CommSec fined $20m for overcharging customers
CommSec and AUSIEX will pay the largest penalty ever handed down for breaches of Market Integrity Rules.
CommSec has been ordered to pay $20 million while AUSIEX will pay $7.12 million for systemic compliance failures over a nine-year period.
In a case brought by ASIC, the Federal Court found the two companies contravened Market Integrity Rules in a variety of ways and on multiple occasions.
The breaches include CommSec customers being overcharged brokerage fees on close to 121,000 occasions and to the tune of more than $4.3 million; failure by both companies to comply with client money reconciliation requirements; failure by both to provide accurate confirmations to customers for certain transactions; and CommSec not having appropriate system filters to detect wash trading.
Further, CommSec and AUSIEX failed to comply with their own best execution policies and procedures; CommSec failed to enter into the required warrant agreements forms with clients and provide an explanatory booklet before accepting a client order to purchase a warrant for the first time; and both failed to include required intermediary identification in regulatory data submitted to relevant operators.
"The number, breadth and duration of the Reported Conduct is significant and indicates that CommSec and AUSIEX did not have adequate systems and processes in place to ensure compliance with their relevant obligations under their AFSLs and pursuant to the Market Integrity Rules and consequently, the Corporations Act (and additionally for CommSec, the ASIC Act)," the presiding Justice Abraham said.
"The conduct is properly characterised as being extensive and systematic, occurring over an extended period of time, which affected multiple aspects of the businesses of both CommSec and AUSIEX."
The court also held that CommSec made a false or misleading representation when it said it considered ASX CentrePoint an execution venue for those customers who submitted orders via the ASB Securities platform when it did not. This meant some customers who placed certain orders through the ASB platform were excluded from trading on CentrePoint despite having been told they could.
The court has ordered an independent review of all systems and controls relating to CommSec and AUSIEX's services be carried out, along with a review of their respective remediation processes. Commonwealth Bank said it has already paid total remediation of $6.5 million including interest.
"It is essential that market participants have appropriate systems, governance and controls in place to ensure they meet their obligations to both their customers and the financial markets in which they operate. CommSec and AUSIEX both demonstrated widespread, systemic compliance failures over a nine-year period. CommSec's failures also resulted in millions of dollars being overcharged to customers," ASIC deputy chair Sarah Court said.
"When market participants fail to comply with the Market Integrity Rules, they undermine the integrity of Australia's financial markets. As today's decision demonstrates, the penalties for engaging in this conduct are significant. ASIC will continue to take action and seek significant penalties where market and trading participants fail to comply."
Commonwealth Bank acknowledged the decision, saying it did not defend the proceedings.
"We have strengthened our systems and procedures to address these errors. We will implement a Compliance Programme as agreed with ASIC and required by the court which will be monitored by an Independent Expert and we fully support this process," CommSec executive general manager Richard Burns said.
The bank added that many of the issues arose from errors such as system coding or systems issues, human error and/or data entry errors.
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