Australian Securities and Investments Commission v AMP Financial Planning Pty Ltd (No 2)

[2020] FCA 69

FEDERAL COURT OF AUSTRALIA

Australian Securities & Investments Commission v AMP Financial Planning Pty Ltd (No 2) [2020] FCA 69

File number:

NSD 1124 of 2018

Judge:

LEE J

Date of judgment:

5 February 2020

Catchwords:

CORPORATIONS – financial advice – “best interests obligations” – ss 961B, 961G and 961J of the Corporations Act 2001 (Cth) where six representatives of defendant licensee breached ss 961B, 961G and 961J (part of the best interests obligations) by providing advice to 40 clients to generate higher commissions (“churning”) – where some contravening conduct by representatives belatedly admitted by defendant licensee

CORPORATIONS – financial advice – obligation of financial services licensee under s 961L of Corporations Act 2001 (Cth) to take reasonable steps to ensure that its representatives comply with ss 961B, 961G and 961J – whether defendant licensee committed two, six, 18 or 120 contraventions of s 961L

PRACTICE AND PROCEDURE – pleadings – procedural fairness – whether it is open to Court to find number of contraventions not contended for until time of hearing

PRACTICE AND PROCEDURE – declarations – sufficient utility – where declarations of contraventions of s 912A(1) will not form basis for pecuniary penalties – whether there is a public interest in declaring that a person who has engaged in certain conduct has contravened the law – importance of the Court’s reasons in indicating Court’s disapprobation

PRACTICE AND PROCEDURE – contravening companies selecting large accounting firms to conduct remediation programmes – presentation of fait accompli to Court – dangers of subconscious partisanship and selection bias

Legislation:

Corporations Act 2001 (Cth) ss 912A, 912D, 961B, 961G, 961H, 961J, 961L, 1101B, 1317G, 1317E

Corporations Amendment (Further Future of Financial Advice Measures) Act 2012 (Cth)

Evidence Act 1995 (Cth) s 140

Federal Court of Australia Act 1976 (Cth) s 21

Cases cited:

Advan Investments Pty Ltd v Dean Gleeson Motor Sales Pty Ltd [2003] VSC 201

Ainsworth v Criminal Justice Commission [1992] HCA 10; (1992) 175 CLR 564

Athens v Randwick City Council [2005] NSWCA 317; (2005) 64 NSWLR 58

Australian Building and Construction Commissioner v Construction, Forestry, Mining and Energy Union [2017] FCAFC 113; (2017) 254 FCR 68

Australian Competition and Consumer Commission v ACM Group Limited (No 3) [2018] FCA 2059

Australian Competition and Consumer Commission v Coles Supermarkets Australia Pty Ltd [2015] FCA 330; (2015) 327 ALR 540

Australian Competition & Consumer Commission v Francis [2004] FCA 487; (2004) 142 FCR 1

Australian Competition and Consumer Commission v Goldy Motors Pty Ltd [2000] FCA 1885

Australian Competition and Consumer Commission v Meriton Property Services Pty Ltd (No 2) [2018] FCA 112

Australian Competition and Consumer Commission v Woolworths Ltd [2016] FCA 44

Australian Securities and Investments Commission v Australian Lending Centre Pty Ltd (No 3) [2012] FCA 43; (2012) 213 FCR 380

Australian Securities and Investments Commission vCassimatis (No 8) [2016] FCA 1023

Australian Securities and Investments Commissionv Dover Financial Advisers Pty Ltd [2019] FCA 1932

Australian Securities and Investments Commission v Financial Circle [2018] FCA 1644; (2018) 131 ACSR 484

Australian Securities and Investments Commission v Golden Financial Group Pty Ltd (No 2) [2017] FCA 1267

Australian Securities and Investments Commission v Hellicar [2012] HCA 17; (2012) 247 CLR 345

Australian Securities and Investments Commission v Maxwell [2006] NSWSC 1052

Australian Securities and Investments Commission v McDougall [2006] FCA 427; (2006) 229 ALR 158

Australian Securities and Investments Commission v NSG

Services Pty Ltd [2017] FCA 345; (2017) 122 ACSR 47

Australian Securities and Investments Commission v Wealth & Risk Management Pty Ltd (No 2) [2018] FCA 59; (2018) 124 ACSR 351

Australian Securities and Investments Commission v Westpac Banking Corporation (No 3) [2018] FCA 1701; (2018) 131 ACSR 585

Australian Securities and Investments Commission v Westpac Banking Corporation [2019] FCA 2147

Australian Securities and Investments Commissionv Westpac Securities Administration Limited [2019] FCAFC 187

Banque Commerciale SA, En Liquidation v Akhil Holdings Ltd [1990] HCA 11; (1990) 169 CLR 279

Carr v Western Australia [2007] HCA 47; (2007) 232 CLR 138

Commonwealth v Director, Fair Work Building Industry Inspectorate [2015] HCA 46; (2015) 258 CLR 482

Construction, Forestry, Mining and Energy Union v Cahill [2010] FCAFC 39

Construction, Forestry, Mining and Energy Union v De Martin & Gasparini Pty Limited (No 3) [2018] FCA 1395

CSR Ltd v Eddy [2005] HCA 64; (2005) 226 CLR 1

Dare v Pulham [1982] HCA 70; (1982) 148 CLR 658

Director of Public Prosecutions v Merriman [1973] AC 584

Gjergja & Atco Controls Pty Ltd v Cooper [1987] VR 167

Ibeneweka v Egbuna [1964] 1 WLR 219

Invensys Australia Superannuation Fund Pty Ltd v Austrac Investments Limited [2006] VSC 112; (2006) 15 VR 87

Markarian v The Queen [2005] HCA 25; (2005) 228 CLR 357

NW Frozen Foods Pty Ltd v Australian Competition and Consumer Commission [1996] FCA 1134; (1996) 71 FCR 285

Panganiban and Australian Securities and Investments Commission [2017] AATA 1026

Precision Plastics Pty Limited v Demir [1975] HCA 27; (1975) 132 CLR 362

R v Industrial Appeals Court; Ex parte Barelli’s Bakeries Pty Ltd [1965] VR 615

Vines v Australian Securities and Investments Commission [2007] NSWCA 75; (2007) 73 NSWLR 45

Revised explanatory memorandum to the Corporations Amendment (Further Future of Financial Advice Measures) Bill 2012 (Cth)

Victorian Law Reform Commission, Civil Justice Review: Report, 2008   

Date of hearing:

19, 20 June, 26 July, 1 October 2019

Registry:

New South Wales

Division:

General Division

National Practice Area:

Commercial and Corporations

Sub-area:

Regulator and Consumer Protection

Category:

Catchwords

Number of paragraphs:

263

Counsel for the Plaintiff:

Dr S Pritchard SC with Mr J Hewitt & Ms S Patterson

Solicitor for the Plaintiff:

Australian Securities & Investments Commission

Counsel for the Defendant:

Ms E A Collins SC with Mr I J M Ahmed & Ms K N Pham

Solicitor for the Defendant 

Clayton Utz

ORDERS

NSD 1124 of 2018

BETWEEN:

AUSTRALIAN SECURITIES & INVESTMENTS COMMISSION

Plaintiff

AND:

AMP FINANCIAL PLANNING PTY LTD

Defendant

JUDGE:	LEE J
DATE OF ORDER:	5 FEBRUARY 2020

THE COURT ORDERS THAT:

1.On or by 12 February 2020, the parties provide to the Court an agreed minute of order reflecting these reasons for judgment or, in the absence of agreement, competing minutes of order identifying the orders for which the parties contend.

2.In the event orders cannot be agreed, the proceeding is to be listed on a date to be notified by the Associate to Justice Lee for the purposes of the Court receiving the submissions of the parties as to the competing orders.

Note:   Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

REASONS FOR JUDGMENT

LEE J:

A        PRELIMINARY OBSERVATIONS: A FAILURE OF COMPLIANCE	[1]
B        ENFORCEMENT ACTION BY ASIC	[23]
B.1  ASIC investigation	[23]
B.2  Commencement of the proceeding	[29]
C        AGREED FACTUAL BACKGROUND	[38]
C.1  AMPFP’s Business and the AMP Group	[39]
C.2  Rewriting Conduct	[45]
D        RELEVANT STATUTORY NORMS	[46]
D.1 Section 961L	[47]
D.2 Section 912A(1)	[51]
D.3 Section 961B	[52]
D.4 Section 961G	[53]
D.5 Section 961J	[54]
E        AGREED OPINIONS OF THE EXPERTS	[55]
E.1  The Questions	[55]
E.2  Steps in relation to Panganiban	[56]
E.3  Steps in relation to Other Authorised Representatives	[63]
F         SCOPE OF DISPUTES	[66]
G        FINDINGS AS TO THE REMAINING DISPUTED ISSUES	[68]
G.1 Did AMPFP have reason to believe that the Rewriting Conduct was “common”?	[68]
I   ASIC submissions	[69]
II AMPFP submissions	[72]
III           Conclusions as to commonality of conduct and knowledge	[78]
G.2.            How many contraventions of s 961L?	[89]
I   The competing contentions	[90]
II            A preliminary issue	[92]
III           Three observations as to the construction of s 961L	[104]
IV           Prior authority on s 961L	[108]
V Consideration of ASIC’s primary case	[115]
VI           Consideration of AMPFP’s case: two contraventions	[126]
VII         ASIC’s alternatives: six or 18 contraventions	[134]
G.3  Follow on declarations: contraventions of ss 912A(1)(a), (c) and (ca)	[142]
H        PENALTIES	[154]
H.1 Pecuniary penalties	[154]
I   Introduction and relevant principles	[154]
II Objective factors that concern the seriousness of the contraventions	[162]
The extent to which the contravention was the result of deliberate, covert or reckless conduct, as opposed to negligence or carelessness	[164]
Whether the contravention comprised isolated conduct, or was systematic or occurred over a period of time	[169]
Seniority of the officers responsible for the contravention	[171]
The existence, within the corporation, of compliance systems and whether there was a culture of compliance at the corporation	[175]
The impact or consequences of the contravention on the market or innocent third parties	[179]
The extent of any profit or benefit derived as a result of the contravention	[181]
III           Subjective factors that concern the particular circumstances of AMPFP	[182]
The size and financial position of the contravening company	[182]
Whether the company has been found to have engaged in similar conduct in the past	[187]
Whether the company has improved or modified its compliance systems since the contravention	[188]
Whether the company (through its senior officers) has demonstrated contrition and remorse	[192]
Whether the company had disgorged any profit or benefit received as a result of the contravention, or made reparation	[197]
Whether the company has cooperated with and assisted the relevant regulatory authority in the investigation and prosecution of the contravention	[199]
Whether the company has suffered any extra-curial punishment or detriment arising from the finding that it had contravened the law	[201]
IV           Are any difficulties AMPFP had in detecting Rewriting Conduct that contravened the relevant best interests obligations material matters affecting the assessment of penalty?	[202]
V Further matters	[206]
VI           Pecuniary penalty	[212]
H.2      ORDERS UNDER SECTION 1101B	[236]
I   The Court’s power under s 1101B	[236]
II Development of AMPFP’s position on a remediation programme	[239]
III           Backward-looking: review and remediation programme	[244]
IV           Forward-looking: compliance plan	[256]
I          CONCLUSION AND ORDERS	[263]

A        PRELIMINARY OBSERVATIONS: A FAILURE OF COMPLIANCE

1. During the course of oral submissions, the defendant, AMP Financial Planning Pty Ltd (AMPFP), contended that there was insufficient evidence for the Court to find that there was a deficient “culture of compliance” within AMPFP at material times. Despite this submission, AMPFP was chary in contending “positively” that an adequate compliance culture existed. For reasons that will become obvious, AMPFP was right to be hesitant.

