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Senate inquiry turns up heat on Macquarie

Senate inquiry turns up heat on Macquarie Senate inquiry turns up heat on Macquarie
A Senate inquiry has called for the corporate regulator to put Macquarie Group's financial planning unit under ''intensive surveillance'' as concerns about shoddy practices in the industry spread beyond the scandal at Commonwealth Bank.

The Senate committee singled out Macquarie Private Wealth for extra attention, but said the Australian Securities and Investments Commission should also re-examine other financial businesses that have been of concern.

It has recommended a royal commission to investigate fraud, forgery and allegations of a cover-up inside the CBA's financial planning arm.

ASIC also faces a major overhaul, with a series of recommendations designed to turn it into a more transparent, active and accountable regulator.

This includes beefing up ''enforceable undertakings'' - court-backed promises by financial institutions to clean up their act when they are caught breaking market rules.

The Senate inquiry was sparked by a series of Fairfax Media reports about misconduct by financial planners at the Commonwealth Bank affecting the life savings of thousands of customers.

Under an enforceable undertaking the bank signed with ASIC, customers of two of its financial advice businesses, Commonwealth Financial Planning Limited (CFPL) and Financial Wisdom, received compensation from a bank scheme. However, the committee has called for the scheme to be reopened after serious flaws in its operation emerged.

In January 2013, Macquarie struck a similar enforceable undertaking with ASIC, pledging to clean up ''serious'' compliance deficiencies at Macquarie Private Wealth dating back to 2008.

Noting that Macquarie failed to report the breaches to ASIC, the committee said it was concerned there might be more to be uncovered at Macquarie Private Wealth.

''The committee is concerned with the efficacy of the enforceable undertaking entered into as a result of serious compliance deficiencies within Macquarie Private Wealth,'' it said in the report.

''Given that ASIC did not, until recently, fully understand how the CBA was implementing its compensation schemes for clients affected by the CFPL scandal, the committee doubts ASIC is fully aware of the Macquarie business and remediation process.''

National Party senator John Williams told the Senate there were serious concerns with Macquarie Private Wealth.

He urged ASIC to go in and ''right the wrongs'' and said that as with Commonwealth Bank and its financial planning scandal, where the bank has admitted it did the wrong thing, Macquarie needs to ''look in the mirror as well''.

The committee also noted that ASIC had recently expressed concerns about breaches at two other major groups - ANZ Custodians in 2009 and UBS Wealth Management in 2011.

Labor senator Mark Bishop, the committee's chairman, said the most important recommendation for ASIC's future was increasing the power of enforceable undertakings.

''At the moment they are reduced to writing,'' he said. ''This regulation would enable the regulator to go in and check [that] the EU is being completed and that organisational change is happening and culture is changing.''

Another key recommendation relates to education of financial planners.

''That is so important,'' Senator Bishop said.

In other recommendations, the committee said that company boards should appoint a designated director who is responsible for receiving and reporting violations of compliance to ASIC.

Among the 61 recommendations in the report are measures designed to improve the lot of whistleblowers by offering them rewards and strengthening laws protecting them from reprisal.

The committee also recommended that:

■ Financial advisers should have a university qualification, industry experience and sit an exam.

■ The Murray inquiry into the financial system should examine the regulation of investment products.

■ ASIC's performance should be monitored by the parliamentary joint committee on corporations and financial services.

■ The government should consider changing corporate insolvency law to bring in a regime that has features of the US' Chapter 11 regime, which gives greater protection to management and shareholders at the expense of creditors.

Author: Adele Ferguson and Ben Butler
Source: Sydney Morning Herald


Last modified onThursday, 26 June 2014 21:46

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