Adviser misconduct penalties likely to increase: Moody’s

Penalties imposed on wealth managers and banks are likely to increase in the wake of the royal commission, according to Moody’s Investors Service.

In a report examining the impact the commission will have on bank profitability, the ratings house cautioned that penalties for misconduct and non-compliance will likely be larger than ones previously dealt.

“In the event that any banks or wealth managers ultimately receive penalties in relation to the findings of the commission, there is a risk that they may be heavier than those handed down in the past, considering the extent of those findings which include alleged breaches of the Corporations Act and the National Consumer Credit Protection Act,” the report said.

Moody's attributed this in part to instances of misconduct  in the wealth management space uncovered during the royal commission, " particularly focusing on the role of financial advisers and the suitability of their advice and fees they charge".


"In many instances, there has been evidence of advice that was not suitable for clients' personal circumstances, incurred unreasonable fees, or both. In a number of cases, individual financial advisers' employers may also have been aware that poor advice had been provided but had failed to take adequate action," the report said.

The report noted that ASIC has typically imposed penalties ranging between $1 million and $2 million for self-reported issues, but that recent cases involving serious issues have been “far more substantial”.

Notable among these recent cases, the report said, was Commonwealth Bank’s $700 million penalty for violating the Anti-Money Laundering and Counter-Terrorism Financing Act.

The report added that increased penalties are unlikely to impact bank profitability.

“While the exact size and extent of penalties is difficult to foresee now, we do nevertheless expect them to be manageable for banks, considering their strong profitability,” the report said.

“These more recent penalties are large relative to historical precedents in the Australian financial sector, but are still small compared to these banks' profits, which fell in the range of $7-10 billion in 2017.”

Adviser misconduct penalties likely to increase: Moody’s
Moody's, Moody's Investors Service,penalties, misconduct penalty, non-compliance penalty, ASIC, ASIC penalty, Commonwealth Bank, CBA, CommBank, AUSTRAC, fine,
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