2. A “culture of compliance” is an amorphous concept. But whatever it actually means, it must transcend simply putting in place expensive “systems”; or it must be more than persons, whose titles include terms such as “governance” and “compliance”, declaiming platitudes. One might question the point of such structures and roles in a company, if the corporate will to do the right thing is absent. For generations, many successful financial institutions did not need “values statements” setting out bromides; nor was it thought necessary to have an array of compliance executives with highfalutin titles; those responsible simply ensured their employees or representatives dealt with customers in a manner reflecting an instinctive institutional commitment to playing with a straight bat. At bottom, as I will explain, 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.

3. By September 2014, Rommel Panganiban had been providing financial product advice as an authorised representative of AMPFP for some time. During at least some of that period, he engaged in conduct which, to any right-thinking person, was morally indefensible. Persons within AMPFP knew about the conduct and yet did not take, or even attempt to take, immediate steps to stop it. This occurred notwithstanding that some within AMPFP had a sufficient moral compass to recognise the conduct was wrong and, as AMPFP now accepts, the conduct amounted to a serious breach of the law.

4. What Panganiban was doing, repeatedly, was engaging in a form of “churning”. He was advising his clients to apply for new insurance products issued by AMP Life Limited (AMP Life). With one apparent exception, his conduct involved a practice of cancelling the client’s existing insurance. Hence, rather than advising his clients to transfer their existing cover (or, for existing AMP Life insureds, advising them to retain their existing cover), he arranged for his clients to sign cancellation letters and then, some days later, arranged for an application for new insurance to be submitted to AMP Life, which stated that the client did not have other AMP Life insurance in force or was not eligible for insurance transfer. In these reasons, I refer to this delinquency as Rewriting Conduct.

5. The motivation for this conduct is as obvious as it is unworthy: by exposing his clients to the attendant risks and other disadvantages of his conduct, Panganiban was entitled to a substantially higher commission.

6. AMPFP has admitted that at all material times during the period from July 2013 to September 2014, it ought reasonably to have known that Panganiban had engaged in this wrongful conduct. Given the evidence canvassed below, such an admission was inevitable. But let us presently leave to one side laggardly recognition of lapses made in the wake of regulatory scrutiny. To adapt a quotation often misattributed to C S Lewis: governance is taking steps to ensure the right thing is done, even when no one else is watching. What actually happened contemporaneously? How did the powers-that-be within AMPFP react when they first became aware something was amiss?

7. The evidence discloses the following timeline leading up to AMPFP eventually taking steps to prevent the conduct of Panganiban continuing:

   (1)In December 2012, a Senior Underwriter for AMP Life, Mr Todd Traynor, who had been dealing with an application for insurance submitted on behalf of one of Panganiban’s clients, sent an email to a Product Manager for AMP Life, in which Mr Traynor recounted a conversation with Panganiban and requested advice as to whether Panganiban would be entitled to full commission because the client was cancelling rather than transferring cover; in response, the Product Manager (after stating that she had spoken with her manager) said that “unfortunately we have no way to stop” the conduct occurring and confirmed that full commission was payable to Panganiban, although admitted that there was “no reason to do this” and offered to notify the “dealer group” of the practice.

   (2)In February 2013, AMP’s Planner Supervision team (responsible for investigating adviser issues) was forwarded details of 11 randomly selected applications for insurance made by Panganiban on behalf of his clients; the email from Mr Matthew Buckler (Team Manager, New Business) indicated that the applications were “very suspicious”.

   (3)In around February 2013, Ms Jane Gregory, a Planner Supervision consultant within the Planner Risk and Compliance area, commenced an investigation into Panganiban’s conduct and forwarded information to Fraud Risk, AMP; shortly thereafter, in March 2013, Ms Gregory had a conversation with Mr Traynor which was recorded in Ms Gregory’s contemporaneous note as follows:

   [Mr Traynor] advised that a planner is able to transfer the insurance from the FLS to FS on a like for like or decrease basis without any underwriting however no commission is paid.

   However there is nothing stopping a planner cancelling the client’s insurance in the FLS and submitting a new insurance application within the FS, however this would be fully underwritten but the planner would receive 100% commission.

   He commented that this seems to be a common scenario and one that he has questioned – i.e. why cancel the existing insurance & underwrite if a straight transfer would avoid the underwriting. However the product team have confirmed that a planner is able to do this as long as the client is happy to be underwritten again.

   (emphasis added)

   (4)On 13 March 2013, Ms Gregory sent an email to those undertaking the fraud investigation recounting her call with Mr Traynor and noting there “is a motivator for a planner to do the cancellation” but subsequently the fraud investigation was completed with a finding that no element of fraud had been identified: but a further review by the Planner Supervision team was recommended, which was then conducted by Ms Gregory who spoke to Mr Murray Fogarty (AMPFP’s Head of Financial Planning), updating him on the investigation.

   (5)During the same period, Panganiban was audited as “part of AMPFP’s regular program[me] of conducting audits of its Authorised Representatives”; and he was given – remarkable as it seems – “a green 4” rating (the second highest rating possible).

   (6)By mid-June 2013, Ms Gregory had informed Mr Peter Bennett (Enterprise Risk Manager, AMP Advice) that: (a) “[w]e seem to be encouraging this behaviour with our current commission model i.e. 100% on commencement of a new plan but 0% on an internal insurance transfer”; (b) her inquiries to date confirmed “that this is acceptable” and she had not been able to provide a policy “which outlines that this is not acceptable”; (c) she had been told by New Business “that this practice is wide spread”; and she sought Mr Bennett’s opinion “on whether this should be raised further as a licensee incident”.

   (7)Ms Gregory, who had at least shown some degree of diligence, was then moved to a different role within AMP but, on 19 June 2013, Mr Bennett forwarded the communications from her to Ms Robyn West (Manager Policy, Professional Standards and Strategy) noting Mr Bennett’s concern as to “churning” and then, following a number of emails and discussions, nothing really happened (notwithstanding Panganiban was continuing his activities).

   (8)Then, in October 2013, Mr Buckler (who it will be recalled had been raising his concerns about Panganiban since February that year) emailed Mr David Pearson (Head of New Business & Underwriting) noting that he had an issue with Panganiban “always cancel[ling] existing insurance before he applies for new insurance” and getting paid 100% commission; he repeated these concerns to other higher-ups at AMPFP (including Ms Natalie Gatley, Manager Retail Risk Product Operations) later in the month, and in November 2013; in one such email, he extracted an earlier email he had received from Mr Traynor as early as late 2012 alerting him to Panganiban’s behaviour, which contained the following statement “[t]hey should NOT be allowed to do this as it is not right by the client BUT as per below unfortunately nothing we can do”; one of the higher-ups responded by requesting the name of the advisor and further information, both which Mr Buckler provided, but there is no evidence of any substantive or prompt response.

   (9)Fast forwarding to mid-June 2014, concerns were again raised about Panganiban; notwithstanding this, bizarrely, in August 2014, the regularly-scheduled audit of Panganiban gave him a “B” rating (the second highest of the five possible). One might interrupt the narrative to remark that the mind boggles to envisage what one needed to do to get an “E”.

   (10)Eventually, Mr James Coroneos, an “Advice Governance Manager”, became involved in the investigation, and on 12 September 2014 he met with Mr Sam Naddaf, the principal of Panganiban’s employer, and Panganiban (together with Mr Fogarty and Ms Anjum Singh, a “Business Partnership Manager”); a file note recorded Panganiban’s attempts to justify his conduct, his fears about losing his job and how this would impact upon his family; in the course of discussions, on at least two occasions, Panganiban showed sufficient self-awareness to admit that “stupidity and greed” was an apt description of his behaviour.

   (11)Finally, well after two-and-a-half years after Mr Traynor first remarked the conduct of Panganiban was contrary to the interests of clients and ought not to be tolerated, on 15 September 2014, Panganiban’s Authorised Representative status was formally revoked by AMPFP.

1. Enter the “Issues Panel”. This Panel was made up of what were described by the parties as “a number of key voting stakeholders” (sic) including, among others, the Head of Advice Compliance; the Director, Client Solutions and Advice Services; and the National Manager Advice Governance. It also had “non-voting Business Advisory members” that included the “Head of Legal”.

2. On 30 September 2014, a “Special Issues Panel Meeting” was convened for the purpose of considering issues arising from Panganiban’s conduct. The attendees were: Ms Ann Turner (Head of Advice and Bank Legal – an obscure title, but I assume it refers to AMPFP’s most senior in-house solicitor), Ms Claudia Firmansjah (AMP’s National Advice Governance Manager), Ms Singh (Business Partnership Manager), Mr Chris Scott (National Manager Advisory Services and Quality Advice), Mr Gerard Mithen (Senior Manager ERM) and Mr Coroneos. The minutes of that meeting reveal Mr Scott noting there was “evidence of churning within the one product” with Mr Mithen asking: “are we satisfied in the audit programme”? After the participants agreed “there would be more time required to assess significance”, Mr Scott asked if there were “any obvious learnings from this” and added that it was “positive that the sales areas were consistent in their response”.

3. On 1 October 2014, a second meeting was held “to discuss if the matter [of Panganiban] was reportable to [the Australian Securities & Investment Commission (ASIC)] as a significant breach”. The minutes record one attendee observing that the issue of Panganiban’s conduct in cancelling insurance had been raised with the licensee (that is, AMPFP) in the past, and another observed that Panganiban was “clearly writing a bucket load of business and it was possible there was a reluctance (on the Licensee’s behalf) to reprimand a productive adviser” and that AMPFP had failed to get to the heart of the matter. Another attendee expressed the view that “[t]here are too many clients not to report”, and that all attendees agreed that the matter should be reported to ASIC “due to the length of time taken to get here (issue identified and adviser behaviour stopped)”.

