A civil penalty proceeding brought by the corporate watchdog alleges brokers CommSec and AUSIEX overcharged brokerage fees to customers more than 120,000 times, among other contraventions of Market Integrity Rules.
The civil proceedings, brought by the Australian Securities and Investment Commission (ASIC), allege the two brokers' conduct spanned a significant period of time and involved failures across multiple systems and business areas.
So numerous were the pair's alleged contraventions, and for over such a long duration, that ASIC claims "the entities did not have adequate systems and processes in place to ensure compliance with their relevant obligations under the Australian Financial Services licence".
According to ASIC, CommSex and AUSIEX, both subsidiaries of Commonwealth Bank (ASX: CBA), have co-operated with the watchdog's investigation and entered into a statement of agreed facts and contraventions relating to the following conduct:
- CommSec overcharged brokerage fees to customers on 120,933 occasions, totalling $4,352,194 between August 2010 and February 2020;
- CommSec and AUSIEX failed to comply with client money reconciliation requirements;
- CommSec and AUSIEX did not provide accurate confirmations to customers for certain market transactions;
- CommSec did not have appropriate system filters to detect possible trades where there would be no change of beneficial owner (known as wash trading);
- CommSec and AUSIEX failed to comply with their best execution policies and procedures;
- CommSec failed to enter into the required warrant agreement forms with clients and provide an explanatory booklet before accepting an order from a client to purchase a warrant on the market for the first time; and
- CommSec and AUSIEX failed to include the required intermediary identification in regulatory data submitted to relevant market operators.
"ASIC alleges, and CommSec and AUSIEX have each admittedthat they failed to do all things necessary to ensure that the financial services covered by their respective AFS licences were provided efficiently, honestly and fairly by reason of various failures in systems, processes and people as set out in the SOAFAC," says ASIC.
"CommSec and AUSIEX have also agreed to enter into a compliance programme requiring a review by an independent expert of remediation relating to the conduct, as well as a review of all systems and controls which relate to the financial services provided by CommSec and AUSIEX under their respective AFS licences."
ASIC says both parties have compensated, with interest, those customers who were overcharged brokerage fees. CommSec has paid total remediation of $6.4 million so far.
Normally, a case like this would be pursued by ASIC through the Markets Discretionary Panel (MDP), however, the watchdog says a civil penalty proceeding is more appropriate "given the systemic compliance failure in the delivery of financial services".
ASIC is seeking declarations of contraventions, pecuniary penalties and other orders against CommSec and AUSIEX.
The proceedings will be listed on a date to be determined by the Court.
CommSec managing director Richard Burns has apologised for the business' alleged failures.
"We apologise to our customers who were impacted by our mistakes," says Burns.
"These errors never should have happened. We acknowledge the importance of meeting our compliance obligations and we are committed to continuing to invest in strengthening our systems and procedures."Never miss a news update, subscribe here. Follow us on LinkedIn, Instagram and Twitter.
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