Will we see more customer remediation costs on the way for Westpac after a loss in the Federal Court yesterday that saw the bank severely criticised and its actions taken to task by the three judges sitting on the appeal?
Corporate regulator, ASIC said yesterday afternoon that an appeal to the full Federal Court from any earlier judgement had found a Westpac campaign aimed at encouraging customers to roll over their superannuation savings into bank-run products had broken financial services laws.
Three judges of the court on Monday ruled unanimously against the bank in a legal action between it and ASIC, overturning a previous decision in favour of Westpac made by justice Jacqueline Gleeson late last year.
And in doing so the judges included some strong criticism of Westpac in their judgments – accusing the bank of “systematic sharp practice”
In a key test case, ASIC took action against Westpac by arguing that a sales campaign between 2013 and 2016 by the Westpac-owned BT broke financial services laws because customers were given “personal” advice, which must be in the best interests of the customer.
BT gained an extra $650 million in funds under management from the campaign, which included phone calls, letters, and the offer of free searches of other super accounts the customer may have.
Westpac contended it only provided “general advice,” which does not require the clients’ full financial situation to be taken into account.
In a decision on Monday, chief justice James Allsop, justice Jayne Jagot, and justice Michael O’Bryan all found in favour of ASIC.
The Full Federal Court upheld ASIC’s appeal regarding Westpac subsidiaries, Westpac Securities Administration Limited (WSAL) and BT Funds Management Limited (BTFM).
ASIC’s appeal concerned the earlier Federal Court’s decision regarding the meaning of ‘personal advice’ in the Corporations Act, including the finding that WSAL and BTFM did not provide personal advice to 15 customers in two telephone campaigns conducted by members of Westpac’s Super Activation Team.
The Full Court reversed that decision, finding that in calls to 14 of the customers, the Westpac staff did provide them personal advice, in breach of WSAL and BTFM’s Australian financial services licences.
The Full Court also found that WSAL and BTFM, by providing personal advice to their customers, failed to comply with other financial services laws in the Corporations Act, including the ‘best interests duty’.
The Court also dismissed WSAL and BTFM’s cross-appeal, thereby affirming the Federal Court’s finding that WSAL and BTFM, by engaging in the two sales campaigns, had failed to do all things necessary to ensure the financial services were provided efficiently, honestly and fairly.
In its statement, ASIC pointed to a number of criticisms of Westpac’s behavior.
“While unanimous in their decision, the members of the Full Court delivered separate reasons with Justice Jagot describing Westpac’s conduct as ‘systemic sharp practice about what must have been one of their clients’ major financial concerns, their superannuation’.
Other comments from the judgment include:
‘Westpac attempted, assiduously, to get the customer to make a decision to move funds to BT without giving personal financial product advice as defined in the legislation. It failed.’ (Chief Justice Allsop at [5])
‘Westpac took unfair advantage of that asymmetry by implementing a carefully crafted telephone campaign … The telephone campaign was directed to persons with whom Westpac had an existing relationship and in a real sense occupied a position of trust with respect to the customer’s superannuation fund. Despite knowing that the decision was not straightforward, Westpac did not advise its customers about the matters that they should consider before deciding to consolidate their superannuation. Nor did Westpac even suggest to its customers that they reflect on the decision or seek advice about the decision. Through the campaign, Westpac pursued its own self-interest and disregarded the best interests of its customers.’ (Justice O’Bryan at [427]),” ASIC pointed out.
Penalties for Westpac are yet to be determined by the court.
Westpac shares eased 0.2% yesterday to $28.99.