4. The following day, Ms Firmansjah sent an email to Mr Simon Wallace, who was AMP’s Director of Client Solutions and Advice Services. In that email, Ms Firmansjah set out a summary of the “matter” relating to Panganiban, and the recommendation of the Panel. Ms Firmansjah set out a history of events concerning Panganiban in 2013 and 2014. Then, under the heading “Recommendation”, she stated that the Panel “is of the view that the matter is reportable” to ASIC because, in summary: (a) the response to the issue being raised in February 2013 was not “timely, effective and thorough”; (b) there was a “gap in effectiveness” in being able to “identify and bring to an end any undesirable actions by an adviser”, and the implications from the large volume of cancelled policies “was overlooked until recently”; and (c) there was a high volume of transactions where clients were not covered during cancellation and there was no continuity of cover, and in some instances clients had “lesser terms”, in the form of loadings and exclusions, compared to their original policy, with the result that there “may” be cases where clients are disadvantaged and the number of policies involved is “quite high”. This email was copied to Mr Coroneos, Ms Turner, Mr Scott and Mr Mithen.

5. Belatedly, but at least insofar as the Issues Panel is concerned, so far, so good. Leaving aside questions of legal obligation, although tardy, the proposed course now fastened upon was part of an appropriate and responsible remedial response and should have prompted a thorough investigation as to the real extent of wrongdoing that was necessary to report. But the story was not over.

6. What then happened is unexplained on the evidence. Notwithstanding the recommendation of the Issues Panel, it met again on 16 October 2014. But this time the attendees changed. Indeed, Mr Michael Guggenheimer, the Managing Director of AMPFP, attended, as did a number of other senior persons being: Mr Helmich (Director Financial Planning, Advice & Service), Mr Simon Wallace (Director, Client Solutions and Advice Services), Mr Murray Fogarty (Head of Financial Planning) and Ms Marilena Cozzolino (Executive Legal Counsel). How this last attendee’s role related to that of Ms Turner was not explained. Ms Firmansjah, (who had sent the email to Mr Wallace and others referring to the recommendations of the earlier Panel) was also present.

7. All or most of the participants in the further meeting were persons at the very top of the organisation – they had important responsibilities. What did this reconstituted Issues Panel do?

8. Draft minutes of this meeting record that the purpose of the meeting was to again consider, in relation to Panganiban’s conduct, if there were a “licensee breach” and if so whether the breach was “significant”. This was important because s 912D of the Corporations Act 2001 (Cth) (Act) obliged an Australian financial services licensee to report to ASIC significant breaches (or likely breaches) of its obligations under the financial services laws. The term “significant” was not defined in the Act, but Regulatory Guide 78 Breach Reporting by AFS Licensees, published in February 2014 provided examples of breaches which might be regarded as being significant.

9. What the minutes of the reconstituted Issues Panel record is that it was agreed that “the matter is not a breach” and hence was not reportable, and that the recorded reasons for this position were as follows: (a) “due process” was followed in the 2013 “investigation” and the matter was closed in 2013 based on the “assessment and findings at that time”; (b) the 2014 investigation had resulted in Panganiban being terminated; and (c) he would be reported to ASIC as a “bad apple”.

10. This “bad apple” reporting then occurred. On 3 November 2014, AMPFP provided a “bad apple” letter to ASIC. Curiously, it did not mention Panganiban by name. Also, tellingly, the letter omitted to mention the approximated scale of Panganiban’s conduct, which in an internal email from Mr Coroneos sent a few days prior was estimated to affect 161 clients. It was addressed to Mr Trevor Clarke of ASIC and was sent by Mr Wallace (who, it will be recalled, had received Ms Firmansjah’s summary of the recommendation of the first Issues Panel and attended the reconstituted Issues Panel meeting). There may have been some prior dealings or communications between Mr Wallace and Mr Clarke but there was no evidence adduced of them and it probably does not matter: all that is apparent from the letter is that Mr Wallace was sufficiently familiar with Mr Clarke to adopt the salutation “Dear Trevor”. In any event, he wrote to him in the following terms:

    Re: Issue of concern with a former authorised representative

    [AMPFP] has identified a matter of concern in relation to a former authorised representative. We consider the matter serious and wish to bring the details to the attention of [ASIC] as to how we are resolving this identified matter and whether the individual should be able to represent a licensee in the future to provide financial services.

    The individual concerned was terminated as an authorised representative of AMPFP in September 2014 for cancelling in-force AMP insurance cover for a number of clients and replacing it within a fortnight via a new application for AMP insurance cover.

    AMPFP is in the process of undertaking an analysis on identified clients. On completion of this analysis, we intend to contact impacted clients to highlight any areas of concern found as a result of the analysis. AMPFP will also provide an invitation for the impacted clients to come for a review of their circumstances at no cost to them. The clients’ current circumstances will guide the most appropriate remedial actions.

    The seriousness of this matter leads AMPFP to be concerned that this former authorised representative should not be in a position to continue to advise clients on their personal financial situation.

    For this reason, we will report this authorised representative’s conduct to ASIC as per its guidance on ‘tip offs information of concern and reports of misconduct’.

    Please contact me directly on [… ] or email [… ] if you have further questions.

    Yours sincerely,

    Simon Wallace

    Director, Client Solutions and Advice Services

11. The use of the idiom “bad apple” by the reconstituted Issues Panel to describe this letter seems to me significant. When adopted, idioms, derived from proverbs, convey a concise idea graphically, and the idea is given force by the use of metaphorical figure of speech. What the reconstituted Issues Panel was seeking to do was to convey to ASIC the notion that having recognised an isolated problem (the bad apple), action was being taken to ensure it did not pollute or spread more widely (to the barrel of otherwise good apples). The letter was aptly named and was sent to convey the notion settled upon by the reconstituted Issues Panel. On the evidence before me, in the absence of a proper and thorough investigation, there was no basis, let alone a reasonable basis, for the idea to be conveyed to ASIC that there was an isolated “bad apple”.

12. Returning to the conduct of AMPFP back in October 2014, senior counsel for AMPFP submitted that the reconstituted Issues Panel that met on 16 October 2014 simply “missed the point”. As I observed during the course of the hearing, a more realistic conclusion is that they understood the point, and they understood it with a crystal-clear clarity. This was not “missing the point”; it was evidently an exercise in damage control.

13. It was evidently obvious to the first Issues Panel that there was a “gap in effectiveness” in being able to “identify and bring to an end any undesirable actions by an adviser”. In these circumstances, and given the first Issues Panel was of the view “that the matter [was] reportable” to ASIC under s 912D and recommended accordingly, and yet it was apparently thought, by those at the top of the organisation, that it was appropriate to revisit this course, it might be said that this incident raises some important questions.

14. But I must not go beyond the issues as framed by the parties. It is important to stress that ASIC does not ask me to make findings that this conduct amounted to any breach of s 912D. Given the possible consequences that can flow from a breach of this statutory norm, it is inappropriate for me to draw a legal conclusion as to whether there was, in fact, an obligation to report in accordance with the section in all the circumstances. In fairness to all concerned, there may be additional evidence that bears upon the conduct of those concerned that was not adduced because it was thought by the parties to this proceeding as being irrelevant to the facts in issue in this case. But two things are pellucid: first, far from minimising the conduct of Panganiban as a “bad apple”, as AMPFP now accepts, it should have taken steps (indeed at a stage far earlier than at the stage of the first Issues Panel) to determine the extent and seriousness of the Rewriting Conduct with a view to identifying evidence of such behaviour in the wider representative network and assessed what changes were needed to improve existing controls to prevent and detect such conduct.

15. Secondly, given the state of the evidence, the submission of AMPFP that I should be satisfied that this conduct of the reconstituted Issues Panel is explicable as simply “missing the point” is one I emphatically reject. As it is, these singular circumstances are relevant to the submission made by ASIC that during this period AMPFP did not have an adequate “culture of compliance”, which is a submission that should be accepted. It is also relevant to note that even when senior management at the highest level became involved, the necessary steps were not undertaken by AMPFP, and there remained a failure to take reasonable steps to ensure Rewriting Conduct did not continue to occur in the broader network.

    B        ENFORCEMENT ACTION BY ASIC

    B.1     ASIC investigation

16. There was no direct evidence of what ASIC immediately did or did not do with the “bad apple” letter. Despite this, it is possible to infer there were some relevant communications between AMPFP and ASIC shortly after the dispatch of the letter, because in evidence is a later internal email from Mr Coroneos dated 14 November 2014:

    As mentioned, the time frame will not be as tight given we now have a definitive number for our initial response to ASIC. It would be appreciated if you could please provide the additional client information by the end of the month. As soon as I know what ASIC has requested, I will let you know as this may influence the timeframe and ease the pressure on your team.

17. However, leaving aside this Delphic communication, and despite AMPFP calling Mr Coroneos and Ms Firmansjah, the extent of any immediate investigation by ASIC to follow up the “bad apple” letter directly is not entirely clear. That said, the following can be gleaned by piecing together what is in evidence as to subsequent events.

18. From about early February 2015, AMPFP received a number of statutory notices from ASIC seeking information about Panganiban’s conduct and whether any other advisors had engaged in the same conduct. Between 2015 and 2016, Mr Coroneos was tasked by Ms Firmansjah with responding to the notices, including gathering the relevant information and drafting the responses.

19. Importantly, in August 2015, it seems that ASIC considered the possibility that the Rewriting Conduct at AMPFP may go beyond Panganiban, as it issued a notice seeking, among other things, the names and details of all representatives who had engaged in what it described as “the conduct,” namely “the provision of financial services to retail clients which resulted in insurance benefits held within an AMP superannuation product being cancelled and ‘rewritten’ rather than an internal insurance transfer occurring”.

20. In its responses to the August 2015 notice, AMPFP held fast to its position (purportedly based on its internal investigations supervised by Mr Coroneos) that there was no evidence that other advisers had engaged in Rewriting Conduct. In doubling-down on the “bad apple” assertion, to quote from the conclusion of AMPFP’s 1 October 2015 response letter: “[AMPFP] concluded that Rommel Panganiban’s behaviour was an isolated and unique case”.

21. In August 2016, ASIC made a banning order which prohibited Panganiban from providing financial services. Just under a year later, in July 2017, that banning order was affirmed by the Administrative Appeals Tribunal: Panganiban and Australian Securities and Investments Commission [2017] AATA 1026. It was also about this time that AMPFP provided its response to what would appear to be the final statutory notice issued by ASIC in June 2017.

    B.2     Commencement of the proceeding

22. Despite AMPFP’s “conclusion”, commendably, ASIC appears to have shown some persistence and by June 2018, when this proceeding was commenced, ASIC had reached a different view to that held by AMPFP as to whether the Rewriting Conduct was isolated to Panganiban: its statement of claim (SOC) alleged that five other authorised representatives engaged in Rewriting Conduct in contravention of ss 961B, 961G and 961J (relevant best interests obligations) in relation to advice provided to 10 clients (Clients 31-40). These authorised representatives were Mr James McCarthy, Mr Darron Mink, Mr Geoffrey Needs, Mr David Fong and Mr Calvin Barlow.

