AMP Admits Policy Breach
In light of the infamous royal commission report published in February 2019, the financial industry has been subject to increased scrutiny with the corporate watchdog ASIC tightening its regulatory grip. The corporate regulator’s tougher enforcement guidelines have notched its first victory with the already tarnished AMP admitting to failing to ensure its advisers were acting in the best interest of their customers. AMP admitted to having financial planners ‘churning’ existing customers, which involves re-writing or cancelling their life insurance and take out a new cover. As unethical as churning is, it also exposes the customer to underwriting risks.
Costs to AMP
Financial advisors employed by wealth management giant AMP who failed to act in the best interests of the customer have further damaged the already blemished reputation. Post the royal commission hearing AMP’s market value dropped to $6.6 billion, full-year profit also plummeting 97% as of December 31 to $28 million and the share price is near a record low of $2.25 at 21 May. To add to this, AMP is now suffering the consequences of “Churning” where advisors cancelled policies with the intention of increasing their commissions. To do this, they would open up new policies unnecessarily for the customer. Committing these contraventions is expected to cost AMP $1 million per offense.
The silver lining of AMP admitting to failing to keep their planners in line and acting in the best interests of their clients results in a simpler punishment process. ASIC deputy chairman Daniel Crennan, QC, stated “AMP has now admitted to all of these contraventions and ASIC will ask the court to make declarations of contravention and order AMP to pay a penalty.” Ultimately this means that the issue will be resolved much sooner relative to the repercussions, Crennan furthering, “If the matter was fought on liability.” If ASIC had found the violations in the June hearing in 2 weeks before AMP’s admittance, there would have been more litigious actions taken. The severity of the matter is still immense, but AMP has somewhat saved themselves further punishment by admitting to the contraventions.
ASIC’s insight on the financial industry has resulted in shocking revelations of the conduct on financial companies. For instance, AMP was charging life insurance premiums to dead clients and blaming administrative errors for these ongoing fees when it was actually conscious decisions. Creenan stated “ASIC’s case argued that AMP, one Australia’s largest financial institutions, failed to ensure its financial planners acted in the best interests of their clients as well as other contraventions of the law.” Having ASIC on AMP’s back with the court hearing in June 2019, it forced them to basically admit that they failed to take the necessary steps to ensure 4 of their planners acted “efficiently, honestly, and fairly” and within the law between 2013 and 2015.
During the Royal commission, ASIC was criticized for relying more on enforceable undertakings instead of taking the respective cases to court and finding out these contraventions earlier. This came down to “ASIC having limited funds for enforcement” stated by Swinburne University corporate governance expert Helen Bird. Since the last federal budget, ASIC has been given more than $400 million in additional funding, reducing the ‘can’t afford to lose’ mentality, enabling ASIC to be more proactive against the war on unlawful actions.
AMP’s cooperation with ASIC
AMP has been proactive in helping ASIC come to a resolution and to an extent, arbitrate the actions conducted by their employees. It has been noted by AMP spokeswoman that the company, in consideration of the past events have enhanced their monitoring and supervision processes. AMP has incorporated stronger data analytics to help protect clients against further insurance rewriting as well as terminating the 4 now publicly disgraced planners for actively churning some 40 life insurance customers to reap in commissions.
Furthermore, ASIC’s ‘why not litigate’ strategy can been explained the forefront reason why AMP came out with the self-damaging allegations. ASIC’s strategy was brought to fruition with the aim to deter future misconduct and enforce in the community that punishment is inevitable through court action if any wrongdoing is found. Understandably, AMP crumbled under the mounting pressure with ASIC’s growing power and funds available made possible by the further $400 million funding from Government.
ASIC views AMP’s confession to its historical faults as a victory for the ‘why not litigate’’ strategy operating under their fairness imperative. ASIC is hoping that the honest actions shown by AMP today will become a part of the norm within the industry. The clear cut benefits of admitting to misconduct before being caught is the main consideration coming into effect. ASIC’s litigation strategy has evidently lead to stronger cooperation by AMP.
By Nick Psaltis
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