigations, including a criminal investigation into suspected criminal conduct regarding the charging of fees for no service in relation to AMP’s Buyer of Last Resort (BOLR) policy and making misleading statements.

It committed serious resources digging into AMP to build a case but the first cracks appeared last August when it was made public that it had sent a series of letters of no action to former senior AMP officials. Those letters came around the same time it filed two briefs of evidence to the Commonwealth Director of Public Prosecutions (CDPP).

A year after receiving those briefs the CDPP on Friday informed ASIC no charges should be brought, after it had weighed up the evidence and the “relevant public interest factors”.

Without the support of the CDPP, ASIC’s hands were tied. Put simply, it had to move on.

ASIC says its investigations into other allegations of fees for no service conduct in AMP were continuing. However, the brutal reality is that if the regulator had pursued the responsible managers and the directors of the AFSL’s of big financial institutions with a view to banning them based on poor record-keeping or a failure to properly supervise, it would have picked up some scalps.

The big four banks and AMP have also been busy rehabilitating their respective reputations, sorting out remediation packages over the myriad fees for no service scandals since the issue was first aired by ASIC in October 2016.

It followed an investigation that uncovered systemic failures among the big four, AMP and Macquarie. According to the report, it included “a failure to ensure provision of ongoing advice services to customers who paid fees to receive those services (fees for no service), the failure of advisers to provide those services, and the failure of product issuers to switch off advice fees of customers who did not have a financial adviser.”

At the end of 2020, the big six financial institutions paid or offered a total of $1.2 billion in compensation to customers due to fees for no service or poor advice. Of the $1.2 billion, AMP represents $187 million. However, the wealth manager estimates it will cost the organisation $800 million in compensation and costs involved in setting up the scheme.

The company is also facing four class actions including a shareholder class action which relates to disclosure of information raised in the royal commission; a customer class action which is about fees charged to superannuation members; a financial adviser class action brought by a group of AMP aligned advisers regarding changes made to the terms of buyer of last resort (BOLR) terms and an advice/commission class action that relates to advice provided by AMP-aligned advisers in respect of some life and other insurance products.

Apart from the remediation costs and the legal tussles, the post-royal commission period has also seen AMP contend with a revolving door of directors, senior executives and a changed strategy.

So far it has completed the sale of AMP Life to UK-headquartered Resolution Life but kept a small shareholding, it’s in the process of spinning off the jewel in its crown AMP Capital, with a view to keeping a small holding, along with a few other parts of the business.

This will leave the once mighty AMP with AMP Bank, international investments and its wealth business which includes advice, the master trust and wrap platform, all chaired by Debra Hazelton.

It is a far cry from the days when AMP boasted the biggest army of advisers, with more than 3000, compared with the latest figure of less than 1500, and expectations the number will continue to shrink.

With a battered reputation it’s no surprise its wealth management has been losing talent and mandates. Even its advisers are desperate to exit.

Having paid a high price for treating its customers poorly, the decision by ASIC to drop a criminal investigation is good news for AMP. However, AMP’s general counsel David Cullen’s statement on the matter was modest enough to eliminate any hint of gloating.

He said AMP was “pleased” to have closure in the matter but “acknowledges the deficiencies in its historic systems and processes within the advice business to monitor ongoing service fees in relation to Buyer of Last Resort.”

The sooner AMP completes its remediation to customers, the sooner it can get back to restoring its reputation.

The Business Briefing newsletter delivers major stories, exclusive coverage and expert opinion. Sign up to get it every weekday morning.

Adele Ferguson is a Gold Walkley Award winning investigative journalist. She reports and comments on companies, markets and the economy.

Share this post