23. ASIC further alleged contraventions by AMPFP of s 961L of the Act: in relation to its failures to take reasonable steps to ensure Panganiban’s compliant behaviour, the contravening conduct is said to occur between 1 July 2013 and prior to September 2014; and in relation to its failures to take reasonable steps to ensure that authorised representatives other than Panganiban (Other Authorised Representatives) engaged in compliant behaviour, these failures occurred during the period 1 July 2013 to 30 June 2015 (Relevant Period). The s 961L norm, set out in Section D.1 below, required AMPFP to take reasonable steps to ensure that authorised representatives complied with the relevant best interests obligations in relation to insurance products (AMP Life Products) issued by AMP Life, including insurance products with death cover, total and permanent disablement cover, trauma cover and income protection cover. ASIC also alleged AMPFP contravened s 912A(1) of the Act, being set out in Section D.2 below.

24. A range of relief is sought by ASIC. This includes declarations pursuant to s 1317E(1) of the Act in respect of AMPFP’s contraventions of s 961L of the Act and declarations pursuant to s 21 of the Federal Court of Australia Act 1976 (Cth) (Federal Court Act) in respect of AMPFP’s contraventions of s 912A of the Act. The imposition of pecuniary penalties pursuant to s 1317G(1E) of the Act and orders pursuant to s 1101B(1) of the Act are also sought.

25. AMPFP filed its defence on 18 September 2018. It admitted the contravention alleged in the SOC at [24], namely that during the Relevant Period prior to September 2014, in contravention of s 961L of the Act, AMPFP failed to take reasonable steps to ensure that Panganiban complied with ss 961B, 961G and 961J of the Act. It further admitted the contraventions alleged in the SOC at [27], [28] and [29], insofar as those paragraphs alleged that AMPFP had contravened ss 912A(1)(a), 912A(1)(c), and 912A(1)(ca) in relation to Panganiban. What AMPFP disputed, however, was that it had failed to take reasonable steps to ensure that the Other Authorised Representatives, complied with ss 961B, 961G and 961J of the Act.

26. As late as March 2019, when AMPFP filed and served its evidence, AMPFP’s position had not changed. Ms Firmansjah’s sworn evidence was that she was not aware of anything to suggest that the Rewriting Conduct was widespread, nor did she see or become aware of any cases of other advisers engaging in Rewriting Conduct. Similarly, Mr Coroneos said that, since the investigation, he had not come across any advisers that engaged in Rewriting Conduct.

27. By a letter from its solicitors, Clayton Utz, dated 16 May 2019 and marked as Exhibit A, AMPFP advised ASIC that all of the alleged contraventions of the Act are admitted. In particular, AMPFP admitted that it contravened, inter alia, s 961L of the Act during the Relevant Period in that it failed to take reasonable steps to ensure that Other Authorised Representatives complied with ss 961B, 961G and 961J of the Act. This volte-face took place after service of a Joint Expert Report (JER), discussed at Section E below; indeed, in Exhibit A, AMPFP’s solicitors made plain that the further admissions were made “(i)n the light of the conclusions expressed in the [JER]”.

28. Based on the admissions made in May 2019 by AMPFP in relation to Clients 31-40 and its conduct in relation to the Other Authorised Representatives, AMPPF’s initial and repeated assertion as to the ambit of the impugned conduct was shown to be wrong. In an affidavit filed in June 2019, the evidence of Ms Sarah Britt, Head of Advice Compliance, was now that she had not seen any evidence of Rewriting Conduct other than by Panganiban and in respect of Clients 31-40, by a subset of five of the Other Authorised Representatives identified at [29] above. She further stated that she accepted that there may be instances of yet to be detected Rewriting Conduct across AMPFP’s network.

29. I confess to being perturbed by the doggedness of AMPFP in maintaining that the Rewriting Conduct was isolated to the “bad apple” Panganiban in circumstances when insufficient investigation had been undertaken to provide a secure (and hence reasonable) foundation to do so. In part, this position of “holding the line” may have been a consequence of the fact that the investigatory efforts which AMPFP relied on in support of its position were beset with flaws that impeded their effectiveness (see [63(2)] below), and will only be completed thoroughly pursuant to s 1101B orders to be made by this Court.

1. I will address the questions that remain in the proceeding under the following headings:

   ·Section C       AGREED FACTUAL BACKGROUND

   ·Section D       RELEVANT STATUTORY NORMS

   ·Section E       AGREED OPINIONS OF THE EXPERTS

   ·Section F       SCOPE OF DISPUTES

   ·Section G      FINDINGS AS TO THE REMAINING DISPUTED ISSUES

   ·Section H       PENALTIES

   ·Section I        CONCLUSION AND ORDERS

   C        AGREED FACTUAL BACKGROUND

2. While I have summarised some of the agreed factual background in my preliminary observations, it is useful to turn initially to findings as to uncontroversial factual matters that should be recorded.

   C.1     AMPFP’s Business and the AMP Group  

3. In 2011, AMP and AXA Asia Pacific Holdings Ltd (AXA) merged by way of a scheme of arrangement under which AXA was acquired by AMP. After the merger between AMP and AXA, there was a “harmonisation” process to bring the two parts of the organisation together. For the years 2012 and 2013, AMP had two major divisions reporting to the CEO. These were AMP Financial Services and AMP Capital. All of the activities relating to both the issuance of products (life insurance, superannuation, retail investment, wrap products and the like) and licensees, planners and advice were under the AMP Financial Services division. For the year ended 31 December 2014, the major divisions of AMP that reported to the CEO were Insurance and Superannuation, Advice and Banking and AMP Capital. By this restructure (from 2013 to 2014), AMP separated “product” activities from “advice” activities.

4. AMPFP is part of the AMP Group which includes AMP Life. During the Relevant Period, AMPFP held an Australian Financial Services Licence (AFSL) granted pursuant to s 913B of the Act and authorised representatives provided personal advice to retail clients on behalf of AMPFP. Division 2 of Pt 7.7A of the Act (which includes the relevant best interests obligations) applied to the advice as of 1 July 2013. As noted above, the authorised representatives provided advice to clients in relation to AMP Life Products.

5. AMPFP had a network of 1,600 authorised representatives at material times and “AMP aligned” advisers made applications to AMP Life for approximately 20,000 insurance policies in each year.

6. As would by now be clear, AMPFP does not issue insurance or other products. The products that AMPFP’s authorised representatives could recommend to clients are from a number of product issuers, and are not limited to AMP products. The Planner Supervision team (subsequently called Advice Governance, and more recently, Advice Compliance) is within the same division of the group as AMPFP, Wealth Management.

7. AMP Life, however, provides wealth management products and life insurance products to clients. It does so by designing and issuing those products itself. It is AMP Life (not AMPFP) which is responsible for setting the transfer rules in relation to products that it issues. The Product, New Business and Underwriting teams are part of AMP Life. AMP Life was responsible for setting the commissions that are payable in respect of its products, and does so on an industry-wide basis (that is, without regard to whether the person recommending its product is an AMPFP authorised representative or an authorised representative of some other financial adviser).

8. The relationship between AMPFP and AMP Life, insofar as it concerns the sale of AMP Life products, is governed by contract. AMPFP in turn contracts with its authorised representatives, and also corporate authorised representatives (such as Benidion Financial Services Pty Ltd (Benidion), Panganiban’s employer).

   C.2     Rewriting Conduct

9. I have provided (at [4] above) a concise definition of Rewriting Conduct, but a more complete definition was agreed by the parties. It was the provision of advice by an authorised representative of AMPFP to a client in circumstances where:

   (a)the client had insurance cover in the form of an existing AMP Life Product (existing cover);

   (b)the client replaced or sought to replace the existing cover by applying for insurance cover in the form of a replacement AMP Life Product;

   (c)there was a requirement for underwriting in respect of the replacement AMP Life Product;

   (d)either:

   (i)the existing cover was cancelled or lapsed; or

   (ii)the existing cover was ultimately neither cancelled nor lapsed but it was recommended that the client replace or seek to replace the existing cover;

   (e)transfer from the existing cover to the new cover was available; and

   (f)the authorised representative failed to advise the client to undergo transfer in circumstances where transfer was available.

   D        RELEVANT STATUTORY NORMS

10. As noted above, the contravening conduct is now agreed; however, the number of contraventions is hotly disputed. The determination of the number of contraventions requires close analysis of the relevant statutory norms; I will turn to this task later in this judgment, but it is useful for me at this point to set out the relevant (and interrelating) provisions.

    D.1      Section 961L

11. Section 961L of the Act is in the following terms:

    A financial services licensee must take reasonable steps to ensure that representatives of the licensee comply with sections 961B, 961G, 961H and 961J.

12. Section 961L is in Pt 7.7A of the Act which was introduced by the Corporations Amendment (Further Future of Financial Advice Measures) Act 2012 (Cth).

13. I note that a “representative” of the financial services licensee is, for the purposes of Pt 7.7A, defined by s 960 as having the same meaning as in Pt 7.6, defined in s 910A as follows:

    “representative” of a person means:

    (a) if the person is a financial services licensee:

    (i) an authorised representative of the licensee; or

    (ii) an employee or director of the licensee; or

    (iii) an employee or director of a related body corporate of the licensee; or

    (iv) any other person acting on behalf of the licensee; or

    (b) in any other case:

    (i) an employee or director of the person; or

    (ii) an employee or director of a related body corporate of the person; or

    (iii) any other person acting on behalf of the person.

14. As authorised representatives of AMPFP, Panganiban and the Other Authorised Representatives are “representatives” of the financial services licensee by combined operation of ss 960 and 910A of the Act.

    D.2      Section 912A(1)

15. Section 912A(1) of the Act is in the following terms:

    (1) A financial services licensee must:

    (a) do all things necessary to ensure that the financial services covered by the licence are provided efficiently, honestly and fairly; and

    (aa) have in place adequate arrangements for the management of conflicts of interest that may arise wholly, or partially, in relation to activities undertaken by the licensee or a representative of the licensee in the provision of financial services as part of the financial services business of the licensee or the representative; and

    (b) comply with the conditions on the licence; and

    (c) comply with the financial services laws; and

    (ca) take reasonable steps to ensure that its representatives comply with the financial services laws; and

    (cb) if the licensee is the operator of an Australian passport fund, or a person with responsibilities in relation to an Australian passport fund, comply with the law of each host economy for the fund; and

    (d) subject to subsection (4)--have available adequate resources (including financial, technological and human resources) to provide the financial services covered by the licence and to carry out supervisory arrangements; and

    (e) maintain the competence to provide those financial services; and

    (f) ensure that its representatives are adequately trained (including by complying with section 921D), and are competent, to provide those financial services; and

    (g) if those financial services are provided to persons as retail clients:

    (i) have a dispute resolution system complying with subsection (2); and

    (ii) give ASIC the information specified in any instrument under subsection (2A); and

    (h) subject to subsection (5)--have adequate risk management systems; and

    (j) comply with any other obligations that are prescribed by regulations made for the purposes of this paragraph.

