The corporate regulator is set to take legal action over the charging of fees for no service by the financial services industry, as it predicts more than $1 billion may be repaid to customers.
The Australian Securities and Investments Commission has flagged civil action, and possibly criminal proceedings, over customers being charged fees for advice services they did not receive.
ASIC deputy chair Peter Kell says the regulator has been focused on the “main game” of getting money back in consumers’ pockets but is close to launching court proceedings.
“I would expect that there is a very high likelihood of proceedings commencing in the near future,” he told the banking royal commission on Friday.
ASIC’s action to date over fees-for-no-service issues has consisted of court-enforceable undertakings, bans and imposing licence conditions.
So far $260 million in fees, plus interest or lost earnings, have been refunded to consumers.
ASIC had predicted the overall remediation may exceed $850 million.
“It doesn’t give me any pleasure to say this but I wouldn’t at all be surprised if it ends up being in excess of a billion dollars,” Mr Kell said.
He agreed that one way to deter financial companies from engaging in the conduct would be to obtain substantial penalties from civil proceedings “that would entirely deprive them of any profit they might have hoped to have made from such conduct”.
Mr Kell said that was one of the key issues ASIC was considering as part of fees-for-no-service investigations into a number of entities.
He also revealed ASIC had considered asking the Commonwealth Director of Public Prosecutions to launch criminal action.
The big four banks and AMP have been ASIC’s main focus over fees-for-no-service issues dating back to 2008, but smaller industry players have also wrongly charged customers advice fees.
Mr Kell said ASIC was well advanced in a further investigation into the conduct of National Australia Bank’s superannuation trustee NULIS, which had licence conditions imposed on it last year.
A senior NAB executive this week insisted the bank was open and transparent with ASIC as it finalised an industry report in October 2016, despite only hinting at the true scale of compensation over a plan service fee issue.
An ASIC staffer expressed concerns after NAB then revealed the “radically” revised figure soon after the report’s release, noting the bank knew about the events for 11 months and questioning if imposing licence conditions would be sufficient.
ASIC has called for an end to “grandfathered” commissions for financial advisers, which continue under an exemption for payments already in place when new laws came in five years ago.
Mr Kell criticised the federal government for allowing it, saying the grandfathering of commissions was not in the interests of consumers.
“The parliament has, in effect, put in place a provision that enables the continuing payment of commissions that generate conflicts of interest and unnecessary costs widely across the financial system.”
He said it was depicted as a transition issue of relatively modest or limited nature but was actually an extremely expensive provision.
“I think for the interests of consumers in the financial system as a whole, it would be highly desirable to have this dealt with at a policy level.”