Yet another fine for Westpac as ASIC legal blitz continues

Westpac (ASX: WBC) and two discontinued subsidiaries, Securitor and Magnitude, have been hit with $6 million in penalties by the Federal Court for charging ongoing contribution fees for financial advice to customers without proper disclosure.

The Federal Court judgment comes just a day after the big four bank was slogged with $12 million in penalties over debt onsale contraventions as part of the Australian Securities and Investments Commissions’ (ASIC) blitz against the bank.

Today’s case related to contraventions of the Corporations Act for conduct admitted by Westpac to have occurred between 31 March 2019 to 30 June of that same year.

However, the legal provision that governs the conduct only came into effect at the end of March in 2019, and Westpac’s conduct around charging contribution fees without proper disclosure actually dates as far back as 2011.

This was taken into consideration by Federal Court Justice Jonathan Beach, who handed Westpac, Securitor and Magnitude a $2 million penalty each.

The court found in the penalty period that ad hoc contribution fees were charged to at least 171 client accounts, and regular contribution fees were charged to at least 768 client accounts. Zooming out to 2011 though, contribution fees were charged to at least 7,664 client accounts on an ad hoc basis, and regularly to at least 17,600 client accounts.

Justice Beach described the victims of the conduct as “vulnerable”, considering the position of power Westpac and its subsidiaries were in compared to the mostly retail clients.

“In terms of the charging conduct, that conduct was engaged in by the defendants in the conduct of financial services, business or businesses, with respect to retail clients who usually can be taken to be, or expected to be, in a position of vulnerability relative to the particular licensee,” Justice Beach said.

“In my view, any penalty shall be sufficient to deter the defendants and other licensees from engaging in conduct below the expected standard in relation to the charging of fees to such persons.”

The Justice went on to take into account the fact that the contribution fees were charged largely as a result of system failures, which were not rectified throughout the penalty period.

“These systems and process failures are likely to have caused or contributed to the unacceptable charging conduct during the penalty period,” Justice Beach said.

“The defendants did not have systems in place to monitor, review or ascertain whether the charging of contribution fees had been disclosed to clients or to ensure that the clients were not charged contribution fees.”

The bank’s efforts to remediate customers were also taken into consideration by the Federal Court, which noted Westpac had refunded about $18 million to clients as of 3 March 2022 and had provisioned some $58 million to cover future payouts.

“The broad scope of the remediation program assures me that the defendants have not retained as profit contribution fees that ought not to have been charged,” Justice Beach said.

“In my view a penalty of $2 million for each defendant…is appropriate in the present case.”

Shares in Westpac are down 1.02 per cent to $24.26 per share at 10.37am AEDT.