IMPACT ANALYSIS: ASIC drops criminal investigation into alleged “fees for no service” conduct by AMP

The Australian Securities and Investments Commission (ASIC) has finalised its criminal investigations into the alleged “fees for no service” conduct by AMP Financial Planning Pty Ltd (AMP), arising from its buyer of last resort policy (BOLR).

The conduct of AMP was the subject of inquiry and evidence before the Financial Services Royal Commission. The ASIC decision was made following a consultation with the Commonwealth Director of Public Prosecution (CDPP).

ASIC’s investigation into AMP was in relation to alleged criminal conduct regarding the charging of “fees for no service” in relation to the BOLR policy in breach of Section 1041G (prohibition on dishonest conduct) of the Corporations Act. ASIC also investigated AMP Financial Planning making misleading to ASIC and their customers.

ASIC announced that its decision to finalise the AMP criminal investigation came after the CDPP determined that, on the basis of available evidence and weighing up public interest factors, no charges will be brought in relation to that conduct. The AMP executive announced that they were relieved.

Raised eyebrows

This decision may raise eyebrows and concerns as at the height of the Financial Services Royal Commission in 2018, after evidence was heard concerning AMP’s “fees for no service”, the then Treasurer, now Prime Minister, Scott Morrison told the media, “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 will include jail time. That’s how serious these matters are.”

ASIC briefed the CDPP in April 2019 and referred a detailed pre-brief of evidence regarding the allegations. The normal course is for the CDPP to consider the evidence independently and assess whether there is sufficient evidence to bring charges. Their assessment is based on the quality of the brief that ASIC investigators provide the prosecutor.

It seems extraordinary that there would be no criminal charges against anyone, given the fact that effectively AMP was taking money from customers when they knew they had no right to take that money and that they were not providing any services for that money. It is hard to assess why such a case would not have been in the public interest especially given the client/adviser relationship.

Civil proceedings

ASIC has already begun civil proceedings in the federal court against five companies that are or were, part of the AMP group alleging that these entities were involved in charging life insurance premiums and advice fees to more than 2,000 customers, despite being notified of their death.

In these civil proceedings, ASIC alleges that from May 2015 to August 2019, each of the five companies in the AMP group, were involved in: deducting life insurance premiums and/or financial advice fees from deceased customers even after notification of death; failing to ensure a system was in place not to charge deceased customers; contravening obligations under its Australian financial services licence, failing to act, honestly, efficiently, and fairly. These proceedings continue and may take up to two years to resolve.

Other actions

Separately, companies within the AMP group, face four class actions, which relate to the failure to disclose information about problems raised before the Royal Commission which affects the value of their share price and should have been disclosed to the market.

There have also been sexual harassment issues concerning a former AMP executive, Boe Pahari, who was promoted as AMP’s Capital chief executive, to head up AMP in Australia by AMP chairman, David Murray, and board member, John Fraser. The fallout over the sexual allegations and intense media scrutiny over the promotion, caused Murray, Fraser, and Pahari to resign, which has led to a radical overall of the company with other staff also leaving key positions.

AMP has recently announced that it has agreed to sell AMP Capital Global equities and its fixed-income business to Macquarie Asset Management for A$185 million. The group has also completed the sale of AMP Life to UK-headquartered Resolution Life and may also be selling the whole of AMP Capital as part of its private market business which includes real estate and infrastructure.

Reputation is everything

The saga of AMP’s ethical conduct highlighted before the Royal Commission in 2018, reveals a company that has now lost talent and is no longer the largest financial advising business in Australia with staff being reduced from 3,000 advisers to 1,500 and is now it is mid-way through selling off important parts of its business.

AMP used to be a world-renowned name; however, it has paid a high price for treating its customers poorly. Current and former executives must be relieved by the decision of ASIC to drop the criminal investigation. The AMP’s journey is a warning to other institutions to put customers first and be honest in business dealings.

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Niall is a senior regulatory intelligence expert, Asia Pacific.  He joined Thomson Reuters in 2013 from FTI Consulting, where he was managing director for investigations in Australia.  Prior to that, he was was a senior specialist advisory for the Australian Securities & Investments Commission (ASIC) and the director of enforcement for the Dubai Financial Service Authority (DFSA).

Niall is a Barrister of the High Court of Australia and has over twenty years experience in financial markets and international regulation. In 2002, he was awarded an ASIC Australia Day Honour Medal for his work in corporate investigations.  He has written a book on corporate investigations published by Thomson Reuters and has been a commentator in the Australian Financial Review and television on financial crime, regulation and compliance.

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