CommSec and Ausiex hit by major penalties
CommSec and Ausiex have been penalised to the tune of over $27 million following Federal Court action initiated by the Australian Securities and Investments Commission (ASIC) over breaches of the Market Integrity Rules, including overcharging brokerage fees.
CommSec has been penalised $20 million while Ausiex has been penalised $7.12 million.
ASIC announced today that the overcharging of brokerage fees to CommSec customers occurred on 120,993 occasions, totalling over $4.2 million.
ASIC said the penalty was the largest ever penalty handed down for breaches of the Market Integrity Rules.
Commenting on the outcome, ASIC deputy chair, Sarah Court said It was essential that market participants have appropriate systems, governance and controls in place to ensure they meet their obligations to both their customers and the financial markets in which they operate.
“CommSec and AUSIEX both demonstrated widespread, systemic compliance failures over a nine-year period. CommSec’s failures also resulted in millions of dollars being overcharged to customers,” she said.
“When market participants fail to comply with the Market Integrity Rules, they undermine the integrity of Australia’s financial markets. As today’s decision demonstrates, the penalties for engaging in this conduct are significant. ASIC will continue to take action and seek significant penalties where market and trading participants fail to comply,” Court said.
In addition to the penalties, the Court ordered an independent review and assessment of all systems and controls relating to the provision of financial services by CommSec and AUSIEX, along with a review of the remediation undertaken by the entities. The review is critical given the failures in broader systems and controls at CommSec and AUSIEX and is designed to examine significant aspects of their businesses.
The Court declared that CommSec and AUSIEX contravened the Market Integrity Rules on multiple occasions, including when:
- CommSec overcharged brokerage fees to customers on 120,933 occasions, totalling over $4.3 million;
- CommSec and AUSIEX failed to comply with client money reconciliation requirements;
- CommSec and AUSIEX did not provide accurate confirmations to customers for certain market transactions;
- CommSec did not have appropriate system filters to detect possible trades where there would be no change of beneficial owner (known as wash trading);
- CommSec and AUSIEX failed to comply with their best execution policies and procedures;
- CommSec failed to enter into the required warrant agreement forms with clients and provide an explanatory booklet before accepting an order from a client to purchase a warrant on the market for the first time; and
- CommSec and AUSIEX failed to include the required intermediary identification in regulatory data submitted to relevant market operators.
- The Court also held that CommSec made a false or misleading representation by stating that it considered ASX CentrePoint (ASXCP) as an execution venue for those customers who submitted orders via the ASB Securities Limited (ASB) trading platform, when it did not consider ASXCP as an execution venue for those orders. This meant customers who placed certain orders via the ASB trading platform were excluded from trading on ASXCP, despite being advised that their orders could be traded there.
The Court also declared that CommSec and AUSIEX failed to do all things necessary to ensure its financial services were provided efficiently, honestly and fairly.
Isn’t great that all financial advisers were able to fund ASIC so they could chase product providers for their failings. Even better the penalty will be gladly accepted by the government into consolidated revenue, and no offset against the adviser levy which continues to rise as ASIC successfully runs more advisers out of business. A competent body representing advisers could easily use this case as an example why the ASIC levy is being paid by the wrong party and is an absolute scam.
Advisers are ASICs litigation funders and as such Advisers deserve 50% of penalty, as per standard litigation funding split.