The Royal Commission’s Round 2 hearings involved case studies relating to financial advice.

The case studies considered:
• the charging of fees for financial advice that is not provided or not provided in full (“fees for no service”),
• the provision of inappropriate financial advice,
• the “rolling bad apples” phenomenon through which individuals who engage in misconduct move between financial institutions without their misconduct being disclosed to their new employer,
• instances of improper conduct by financial advisers, including misappropriation of customer funds, and
• the disciplinary and regulatory regime for dealing with misconduct by financial advisers.

Much of the questioning from the Commissioner focussed on incentives structures and what recognition if any is given to good quality advice as opposed to sales revenue.

The evidence from the major banks and AMP in this round confirmed their previous evidence that their compliance is difficult and slow to monitor.

Flaws in record keeping and document management were also exposed.

And when there were internal and external compliance reviews the response was inadequate.

The evidence has exposed the deficiencies in automated controls when inappropriate business rules are applied.

Evidence was also given about the length of time taken to acknowledge breaches and remediation.

Reviews focussed on the costs to the financial institution rather than the impact on customers.

Breach reports have only been lodged after long delays.

In addition some financial institutions have been less than frank with ASIC when they have disclosed breaches.

The Government has already announced its response to the ASIC Enforcement Review including increased penalties for misconduct. The Government has also committed to implementing the Commission’s recommendations.

The third round of hearings from 21 May will focus on small and medium enterprises.