The Australian Federal Court has ordered AMP to pay a $5.175 million penalty after it found the insurer failed to take reasonable steps to prevent its advisers from churning life insurance policies.
This action follows a submission to the Federal Court by ASIC in June 2018, in which the regulator alleged that certain AMPFP financial planners engaged in ‘rewriting conduct’, which ASIC defined as “…providing advice that results in the cancellation of the client’s existing life, TPD, trauma and/or income protection insurance policies and the taking out of similar replacement policies by way of a new application rather than by way of a transfer” (see: ASIC Commences Legal Action Against AMP…).
In its 2018 submission to the Federal Court the regulator stated that, by advising clients to submit new applications, the financial planners stood to receive higher commissions than they would have received under a transfer, whilst at the same time exposing their clients unnecessarily to underwriting and associated risks.
In this week’s judgement, the language used by the Federal Court stated AMP “…failed to take reasonable steps to ensure its financial planners complied with the best interests duty and related obligations under the Corporations Act.”
In addition to imposing a penalty of $5.175 million, the Court also indicated that it will make orders requiring AMP to undertake:
- A review and remediation program to ensure financial planning clients who were subject to rewriting conduct are detected and properly remediated
- A forward looking compliance plan that seeks to prohibit rewriting conduct through improved communication, training and supervision by AMP of its financial planners
the Court characterised the rewriting conduct of one of AMP’s financial planners …as ‘morally indefensible’
In its decision, the Court characterised the rewriting conduct of one of AMP’s financial planners, Rommel Panganiban, as ‘morally indefensible’ (see: ASIC Permanently Bans Adviser…).
ASIC noted the Federal Court accepted its case that, having become aware of Panganiban’s conduct, AMP failed to ascertain the extent of breaches by other planners to meet its legal obligations, and that the Court found, “…the lack of an effective response is an illustration of how badly things had gone wrong within the organisation.”
ASIC Deputy Chair Daniel Crennan QC said the regulator had a strong case against AMP, which resulted in the insurer’s admissions in relation to ASIC’s case in May last year. “We now have a decision from the Court which agrees with ASIC’s case that AMP failed to monitor and supervise its financial planners properly and in accordance with its legal obligations,” he said.
…this penalty proceeding reflects a lamentable failure of corporate will to take the necessary steps to prevent greedy and unlawful conduct taking place
The regulator said the Court noted in its judgment that this penalty proceeding reflects a lamentable failure of corporate will to take the necessary steps to prevent greedy and unlawful conduct taking place, and a further failure to adopt a swift and proper remedial response’. Justice Lee accepted ASIC’s submission that during the relevant period AMP did not have an adequate ‘culture of compliance’.