    D.3      Section 961B

16. Section 961B of the Act is in the following terms:

    (1) The provider must act in the best interests of the client in relation to the advice.

    (2) The provider satisfies the duty in subsection (1), if the provider proves that the provider has done each of the following:

    (a) identified the objectives, financial situation and needs of the client that were disclosed to the provider by the client through instructions;

    (b) identified:

    (i) the subject matter of the advice that has been sought by the client (whether explicitly or implicitly); and

    (ii) the objectives, financial situation and needs of the client that would reasonably be considered as relevant to advice sought on that subject matter (the client’s relevant circumstances);

    (c) where it was reasonably apparent that information relating to the client’s relevant circumstances was incomplete or inaccurate, made reasonable inquiries to obtain complete and accurate information;

    (d) assessed whether the provider has the expertise required to provide the client advice on the subject matter sought and, if not, declined to provide the advice;

    (e) if, in considering the subject matter of the advice sought, it would be reasonable to consider recommending a financial product:

    (i) conducted a reasonable investigation into the financial products that might achieve those of the objectives and meet those of the needs of the client that would reasonably be considered as relevant to advice on that subject matter; and

    (ii) assessed the information gathered in the investigation;

    (f) based all judgements in advising the client on the client’s relevant circumstances;

    (g) taken any other step that, at the time the advice is provided, would reasonably be regarded as being in the best interests of the client, given the client’s relevant circumstances.

    Note:     The matters that must be proved under subsection (2) relate to the subject matter of the advice sought by the client and the circumstances of the client relevant to that subject matter (the client’s relevant circumstances). That subject matter and the client’s relevant circumstances may be broad or narrow, and so the subsection anticipates that a client may seek scaled advice and that the inquiries made by the provider will be tailored to the advice sought.

    Advice given by Australian ADIs—best interests duty satisfied if certain steps are taken

    (3) If:

    (a) the provider is:

    (i) an agent or employee of an Australian ADI; or

    (ii) otherwise acting by arrangement with an Australian ADI under the name of the Australian ADI; and

    (b) the subject matter of the advice sought by the client relates only to the following:

    (i) a basic banking product;

    (ii) a general insurance product;

    (iii) consumer credit insurance;

    (iv) a combination of any of those products;

    the provider satisfies the duty in subsection (1) in relation to the advice given in relation to the basic banking product and the general insurance product if the provider takes the steps mentioned in paragraphs (2)(a), (b) and (c).

    General insurance products—best interests duty satisfied if certain steps are taken

    (4) To the extent that the subject matter of the advice sought by the client is a general insurance product, the provider satisfies the duty in subsection (1) if the provider takes the steps mentioned in paragraphs (2)(a), (b) and (c).

    Regulations

    (5) The regulations may prescribe:

    (a) a step, in addition to or substitution for the steps mentioned in subsection (2), that the provider must, in prescribed circumstances, prove that the provider has taken, to satisfy the duty in subsection (1); or

    (b) that the provider is not required, in prescribed circumstances, to prove that the provider has taken a step mentioned in subsection (2), to satisfy the duty in subsection (1); or

    (c) circumstances in which the duty in subsection (1) does not apply.

    D.4      Section 961G

17. Section 961G of the Act is in the following terms:

    The provider must only provide the advice to the client if it would be reasonable to conclude that the advice is appropriate to the client, had the provider satisfied the duty under section 961B to act in the best interests of the client.

    Note:      A responsible licensee or an authorised representative may contravene a civil penalty provision if a provider fails to comply with this section (see sections 961K and 961Q). The provider may be subject to a banning order (see section 920A).

    D.5      Section 961J

18. Section 961J of the Act is in the following terms:

    (1) If the provider knows, or reasonably ought to know, that there is a conflict between the interests of the client and the interests of:

    (a) the provider; or

    (b) an associate of the provider; or

    (c) a financial services licensee of whom the provider is a representative; or

    (d) an associate of a financial services licensee of whom the provider is a representative; or

    (e) an authorised representative who has authorised the provider, under subsection 916B(3), to provide a specified financial service or financial services on behalf of a financial services licensee; or

    (f) an associate of an authorised representative who has authorised the provider, under subsection 916B(3), to provide a specified financial service or financial services on behalf of a financial services licensee;

    the provider must give priority to the client’s interests when giving the advice.

    Note:      A responsible licensee or an authorised representative may contravene a civil penalty provision if a provider fails to comply with this section (see sections 961K and 961Q). The provider may be subject to a banning order (see section 920A).

    (2) If:

    (a) the provider is:

    (i) an agent or employee of an Australian ADI; or

    (ii) otherwise acting by arrangement with an Australian ADI under the name of the Australian ADI; and

    (b) the subject matter of the advice sought by the client relates only to the following:

    (i) a basic banking product;

    (ii) a general insurance product;

    (iii) consumer credit insurance;

    (iv) a combination of any of those products;

    subsection (1) does not apply to the extent that the advice relates to a basic banking product or a general insurance product or a combination of those 2 products.

    (3) Subsection (1) does not apply to the extent that the subject matter of the advice sought by the client is a general insurance product.

    E        AGREED OPINIONS OF THE EXPERTS

    E.1     The Questions

19. Following the service of competing opinion evidence of experts, which in some respects did not engage with one another, the JER was prepared pursuant to orders of the Court by reference to questions settled by the Court. The authors of the JER provided their opinions on the following questions: first, what steps was it reasonable to expect AMPFP to have taken in the Relevant Period to ensure that its representatives complied with ss 961B, 961G, and 961J of the Act? Secondly, were the steps that AMPFP took in the Relevant Period reasonable steps for AMPFP to have taken in that time period to ensure compliance by its representatives with ss 961B, 961G and 961J?

    E.2     Steps in relation to Panganiban

20. In relation to Panganiban, AMPFP agreed with the following summary of the JER contained in ASIC’s written submissions.

21. There is agreement between the experts as to the steps AMPFP should have taken in the Relevant Period to ensure that Panganiban did not engage in Rewriting Conduct in contravention of the relevant best interests obligations:

    (1)at and from 1 July 2013, AMPFP should have temporarily suspended Panganiban’s authorisation until such time as “a more fulsome” investigation could be undertaken; in suspending the authorisation, AMPFP should have placed weight on addressing the potentially significant risks to Panganiban’s clients of any conduct in which he may have engaged;

    (2)in line with an effective issue management and escalation process for an advice licensee, AMPFP should have ensured that the Rewriting Conduct concerns were escalated to a sufficient level of seniority within AMP and/or AMPFP in a timely manner, so that the issues were appropriately considered and actions taken to ensure Rewriting Conduct that was non-compliant with the relevant best interests obligations ceased;

    (3)AMPFP should have undertaken “a fulsome investigation” involving file reviews to determine the extent of Panganiban’s Rewriting Conduct and non-compliance with the relevant best interests obligations; it would have been reasonable at the time for AMPFP to have conducted an initial investigation of a sample of files (in the order of six files) related to the provision of insurance advice; had an issue been identified in one or more of the sample a more extensive “deep dive” (involving between 20 and 30 files) should have been conducted;

    (4)based on the outcome of the investigation, a subsequent decision regarding his future as a representative of AMPFP should have been made; AMPFP should have ensured that any findings of the investigation were formally communicated to Panganiban and Mr Naddaf, the principal of Benidion, to ensure there was no misunderstanding of the facts, the conclusions and the actions to be taken;

    (5)if, subsequent to the investigation and consideration of the outcomes of the investigation by appropriate AMPFP personnel, AMPFP decided to maintain Panganiban as a representative, AMPFP should have ensured his commitment to ongoing compliance was obtained in writing and that Panganiban was aware of, and accepted, the consequences of any further Rewriting Conduct being identified;

    (6)if AMPFP decided to maintain Panganiban as a representative, AMPFP should have had processes in place to support Panganiban’s remediation and minimise the likelihood of any future non-compliance; AMPFP should have ensured that Panganiban was appropriately re-trained with training targeted at addressing advice concerns identified, and appropriately monitored and supervised (such as through regular, tailored vetting and auditing targeted at addressing advice concerns identified) commensurate with the risk that existed in relation to his Rewriting Conduct; and

    (7)in line with an effective issues management and escalation process for an advice licensee, the fact of the investigation into Panganiban’s conduct and its outcomes should have been entered into AMPFP’s incident management database.

22. There is also agreement between the experts that AMPFP failed to take the necessary steps to ensure that Panganiban did not engage in Rewriting Conduct and complied with the relevant best interests obligations:

    (1)AMPFP did not suspend Panganiban’s authorisation temporarily on and after 1 July 2013; it should have temporarily suspended Panganiban’s authorisation until such time as “a more fulsome investigation” could be undertaken; Panganiban’s authorisation was only revoked on 15 September 2014 after the investigation of his conduct undertaken between June and early September 2014; no such action was taken in 2013, after the Gregory investigation;

    (2)AMPFP did not, by July 2013, escalate Panganiban’s conduct to an appropriate level of seniority within AMPFP to ensure that appropriate action was taken and his non-compliant Rewriting Conduct ceased; the concerns were only escalated to appropriate senior management in September 2014 after which Panganiban’s Rewriting Conduct was referred to a special meeting of the Issues Panel in accordance with the Advice Issues Management and Escalation Process;

    (3)AMPFP did not undertake the staged review of files to determine the extent of Panganiban’s Rewriting Conduct and non-compliance with the relevant best interests obligations; in 2013, no review other than the review of six files by Ms Gregory was undertaken; a review of six files was undertaken by Mr Nathan Vo only in early September 2014 and a more extensive review was only undertaken in late 2014 after Panganiban’s authorisation had been revoked; and

    (4)as a result of AMPFP’s failure to undertake (3) above, AMPFP did not take adequate steps; this is because those steps are consequential to and dependent on the conclusions formed from the undertaking of step (3) above.

