ASIC Enforcement wrap: May 2023 | AMP copping hefty penalties for charging life insurance premiums from dead people

Dan Mackay, Director and Wilfred Cheng, Lawyer

ASIC Enforcement in May 2023.

ASIC has achieved significant results in with high-profile civil penalty cases in the Federal Court.  Of particular note:

• AMP Group was ordered to pay a hefty penalty of $24 million for charging life insurance premiums and financial advice fees on deceased customers.
• Civil penalty proceedings were commenced against Money3 Loans for granting vehicle loans to customers who could not repay them. 
• Following the first proceeding alleging unfair contract terms in an insurance contract last month against Auto & General Insurance Company Limited, ASIC followed up with a second such proceeding this month against HCF Life Insurance. 

May in summary – enforcement actions and outcomes

Civil Action:

• Civil Penalties Ordered:
• The Federal Court ordered MLC Limited to pay a $10 million penalty for failing to pay promised benefits under its insurance policies.  These failures stem from MLC Limited’s lack of appropriate systems to administer its policies. The penalties are in addition to the approximately $11.8 million in remediation paid to 1,000 impacted customers.
• The Federal Court ordered four companies that are or were part of the AMP Group to pay a combined penalty of $24 million for charging deceased customers over $500,000 in life insurance premiums and over $100,000 in financial advice fees.
• Civil Judgments Obtained:
• Benjamin Bell, former managing director of Australian Mines Limited (an ASX listed company), was fined $70,000 and disqualified from managing corporations for two years by the Federal Court for breaching duties as a director. Bell previously gave presentations at investment conferences where he falsely claimed that Australian Mines had secured funding to construct a plant for its main asset, and misleadingly stated the value of an offtake agreement it had with a customer. 
• Civil Proceedings Commenced:
• ASIC commenced civil proceedings in the Federal Court against HCF Life Insurance for unfair contract terms in insurance policies that could mislead the public. ASIC alleges that one of the terms in the insurance contracts suggest that HCG Life could deny coverage due to non-disclosure of a pre-existing condition, even if the customer was not aware of the condition. ASIC is seeking declarations that the term is void, injunctions and corrective orders, and a penalty.
• ASIC commenced civil penalty proceedings in the Federal Court against Money3 Loans Pty Ltd for alleged breaches of its responsible lending obligations when providing finance for the purchase of second-hand vehicles. ASIC alleges that Money3 failed to properly assess whether certain borrowers could meet their repayment obligations. Many of Money3’s customers were receiving Centrelink payments as their sole income, or were on low incomes. For more information, please read our article here.

Criminal:

• Sentencing – Four defendants were sentenced following guilty pleas involving offenses such as manipulating shares listed on the ASX, illegal dissemination of information, carrying on an unlicensed financial services business, recklessly failing to exercise a director’s powers for a proper purpose, providing false information to the auditors, and engaging in conduct resulting in the falsification of books and records
• Charges Laid / Indictment issued – Charges laid and indictments issued to three defendants on 42 counts of offences, involving offences such as insider trading, enabling or aiding the commission of fraud, failing to take reasonable steps to comply with disclosing interests in shares of a listed company, making available or giving false information in a document lodged with ASX, and making a false or misleading statement to a listed company

Administrative action:

• Interim Stop Orders – Target Market Determinations (TMDs) remain ASIC’s favourite new tool to achieve fast and effective administrative outcomes. ASIC made eight interim stop orders preventing Saxo Capital Markets from issuing new CFD products to retail clients because of deficiencies to target market determinations. The original TMDs included retail clients who intend to use CFDs as a “standalone or core component” of their investment portfolio, and retail clients seeking growth and income when it is acknowledged that a high proportion of CFD clients lose money trading CFDs. The orders were revoked two days later after Saxo amended the TMDs.
• Financial Services Bannings – One individual was banned from providing financial services for three years after having been found to have engaged in ‘naked’ short selling on 150 occasions involving a total of over $7 million worth of shares. 
• License Cancellation/Suspension – Four companies had their AFS licence cancelled or suspended. The reasons include the licensee ceasing to carry on a financial services business, the licensee having never provided any financial services under the licence since it was issued, and failure to lodge financial statements and compliance plan audit reports
• Director Disqualification – Three individuals were disqualified from managing a corporation for their involvement in the failure of 12 companies, which owed creditors a total of over $10 million, of which almost $2 million were owed to ATO. The three individuals were found to have failed to meet their obligations as a director, with behaviour such as failure to properly oversee the business activities of these companies, failure to ensure companies complied with their statutory obligations, failure to hold a workers compensations insurance policy, failure to lodge income tax returns, failure to ensure financial transactions were adequately recorded, and trading whilst knowing a company was insolvent.
• Infringement Notices – ASIC issued two infringement notices (that are public) – one against Future Super Investment Services Pty Ltd for greenwashing in relation to a social media post which may have been false and misleading by overstating the positive environmental impact of a fund, and another against Ord Minnett for two breaches of market integrity rules.

If any of the above is relevant to you or you want to know more, please feel free to get in touch.

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The contents of this article do not constitute legal advice and it is not intended to be a substitute for legal advice and should not be relied upon as such.  It is designed and intended as general information in summary form, current at the time of publication, for general informational purposes only.  You should seek legal advice or other professional advice in relation to any particular legal matters you or your organisation may have.

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