Major bank handed $10.5m penalty for BID breach

The Federal Court has ordered Westpac Bank subsidiaries Westpac Securities Administration and BT Funds Management to pay $7.5 million and $3 million, respectively, after finding they breached their best interests duty (BID).

The court decided the two businesses had provided personal financial product advice to 14 customers over the phone, despite neither firm being licensed to provide personal advice.

An ASIC investigation had found that Westpac Securities and BT Funds had conducted two telephone campaigns which recommended that customers roll out of their superannuation funds into a Westpac-related super account.

As a result of the campaign, Westpac raised its funds under management by almost $650 million between 1 January 2013 and 16 September 2016. More than 30,000 customers deposited funds into Westpac super accounts during the campaign period.

ASIC commenced its civil lawsuit against the Westpac companies in December 2016 for unlicensed personal financial product advice.

The matter was heard in February 2018. In 2018, the Federal Court found that Westpac Securities and BT Funds breached their obligation under the Corporations Act to act honestly, efficiently and fairly, but it did not uphold ASIC’s case that personal advice had been provided to 15 affected customers.

Personal advice, as defined under the Corporations Act 2001, includes financial product advice given to a person in circumstances where a reasonable person might expect the provider to have considered one or more of the person’s objectives, financial situation and needs.

In contrast, general advice would cover product advice that is not accounting for personal circumstances.

The Corporations Act imposes more onerous obligations on advisers who provide personal advice, obligations that Westpac accepted it had breached if it had indeed provided personal and not general advice.

In October 2019, the Full Court of the Federal Court of Australia then reversed the earlier decision and unanimously found that personal advice had been given to 14 customers. An appeal against the ruling from Westpac was then dismissed earlier this year.

ASIC commissioner Danielle Press commented that the new penalty total relating to just 14 customers should act as a “strong deterrent” to other entities.

The maximum fine for the breaches was $14 million. Justice Michael O’Bryan is yet to publish his reasons for the judgement.

“Consumers’ decisions about their superannuation are significant long-term financial decisions affecting their retirement income,” Ms Press said.

“Financial institutions seeking to influence those decisions by providing financial product advice must comply with the law designed to protect consumers.”

Best interests duty obligations has meanwhile applied to brokers since the beginning of the year.

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