1. In addition, AMPFP failed to take the following action to prevent Panganiban engaging in Rewriting Conduct:

   (1)AMPFP failed to communicate appropriately with Panganiban or impose any consequences on Panganiban as and from 1 July 2013 or subsequently until September 2014 and there was no other direct warning or caution given to Panganiban until September 2014;

   (2)AMPFP failed to act in a timely way and acted with a lack of urgency in the 2013 Investigation in addressing Panganiban’s Rewriting Conduct; once a suspicion was raised in September 2014 that Panganiban was continuing to engage in Rewriting Conduct, timely steps were then taken but until that time, Panganiban continued to engage in Rewriting Conduct, subjecting his clients to the Rewriting Risks, such risks being defined at [14] of the statement of claim as:

   (a)the risk of being left uninsured for a period of time, or of otherwise not being paid for an insurable event when prior to the Rewriting the client had existing cover for the insurable event (Event Risk);

   (b)the inconvenience of going through the insurance underwriting process in respect of the replacement AMP Life Product, and the risks of going through that process which included the following:

   (i)the risk that replacement insurance cover might be refused; and

   (ii)the risk that the replacement AMP Life Product might be offered on terms less favourable to the insured than those of the existing insurance cover (including, for example, new loadings or exclusions),

   (Underwriting Risk);

   (c)the risk that a 13 month exclusion period for suicide might recommence upon the commencement of the replacement AMP Life Product (13 Month Suicide Exclusion Risk);

   (d)the risk that the three-year period for avoidance of an insurance policy by an insurer by reason of innocent misrepresentation by the insured (pursuant to s 29(3) of the Insurance Contracts Act 1984 (Cth)) recommenced upon the commencement of the replacement AMP Life Product (3-year Non-Fraudulent Non-Disclosure Risk);

   (3)AMPFP failed to put in place any specific monitoring and supervision of Panganiban’s advice to clients that would have detected his ongoing Rewriting Conduct; during 2013 and 2014 Panganiban had been the subject of regular annual audits and in both instances, he was awarded the second highest rating; the lack of tailoring of the audit programme to specifically identify Rewriting Conduct was deficient.

2. Before going further, I should make two observations.

3. First, as can be seen, there are several uses of the word “fulsome” (or the phrase “more fulsome”) throughout the JER. The word fulsome, properly used, has pejorative connotations meaning overabundant or excessively lavish. The experts did not use the word in this sense but rather were using it in the sense of “fully developed” or “complete”, and were therefore expressing the view that the steps taken were inchoate or incomplete.

4. Secondly, and more importantly, although there is agreement between the experts (and now the parties) as to the steps AMPFP should have taken in the Relevant Period to ensure that Panganiban did not engage in Rewriting Conduct in contravention of the relevant best interests obligations, I must confess I find aspects of the agreement to be somewhat troublesome. It strikes me as particularly odd that following a proper investigation as suggested, in the counterfactual, AMPFP could rationally have decided to maintain Panganiban as a representative (and hence put “processes in place to support Panganiban’s remediation and minimise the likelihood of any future non-compliance”). Uninstructed by expert opinion, I would have thought it was obvious that any organisation anxious to ensure compliance by its representatives with ss 961B, 961G and 961J, would not have touched Panganiban with a punt pole once it was apprised fully of his conduct. He was evidently a man unsuited to hold a position of trust. This belated recognition came even to AMPFP by the time of the despatch of the “bad apple” letter. Redemption is a wonderful thing, but surely preceding redemption should be the visiting of consequences proportionate to the nature and scale of the wrongdoing. My view in this regard does not, however, accord with the joint expert opinion and although I will generally accept the expert evidence, I cannot accept the implicit (and surprising) submission of ASIC, by its unqualified embrace of the findings of the JER, that “retraining” and “monitoring” someone like Panganiban could have been an appropriate remedial response following a proper investigation which revealed the true facts. The rejection of this aspect of the expert evidence is not, however, determinative of any of the remaining contested issues; nor is it material to the fixing of an appropriate penalty.

   E.3     Steps in relation to Other Authorised Representatives

5. ASIC submits, and I accept, that there was agreement between the experts as to the steps AMPFP should have taken in the Relevant Period to ensure that Other Authorised Representatives did not engage in Rewriting Conduct in contravention of the relevant best interests obligations. The JER states that those steps were as follows:

   (1)concurrently with the further investigation of the conduct of Panganiban, AMPFP should have:

   (a)issued a policy (or other communication) to its representative network requiring a representative to process a transaction as a transfer where a transfer was possible, unless the representative could clearly demonstrate that the Rewriting Conduct would have been in the client’s best interests and would meet the relevant best interests obligations;

   (b)revised training to representatives to reflect these policy changes or communications; and

   (c)reviewed and revised its monitoring and supervision programme to ensure that it was designed to detect Rewriting Conduct that did not comply with the relevant best interests obligations;

   (2)in addition, AMPFP should have made reasonable efforts to brief an Internal Supervisory/Compliance function to take the following steps to determine the extent and seriousness of Rewriting Conduct:

   (a)analysed available data, with a view to identifying whether there was evidence of possible Rewriting Conduct in the wider representative network; this should have been supplemented by discussions with the Internal Supervisory/Compliance function and audit staff about any Rewriting Conduct which may have been identified through other monitoring and assurance activity;

   (b)if the analysis identified a number of clients of a number of representatives who may have been the subject of Rewriting Conduct, conducted an in-depth review of relevant client files to assess whether conduct was not compliant with the relevant best interests obligations, the seriousness of that conduct and to confirm the root causes of the conduct; and

   (c)assessed the effectiveness of existing controls to prevent and detect non- compliant Rewriting Conduct and the outcomes of this assessment should have informed the need for any changes to improve existing controls to prevent and detect future non-compliant Rewriting Conduct.

   (3)AMPFP should then have escalated the outcomes of the investigation described above to an appropriately accountable Committee with recommendations about steps to address the issues identified; the Committee should have been apprised of the number of representatives found to have engaged in the conduct and the seriousness of any conduct identified and, based on the recommendations made, the Committee should then have directed appropriate action to be taken;

   (4)appropriate action should have reflected both the extent and seriousness of any Rewriting Conduct identified across the representative network, the risks to the licensee, and the root cause of the Rewriting Conduct; a range of appropriate actions could have been considered including:

   (a)reviewing the incentives framework to address the differences in omissions;

   (b)developing plans and implementing any changes required to improve existing controls to prevent and detect non-compliant Rewriting Conduct based on the outcomes of the assessment; and

   (c)discussing with the product provider (AMP Life) possible changes to its Transfer Policies and underwriting/new business application processes to detect Rewriting Conduct and performing further checks to assess whether those transactions should be processed as transfers instead; and

   (d)taking appropriate actions in relation to any other representatives guided by a consideration of the root cause of the Rewriting Conduct such that:

   (i)had the root cause of the conduct been the opportunity to engage in Rewriting Conduct (facilitated by the Insurance Transfer Policies and processes) and the incentive to do so (facilitated by the lower commissions paid in relation to insurance transfers), remedial action should have addressed both the Transfer Policy and the incentive framework;

   (ii)had the root cause of the conduct been the Transfer Policy alone, action would have not addressed the incentive framework, and focussed on the other actions described above.

6. The experts agree that AMPFP took none of the steps set out in the previous paragraph, to address the risk of non-compliant Rewriting Conduct by other AMPFP representatives. In particular, AMPFP failed to take the following steps:

   (1)issue a policy or communication to its network of representatives in relation to Rewriting Conduct;

   (2)revise and provide training to its representatives in relation to Rewriting Conduct;

   (3)review and revise its monitoring and supervision programme to address Rewriting Conduct; or

   (4)conduct further investigation and analysis of rewriting conduct across its network of representatives, and assessed existing controls.

7. Again, I have reservations about an aspect of this evidence, as I would have thought it ought to have been plain that once informed of conduct as obviously inappropriate as the Rewriting Conduct, efforts should have been made to stamp it out with celerity without the necessity to go through all the bureaucratic processes envisaged by the experts. But, subject to this reservation, I generally accept the evidence contained in the JER.

   F         SCOPE OF DISPUTES

8. I do not propose to dilate further upon factual or legal matters that are agreed. The remaining issues fall broadly into four categories: first, some factual matters advanced by AMPFP, most importantly the question of whether, as at 1 July 2013, AMPFP had reason to believe that the Rewriting Conduct was common or widespread (but extending to other issues I will deal with separately such as evidence as to its systems, an investigation into Rewriting Conduct it conducted in 2015-2016, and the difficulties of identifying Rewriting Conduct); secondly, a legal issue as to the proper construction of s 961L and the number of contraventions that arise; thirdly, the appropriate pecuniary penalty; and fourthly, the appropriateness of some aspects of the compliance plan that ASIC seeks pursuant to s 1101B of the Act (although AMPFP now consents to most of the compliance orders sought by ASIC).

9. I will deal with each of these four topics in turn.

   G        FINDINGS AS TO THE REMAINING DISPUTED ISSUES

   G.1      Did AMPFP have reason to believe that the Rewriting Conduct was “common”?

10. A matter I raised at the first day of hearing was whether, as at 1 July 2013, AMPFP had reason to believe that the Rewriting Conduct was common or widespread. Although connected, this is a question logically separate to that of whether the Rewriting Conduct was, as a matter of fact, widespread as at 1 July 2013 (which latter fact ASIC did not seek to prove, notwithstanding consideration as to whether the conduct was systematic might be regarded as a factor relevant to the objective seriousness of the contraventions).

    I          ASIC submissions

11. ASIC contended that as at 1 July 2013, AMPFP had reason to believe that the Rewriting Conduct was “common” or “widespread”. Prior to 1 July 2013, the conversation between Mr Traynor and Mr Gregory took place (as evidenced by the file note of 7 March 2013). Read literally, Mr Traynor’s comments were not confined only to his views of Panganiban’s conduct, as Ms Gregory’s note of the conversation records Mr Traynor advising what “a planner” is able to do in order to obtain 100% commission and notes his comment that this is “a common scenario”. This is consistent with the use of the plural “planners” in Ms Gregory’s later email to Emma Lawson, and when, on 17 June 2013, Ms Gregory emailed Mr Bennett, after describing her investigation of a planner (presumably Panganiban) she wrote that “New Business have told me that this practice is wide spread” (Gregory Email). This was a somewhat unusually phrased comment if she had meant to confine her comments to Panganiban. I will return to the Gregory Email later, when I consider the issue of whether the contraventions were the result of deliberate, covert or reckless conduct, as opposed to negligence or carelessness.

12. With respect to AMPFP’s submission that Ms Firmansjah, Mr Coroneos and Ms Britt had never seen Rewriting Conduct (outside the advisers named in this proceeding), ASIC’s submission is that the evidence of Ms Firmansjah and Mr Coroneos is confined to conduct which is “similar to the Panganiban conduct” and does not address Rewriting Conduct similar to the conduct in relation to Clients 31-40, and that the evidence of Ms Britt addresses only her understanding as to the present prevalence of Rewriting Conduct and does not address the prevalence of Rewriting Conduct as at 1 July 2013 or at any other time during the period from 1 July 2013 to 30 June 2015.

13. Further, ASIC submits the evidence of Ms Britt (including at [33] of her affidavit, where Ms Britt gives evidence that her understanding is that “Non-Compliant Rewriting Conduct is not common, or widespread”) addresses only her understanding as to the present prevalence of Rewriting Conduct and does not address the prevalence of Rewriting Conduct as at 1 July 2013 or at any other time during the period from 1 July 2013 to 30 June 2015. Ms Britt’s evidence (at [33]) is that “there may be instances of yet to be detected Non-Compliant Rewriting Conduct … across AMPFP’s network”.

