Legal threat intensifies for AMP
Financial services giant AMP could face additional legal action from the corporate regulator as fallout from the banking inquiry interim report continues, says Morningstar.
Mentioned: AMP Ltd (AMP)
Financial services giant AMP could face additional legal action from the corporate regulator as fallout from the banking royal commission interim report continues, says Morningstar.
Speaking after the release on Friday of the banking inquiry’s damning interim report, Morningstar equities analyst Chanaka Gunasekera said there's a "much stronger likelihood" Australian Securities & Investments Commission will pursue further legal action against the company over the fees-for-no-services scandal and allegations that they made false and misleading statements to the corporate regulator.
"Commissioner Hayne's strong series of statements in relation to the poor state of regulatory response to misconduct leads me to conclude that there is a strong likelihood that they [ASIC] will take court action again AMP," he said.
In the scathing 1000-page report, Hayne said that when misconduct comes to the attention of regulators, they must "always ask whether it can make a case that there has been a breach and, if it can, then ask why it would not be in the public interest to bring proceedings to penalise the breach."
"Laws are to be obeyed," Hayne said. "Penalties are prescribed for failure to obey the law because society expects and requires obedience to the law."
ASIC has already filed a civil claim in the Federal Court against AMP (ASX: AMP) for its alleged failure to act against financial planners who "churned" customers out of one insurance policy and into another to collect the upfront commission.
"ASIC alleges that this type of advice was inappropriate, and that the financial planners failed to act in the best interests of the clients and to prioritise the interests of the clients," the regulator said in a statement.
AMP also faces a wave of shareholder class action lawsuits after the banking inquiry unearthed a string of misconduct claims within its wealth arm.
Local firms Shine Lawyers and Slater + Gordon, along with global firm Quinn Emanuel (QE), each announced shareholder class action investigations over misleading statements made by AMP to the corporate regulator ASIC in April.
'Laws are to be obeyed': commissioner Kenneth Hayne
Gunasekera suspects AMP's vertical integration model, first flagged as a key target for break-up by analysts in May, may survive the royal commission, which is due to conclude in February. However, the interim report has dampened his previously strong conviction.
"As the commissioner wrote, it wasn't just a few bad apples in the system, but a systematic issue which requires a system wide response," he says.
"However, he also said the laws with respect to the financial services sector has already complex and legislating the removal of vertical integration would add another layer of complexity.
"On balance, I still don't think they're going to remove vertical integration, but I have less conviction of that view."
In May this year, the Hayne royal commission's alarming findings of poor corporate governance and culture at AMP forced Morningstar equity analysts to downgrade the stewardship rating of the wealth manager to "poor".
"AMP's heritage brand has been trashed and its long-term strategy is now uncertain,” Gunasekera wrote at the time.
In her closing address to the royal commission, counsel assisting the inquiry Rowena Orr, QC invited Hayne to find that AMP breached provisions the Corporations Act by misleading the regulator 20 times about its deliberate practice of charging fees to customers who were no longer receiving financial advice.
The inquiry also heard evidence of AMP’s attempt to influence a report by lawyers Clayton Utz, which they indicated to ASIC was external and independent. Orr said their characterisation was "inaccurate, if not misleading".
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Emma Rapaport is a reporter with Morningstar Australia, based in Sydney.
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