In a recent Federal Court decision, five AFS licensees part of the AMP Group were found to have contravened the Australian Securities and Investments Commission Act (ASIC Act) and the Corporations Act in deducting a ‘plan service fee’ from the accounts of members of a superannuation fund over a three year period where it was no longer entitled to.  Here, lawyer Karsen Haseler sets out three key lessons for financial service providers.

Three key lessons 

1. Fees for services cannot be charged where you will not supply, or have reasonable grounds to believe you will not supply, services within a represented period. 
2. It is important to have effective compliance systems in place which are designed to catch and address systemic issues.
3. Complaints data should be analysed as a way to improve product delivery and as a means of ensuring accountability for compliance with financial services law. If you can catch an issue and proactively address it early on, it may spare you the financial and reputational cost of an ASIC investigation down the line.

Entitlement to charge fees

The members of the superannuation funds were entitled to access general financial advice as part of an agreement between the AMP entities and their employer, in exchange for payment of fees.  This access ceased when they left that employer; however the AMP entities continued to charge the fees.

Contraventions

Three of the AMP entities admitted to having contravened the ASIC Act which makes it an offence to accept payment without intending or being able to supply as ordered. 

Another two admitted to having breached the ASIC Act by failing to effectively monitor and supervise the deduction of the plan service fees, facilitating the deduction of the fees, and having knowledge of the other three AMP entities’ conduct.

All five AMP entities admitted to having contravened the Corporations Act, which requires financial service providers to do all things necessary to ensure they provide services efficiently, honestly, and fairly by—

• failing to implement a procedure and administer a system that ensured deductions of plan service fees ceased when a member’s employment ended
• failing to remit any fees deducted between the date the member’s employment ended and when they were notified, and 
• not having effective compliance arrangements in place to monitor and supervise the deduction and remission of the plan service fees.

Penalties

The Court ordered the companies to pay $14.5 million in penalties for their contraventions, and adverse publicity notices detailing the contraventions be published on the AMP Group’s website and sent to the relevant members.

Lessons

The Court accepted the contravening conduct by the companies was related to one instance of a coding error which caused the erroneous deduction of fees and was not intentional.  However, it nevertheless concluded the contraventions to be ‘extremely serious’ because the AMP entities had received numerous complaints related to the deduction of fees and had failed to proactively investigate whether there was a systemic issue.

This case highlights several lessons for financial service providers.  Reach out to a member of our Litigation team for more details.