    II        AMPFP submissions

14. As might be expected, AMPFP submitted that given ASIC has not attempted to prove that Rewriting Conduct was in fact “common” or “widespread”, there could be no basis for finding AMPFP had reason to believe that such conduct was “common” or “widespread”. In this regard a number of submissions were made.

15. First, AMPFP contends that any finding of knowledge would be inconsistent with the JER at [40], which AISC embraced, the premise of which was that it was necessary to carry out a further investigation to see whether Rewriting Conduct was more widespread. This necessarily presupposes that it was not known whether Rewriting Conduct was widespread.

16. Secondly, any notion that Rewriting Conduct may have been widespread is alleged to stem from an exchange between Ms Gregory and Mr Traynor in early 2013, in which Mr Traynor referred to a “common scenario” in respect of the conduct in which Panganiban engaged. Mr Traynor was alleged to be unavailable to give evidence as to what he meant, but it is contended that it is likely that these comments related only to Panganiban’s conduct because: (a) Mr Traynor was Panganiban’s dedicated underwriter (of the 29 clients of Panganiban (Clients 1-30) in respect of whom it is possible to identify the relevant underwriter, Mr Traynor was the underwriter for 26 of those clients); (b) there is nothing in any document to suggest that Mr Traynor ever saw any adviser other than Panganiban engaging in Rewriting Conduct; and (c) in the conversation he had with Ms Gregory, Mr Traynor referred to the fact that he had questioned this “common scenario” and this was a reference to an email Mr Traynor sent to the AMP Life Product team in December 2012 in which he raised an issue as to Panganiban’s conduct, not the conduct of any other adviser.

17. Thirdly, Ms Firmansjah, Mr Coroneos and Ms Britt (all of whom are within Advice Governance) gave unchallenged evidence that they have never seen conduct like that engaged in by Panganiban outside of the advisers named in this proceeding; further, Ms Britt gave unchallenged evidence that based on her understanding of the data analytic techniques that had been deployed and her role in Advice Compliance, her understanding was that Rewriting Conduct (whether of the kind in which Panganiban engaged or not) was not widespread.

18. Fourthly, in 2015 and 2016, it is submitted that AMPFP undertook an exercise which was alleged by AMPFP to constitute an attempt to identify those clients who may have been subject to systemic Rewriting Conduct. The conclusion from that exercise was that systemic Rewriting Conduct of the kind in which Panganiban engaged was not widespread. It was from that exercise that all of the instances of Rewriting Conduct in this case outside Panganiban were identified, in circumstances where during the Relevant Period there were approximately 20,000 applications by AMPFP advisers for insurance each year. The fact that only limited examples of such conduct were identified is submitted to be an indication that such conduct was not widespread.

19. Fifthly, it is an agreed fact that the nature of Panganiban’s Rewriting Conduct involved a practice of active cancellation of existing insurance, which was different to the Rewriting Conduct of the Other Authorised Representatives. The relevance of this matter is that to the extent that ASIC relies on Mr Traynor’s description of Panganiban’s conduct as a common scenario (and Ms Gregory’s repetition of it), that was said to be a reference only to Panganiban’s conduct, not Rewriting Conduct generally.

    III       Conclusions as to commonality of conduct and knowledge

20. I have a feeling of disquiet in relation to this contested issue of knowledge.

21. On this topic, as both parties recognised, Mr Traynor’s emails were of signal importance. He was not called. There was a supposed explanation, being second-hand hearsay evidence from a solicitor for AMPFP, Mr Slater, which noted:

    During the course of these proceedings, I made inquiries of Ms Larissa Baker Cook (General Counsel, Dispute Resolution and Regulatory Engagement at AMP) as to the availability of Mr Traynor to give evidence in these proceedings. In response to those inquiries, I was informed that it has not been possible to contact Mr Traynor about the subject matter of these proceedings and that Mr Traynor was not in a sufficient state of health to give evidence.

22. It was further said, again by way of second-hand hearsay, that Mr Traynor:

    … was not required to attend any interview due to his absence from work, which was due to a medical condition and that ASIC had been advised of this condition during the course of that investigation.

23. Despite its deficiencies, there was no objection to this evidence maintained by ASIC and notwithstanding what I consider to be its less than compelling nature, there was no suggestion made that any inference should be drawn by reason of a failure of AMPFP to call Mr Traynor; nor did ASIC subpoena him and call him in its case. Accordingly, I am only left to speculate as to what Mr Traynor meant and what he knew.

24. The recipient of his email, Ms Gregory, gave evidence in chief, which included the following:

    On 7 March 2013, I called Todd Traynor who was an underwriter with AMP in order to obtain further information in relation to Mr Panganiban... While I no longer recall the conversation, I have no reason to doubt that the file note is accurate. In that file note, I have recorded that Mr Traynor has said that this appears to be a “common scenario”. I do not now recall whether Mr Traynor identified how he formed this view or whether he indicated that such a view related to Mr Panganiban or was also in relation to other financial advisers.

1. In the light of the above, the appropriate penalties for each of the contraventions of s 961L are as follows.

   (1)Failure to take reasonable steps to ensure that Panganiban complied with s 961B of the Act - $850,000

   (2)Failure to take reasonable steps to ensure that Panganiban complied with s 961G of the Act - $850,000

   (3)Failure to take reasonable steps to ensure that Panganiban complied with s 961J of the Act - $850,000

   (4)Failure to take reasonable steps to ensure that the Other Authorised Representatives complied with s 961B of the Act - $875,000

   (5)Failure to take reasonable steps to ensure that the Other Authorised Representatives complied with s 961G of the Act - $875,000

   (6)Failure to take reasonable steps to ensure that the Other Authorised Representatives complied with s 961J of the Act - $875,000.

2. Finally, I must address totality. The total penalty to be imposed on AMPFP, following the accumulation of the separate penalties imposed for each of its contraventions, is $5,175,000. I am more than satisfied that this total penalty is just and appropriate and not excessive having regard to the totality of the relevant contravening conduct. Indeed, much might be said for the proposition that the overall penalty is an inadequate reflection of the seriousness of the conduct; but due regard must be had to the then maximum penalty for the worst category of case, the mitigating factors such as they are, and the course of conduct principle. The aggregate reflects a proportionate response to the overall seriousness of the contravening conduct and no further adjustment is warranted.

   H.2      ORDERS UNDER SECTION 1101B

   I          The Court’s power under s 1101B

3. Section 1101B(1) of the Act relevantly provides that, on the application of ASIC, if it appears to the Court that a person has contravened a provision of Ch 7 of the Act, the Court may make such order or orders “as it thinks fit”, subject to being satisfied that the order would not “unfairly prejudice any person”. Clearly, this is a provision which affords the Court a broad discretionary power: ASIC v Westpac (No 3)) at 620-621 [183].

4. It has been said in respect of equivalent provisions of pre-uniform companies legislation, that courts are “left at large to determine each case according to the justice and equity of the circumstances” and “prima facie, any exercise of the discretions given to the court under the Code which enables all parties to return to the positions they were in before the impugned acquisition took place is a proper exercise of that discretion”: see Gjergja & Atco Controls Pty Ltd v Cooper [1987] VR 167 at 216, 218 (Ormiston J). I also note the recent comments of Beach J in Australian Securities and Investments Commission v Westpac Banking Corporation at 620-621 [183]:

   ASIC further submits that a compliance program tailored to addressing the contraventions established falls within the scope of s 1101B. It says that that provision is broad enough to empower me to make an order requiring a contravener to establish a compliance program tailored to remedying the contraventions established. I agree, and would note the following. First and generally speaking, one should not read provisions conferring jurisdiction on, or granting powers to, a court by making implications or imposing limitations which are not found in the express words. Second, it is no objection to an order requiring a compliance program to be established that it is in a form of mandatory injunction; I would note that the illustrative orders set out in s 1101B(4) contain examples that are mandatory in nature. Third, what the court “thinks fit” is not at large. The power must be exercised judicially having regard to the text, context and purpose of the Corporations Act. Now given that this is a power that must relate to a contravention, a compliance program can be readily accommodated within its scope as an order designed to ensure that a contravention of a similar kind does not occur again. And given that one of the purposes of the civil penalty regime is deterrence, a compliance program can address specific deterrence.

5. I consider that in this case it is appropriate that both backward-looking and forward-looking orders are made under s 1101B. The backward-looking orders attempt to go some way to repair the harm that has been done by ensuring affected clients have been adequately compensated. The forward-looking orders are aimed at supplementing the penalties and ensuring specific deterrence in guarding against the possibility of the contravening conduct happening again.

   II        Development of AMPFP’s position on a remediation programme

6. As noted above, after a number of fits and starts, AMPFP has proposed and ASIC has agreed to a remediation programme. Although this is to be welcomed and has been relevant in fixing the penalties, the path to reaching an agreed position was a bumpy one. The history is worth recounting in a little detail as it might provide some further context as to why I consider that, to some extent, AMPFP’s protestations of contrition and regret ring rather hollow.

7. ASIC expressed its concerns with AMPFP’s remediation programme both in writing and orally at the first hearing days in June 2019. Specifically, ASIC’s senior counsel pointed to the absence of specific evidence as to whether, and if so how, AMPFP’s existing remediation programme operated to identify Rewriting Conduct. It was submitted that the remediation process was not shown to be adequate for a number of reasons, unnecessary to now detail. In response, AMPFP’s senior counsel said that there had been a review and an attempt to remediate the 40 clients named in SOC, but further consideration would be given to the issues raised. On the morning of the second day of the hearing, a revised undertaking in relation to remediation was proffered to ASIC and handed up to the Court, being marked as MFI 2. In summary, AMPFP undertook that it would within four months of the date of the undertaking (in respect of clients 1 to 40) undertake a further review of the advice provided and make a determination in respect of the compensation payable or other non-monetary remediation. AMPFP’s senior counsel conceded that she could not shy away from the fact that the revised undertaking came late in the day.

8. And yet notwithstanding the progress made, when pressed by me on whether AMPFP was, in fact, undertaking to compensate every client who is identified by the remediation programme as having suffered detriment as a result of the Rewriting Conduct (rather than simply clients 1 to 40), AMPFP’s position was unclear and instructions needed to be sought. ASIC embraced this suggestion and when I proposed to AMPFP’s senior counsel that a remediation programme compensating all clients could occur by force of orders made under s 1101B, AMPFP resisted such a course and suggested its undertaking in respect of clients 1 to 40 was sufficient. The reason being, AMPFP did not have sufficient notice that such an expanded order would be sought by ASIC and it would need to put on further evidence going to the detail of the programme. Ultimately, AMPFP took up an offer of an adjournment until late July 2019 to allow it to file further evidence in relation to the remediation programme.

