Westpac fined for licensee’s breach of BID

The Federal Court of Australia has ordered Westpac to pay the multimillion-dollar penalty in respect to 22 contraventions of the Corporations Act and to cover the Australian Securities and Investments Commission’s (ASIC’s) costs of the proceeding.

The court case relates to poor financial advice and the breach of best interests duty and related obligations by a former Westpac financial planner (who has since been banned from providing financial services for five years).

The court found Westpac to be directly liable for these breaches, as the law imposes a specific liability on licensees for the breaches of their financial advisers.

The decision comes as a result of civil penalty proceedings brought by ASIC against Westpac in June 2018, which found that Westpac was aware of the financial planner’s actions years before they were reported to ASIC. 

ASIC’s investigation revealed that internal Westpac reviews, including an internal bank investigation in 2010, had raised concerns about the financial planner’s compliance history, yet he continued to receive “high achievement” ratings from Westpac.

The individual’s conduct was not reported by Westpac to ASIC until 2015, only after the financial planner in question was dismissed by Westpac in 2014.

The trial took place in April 2019, during which Westpac admitted that, as the financial planner’s responsible licensee, it had contravened the Corporations Act. Westpac is directly responsible for the breaches of the best interests obligations by the individual under section 961K of the act.

In its decision, the court found that the individual had failed to act in the best interests of his clients, provided inappropriate financial advice and failed to prioritise the interests of his clients in four sample client files identified by ASIC.  

The judge found that Westpac “ought reasonably to have known” that, from July 2013, there was a “significant risk” that the financial planner in question would not comply with the best interests duty obligations.

Further, Westpac was said to have failed to “do all things necessary” to ensure that the financial services covered by its licence are provided efficiently, honestly and fairly, and to comply with financial services laws.

In 2017, the financial planner was found to be systematically in breach of his best interests duty obligations and found to be without reasonable training to provide financial services.

He was banned from providing financial services for a period of five years.

At the time of his sentencing, Westpac took responsibility for the remediation of the clients impacted by the individual’s conduct whilst working as a financial planner at Westpac, remediating a total of over $1.4 million.

The case could foreshadow similar cases in the near future, with the mortgage broking industry soon to have in place a best interests duty. Similarly to the financial planning BID, from 1 July 2020, the duty will also make the licensee liable for any breaches of the duty by credit representatives and take “reasonable steps” to ensure that the credit representative complies with the duty.

The penalty for breaches is around $1 million.

[Related: ASIC wins appeal against Westpac Group]