The corporate regulator has had three quick wins in its post-Hayne strategy to pursue litigation over negotiation, successfully forcing the Commonwealth Bank and National Australia Bank into guilty pleas and admissions of wrongdoing.
“It just so happens that within the past 24 hours we have dealt with an individual, an entity and a subsidiary, all of whom have either made admissions or pleaded guilty and all of which give rise to civil penalties,” Daniel Crennan, QC, deputy chair of the Australian Securities and Investments Commission, told The Australian Financial Review.
On Tuesday, CommInsure, CBA’s recently sold life insurance subsidiary, pleaded guilty to 87 counts of selling products in the course of “unlawful, unsolicited telephone calls”, also known as hawking.
The bank agreed to refund 30,000 customers to the tune of $12 million and will face a penalty of up to $1.85 million when sentenced on 28 November.
In a separate matter in the NSW Local Court on Tuesday, former NAB employee Mathew Alwan was sentenced to a 12-month intensive corrections order and 200 hours of community service and ongoing rehabilitation over his role in operating a fraud ring out of a bank branch in Western Sydney.
The two developments follow NAB’s admission to 255 breaches of the Credit Act relating to its now-defunct Introducer referral program, as previously reported by the Financial Review. ASIC had alleged a total 297 contraventions and the bank officially scrapped the program in October.
‘Better if it’s early’
Mr Crennan, an experienced barrister recruited by ASIC to lead its beefed-up litigation strategy after the royal commission, said the three successful court matters are a vindication of the regulator’s decision to use the courts to prosecute its post-Hayne agenda.
“It’s a combination of our willingness to litigate but also the defendants responding to the use of the court system in a responsible way,” he said.
“Those that we regulate have to get used to the fact that we’re going to be taking them to court, as much as they might have kicked and screamed about that in the past and insisted on a pre-court negotiated outcome.”
Describing the partial admissions as guilty pleas by the big banks and “early exits” from the litigation process, Mr Crennan said he hopes the cases are an example of a newfound willingness by companies to co-operate.
“I’m not saying everyone needs to plead guilty or agree to everything we say, but it’s a better outcome for us, the community and the courts if it’s early … rather than engage in long, protracted litigation,” he said.
The ASIC deputy said the courts will likely take the early admissions into account when determining criminal and civil penalties, but said it is too soon to describe the banks as “model litigants”.
‘Want, need or understand’
The CommInsure case, which is the first criminal matter relating to royal commission testimony to be brought before the courts, centres on the failure of the relevant agents to provide a product disclosure statement to consumers, or adopt any of the other five activities which may prevent telephone insurance sales from becoming “hawking”.
“In our view the consumer has made a purchase of products that they don’t need, want or understand,” Mr Crennan said. “It is insurance that is inappropriate for the insured and in some cases is not worth anything.”
The consumers who purchased the Simple Life products experienced verifiable damage in paying premiums for a product that was not in their best interests, he said.
He described CommInsure’s activity as “manifestly unfair”, using a phrase that Mr Crennan has previously said is an emerging and increasingly important part of jurisprudence affecting financial services.
Though ASIC has recently criticised a focus on disclosure as an effective regulatory mechanism, Mr Crennan said insurers and other product providers need to observe the law as it stands.
“While disclosure is not the effective mechanism it was believed to be some time ago, that is a matter for the future and for policymakers,” he said.
ASIC is hopeful that the CommInsure dispute will act as legal precedent deterring insurers from hawking activity, in the absence of legislation banning the practice, which is due to be introduced by June 2020.
The regulator won an appeal in its dispute with Westpac Securities in October, which experts have also suggested will curb the sale of life insurance products by telephone.
Asian life insurer AIA officially took control of CommInsure on November 1.