9. When the matter returned on 26 July 2019, a further revised undertaking was proffered by AMPFP in relation to clients 1 to 40 as well as any other client, identified through AMPFP’s remediation programme, to have been subject to Rewriting Conduct. However, there was further debate between the parties on the deficiencies of the review aspect of the remediation programme, by which AMPFP would, using the processes of data analytics, identify instances of Rewriting Conduct. ASIC was amply justified in raising these issues. Since pecuniary penalties were to be assessed on the basis that there would be an effective remediation programme, it was necessary there be an effective process by which clients eligible for compensation would be identified. For the reasons then identified by ASIC, I could not be satisfied at that time that the process AMPFP had proposed was effective. Accordingly, the matter was adjourned to allow the parties to further negotiate the terms of the undertaking and file further evidence.

10. It was only by 1 October 2019 that there was agreement between the parties on the remediation programme. The contrast between what AMPFP had proffered in June 2019 and what AMPFP ultimately proffered in October 2019 is significant.

    III       Backward-looking: review and remediation programme

11. The comments above do not diminish the size of the undertaking to be undertaken by AMPFP. The details of the Review and Remediation Programme (RRP), as it currently stands, were contained in two affidavits affirmed by Ian Douglas Fletcher on 23 August 2019 and 23 September 2019, both of which were read without objection. Mr Fletcher is the programme director of the RRP.

12. It is necessary to wade briefly into the brume of the RRP.  In short, in order to identify the recipients of remediation, the RRP uses the tools of data analytics. One such tool are “key risk indicators” or KRIs which identify a population of adviser files considered to be high risk for manual review. The “Lookback” programmes employ 22 KRIs (developed in conjunction with Deloitte) and include, for instance, “KRI 4 Insurance Clawbacks” and “KRI 5 Insurance and Superannuation Lapses”. The KRIs were run across a master data set covering approximately 8,758 advisers and approximately 1,300,000 clients and initially flagged approximately 26,387 files as in scope for approximately 420 advisers. Through further analysis and refinement and through thresholds applied to ensure the KRls identified systemic rather than isolated potential issues, the KRIs finally identified 21,824 files for 230 advisers as the “scope” for the Quality of Advice Lookback Programme. The evidence of Mr Fletcher is that without the use of KRIs to narrow the number of files in scope, the Lookback programme would take more than 10 years to complete.

13. Another tool is “conversion reporting” which, using a dataset of all insurance product files from 30 June 2013 to 30 August 2019, identifies situations where there has been lapsed or “off” business (in the sense of a decrease in the premium payable by the client) and new or “on” business (in the sense of an increase in the premium payable by the client) within 120 days of each other. The conversion report will capture instances of potential Rewriting Conduct because these circumstances will encompass where a policy has been cancelled and a subsequent new policy has been taken up. Admittedly, it will also capture many innocuous instances, such as when a client decides to make adjustments to the levels of insurance that the client holds which affect the premiums payable. As a result, further sets of filtering are applied.

14. Using conversion reporting, with further filtering, AMPFP has been able to identify an additional 626 clients where there was potential for them to have been subject to Rewriting Conduct.

15. Significantly, AMPFP acknowledged that it could not guarantee to the Court that the use of the RRP would ensure that all those who have suffered loss as a result of its contravening conduct would be compensated. Nonetheless, it considered that by operation of the two mechanisms of the RRP, being the Lookback Programme (with its use of KRIs) and conversion reporting, there was “every probability” that every client affected by Rewriting Conduct would be identified and compensated. With regard to non-monetary remediation, such remediation will be in accordance with ASIC Regulatory Guide at [128] (which aims to put the client in the position that they would have been in but for the relevant contravention) or as agreed with the client.

16. There is some complexity due to the fact that AMP Life is in the process of being sold insofar as for those clients for whom it is necessary to put in place new insurance arrangements, a separate agreement between AMPFP and the relevant insurer will need to be made.

17. As already noted, AMPFP envisaged its commitment to the RRP would be by way of a formal undertaking to the Court. However, with one exception, I consider it more appropriate that as with the forward-looking compliance plan discussed below, it instead be the subject of an order pursuant to s 1101B.

18. Moreover, and as I indicated to the parties at the final hearing day on 1 October 2019, I will make provision in the orders for an expert retained by AMPFP, being the partner at PwC, responsible on a day-to-day basis for implementing the RRP, to prepare a report reviewing the RRP and to provide to my Associate, via the solicitors for AMPFP, an affidavit deposing, with precision, as to what the review involved by way of further extraction or analysis of data, and whether it did involve a manual review of individual client policies and other systems. The affidavit should also provide details as to how many clients were actually compensated and in what amount, and an opinion as to whether the deponent perceives any deficiencies in the RRP’s implementation and effectiveness, based on his then state of knowledge. I have not specified a person as the deponent because I am not entirely sure that the appropriate person is Mr Craig Daynton (whom I was told was the head of the programme and has had discussions with ASIC). But the final orders should ensure that the affidavit is sworn by the partner in charge day-to-day and who has a detailed understanding of the RRP’s operation.

19. No doubt the partner of PwC will try to perform his role conscientiously, and I intend no disrespect by remarking that it is suboptimal that the firm PwC has been selected by AMPFP, and not the Court. This raises an issue in regulatory proceedings of more general importance. In my experience of a number of these cases, it has been common, quite early in the investigatory or enforcement stage, for large institutions to select professional services firms to provide advisory, investigative and implementation services. These are often vast exercises and involve the professional services firm being paid very large fees. Speaking generally, no doubt some selections are made with the knowledge and encouragement of a regulator. It is easy to understand why this occurs and speed of remediation is highly desirable, but the difficulty is that when the matter comes to Court, the judge hearing the case (and determining what orders should be made) is presented with what amounts to a fait accompli: so many costs have been expended, and so much work has been done, that the Court cannot practically fasten upon a new approach run by wholly independent professionals selected by the Court.   

20. It may be this problem is insuperable because of the need for speed, but it seems to me to raise issues not dissimilar to those that have been often addressed in the context of the selection by parties of expert witnesses. There is a danger that even with the best will in the world, a partner of a firm retained by a large institution earning very significant sums from professional fees charged to the institution, could display a degree of “subconscious partisanship”, in that the expert is influenced by the client with whom he has a long running commercial relationship; moreover, issues of “selection bias” might arise, as they do in the context of expert witnesses: Victorian Law Reform Commission, Civil Justice Review: Report, 2008 at 484.

21. Although I have no reason to consider that this will create a difficulty in this case, my preference would have been to appoint someone myself, but it is now too late to do so.

22. I am confident that AMPFP has been brought, through the persistence of ASIC, to a position where it is now committed to doing the right thing, but to make assurance doubly sure (and to reflect the fact that the pecuniary penalties have been fixed on the expectation the RRP will be conducted properly and in accordance with what has been submitted to the Court) I propose to adjourn the proceeding until after the receipt of the affidavit from the partner of PwC to satisfy myself that no further steps are required to ensure the RRP is carried out in a way which fulfils AMPFP’s promises as to its operation. Put another way, I will trust, but then verify.  If I am satisfied with the information provided by way of affidavit, then subject to hearing from the parties, it would then be my intention to bring the proceeding to an end. If clarification is needed, the proceeding will be re-listed, and I will consider what further orders may be necessary to obtain further clarification as to the operation of the RRP or to ensure its proper completion. I stress this course is not adopted to foreshadow further punitive or other steps being taken against AMPFP, but rather reflects the reality that the pecuniary penalties took into account that there would be an effective remediation programme as promised in the affidavit material and submissions, and it is appropriate that this be followed through to completion and then verified.

    IV       Forward-looking: compliance plan

23. At the instigation of the proceeding ASIC sought, pursuant to s 1101B to the Act, the following orders:

    (1)Pursuant to s 1101B of the Act, within two months after the date of these orders, AMPFP shall:

    (a)issue a policy (or other written communication) to its representatives which has the effect of prohibiting its representatives from engaging in Rewriting Conduct unless the representative clearly demonstrates, in writing, that such conduct is in the client’s best interests;

    (b)revise the training it provides to its representatives to reflect the policy or written communication referred to in sub-paragraph (a);

    (c)review and revise its monitoring and supervision programme to ensure that it is designed to detect Rewriting Conduct that does not comply with ss 961B, 961G and/or 961J of the Act.

24. In addition, ASIC sought an order that within six months AMPFP would provide ASIC with a written report of a suitably qualified independent expert confirming AMPFP’s compliance with the earlier order as well as a written attestation from a responsible officer also confirming compliance with the earlier order and setting out in summary form any changes implemented pursuant to the earlier order.

25. Similar forward-looking orders have been made previously under s 1101B: see, for example, ASIC v Westpac (No 3). However, the touchstone of such orders is as Beach J said at 621 [185], whether such an order “is necessary in light of the particular circumstances of the contravention, other relief proposed to be granted, and in particular in light of any existing compliance programme and steps taken since the contravention occurred”.

26. AMPFP resisted a number of aspects of the proposed orders, including that it have an obligation to: (a) review the incentives framework to address the differences in commissions paid to AMPFP’s representatives depending on whether insurance is transferred or subject to Rewriting Conduct; and (b) discuss with AMP Life possible changes to transfer polices and the processes used by AMP Life’s underwriting and new business teams in processing applications, in order to detect Rewriting Conduct.

27. AMPFP’s reasons for contending that such orders were unnecessary were twofold: first, yet again, that there was no basis for a factual finding that Rewriting Conduct was in fact common or widespread or that it had reason to believe that it was; and secondly, AMP Life, not being a party to the proceeding, was on the verge of being sold and in circumstances where AMP Life ultimately would come to be owned by an unrelated entity, the order would be inappropriate. I was informed at one stage of the hearing that the sale to AMP Life was unlikely to proceed and ASIC submitted that the prospect of a sale should not be given any weight.

1. I have reservations as to the first objection, particularly as to the latter period of the contraventions, but there are sound reasons to pause before making orders which require people to discuss matters with other people. I am persuaded by AMPFP’s submission that an order compelling discussions is unnecessary; indeed it seems to be at the outer limits of the principled exercise of judicial power. Orders should be “clear, unambiguous and capable of compliance” if they are to be enforced potentially by way of contempt proceedings: Advan Investments Pty Ltd v Dean Gleeson Motor Sales Pty Ltd [2003] VSC 201 at [31] (Gillard J). I am not satisfied that the proposed order is necessary and sufficiently precise as to have utility.

2. Aside from those aspects of the compliance plan requiring discussions between AMPFP and AMP Life and other entities, as with the RRP, it more appropriate that the balance of compliance plan be contained in the form of an order rather than an undertaking.

   I          CONCLUSION AND ORDERS

3. I note that prior to delivery of my reasons the parties have provided my Chambers with competing sets of proposed orders. It may be that the wording of many of these proposed orders can remain unchanged to the extent they reflect my reasons. However, as foreshowed on the final day of the hearing, I consider it more efficient for the parties to have seven days to consider my reasons and bring in revised proposed orders, whether by consent, or otherwise. If orders cannot be agreed, I will list the matter and hear further from the parties.

I certify that the preceding two hundred and sixty-three (263) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Lee.

Associate:

Dated:       5 February 2020