Yahoo Finance Westpac to cop $9.15 million fine for letting a financial adviser break the law
Westpac will cop a $9.15 million fine after the Federal Court found the major bank allowed a financial adviser to break the law, before reporting the adviser to the regulator.
The court found Westpac breached the Corporations Act 22 times because former Westpac financial adviser Sudhir Sinha failed to act in the best interest of his clients.
Though Perth-based Sinha was the one who broke the law, corporate watchdog ASIC said in a statement that Westpac is responsible.
“Westpac is directly liable for these breaches, which attracts a significant civil penalty, because the law imposes a specific liability on licensees for the breaches of their financial advisers,” ASIC stated.
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ASIC launched civil penalty proceedings against Westpac in June 2018 after an investigation revealed that internal Westpac reviews had actually raised concerns about Westpac financial planner Sudhir Sinha’s compliance history – yet he continued to receive ‘high achievement’ ratings from the bank.
The big bank only reported Sinha’s conduct to the corporate watchdog in March 2015, after Westpac dismissed Sinha in 2014.
Westpac will also pay ASIC’s legal costs.
What did Sinha do?
The court found the financial adviser had failed to act in clients’ best interests; provided inappropriate financial advice; and failed to prioritise clients’ interests.
And Westpac is directly responsible for Sinha’s breaches.
“The relationship between Westpac and Mr Sinha was structured so that Mr Sinha was able to share in the commissions and fees earned or derived when, as a result of his advice or recommendations, clients signed-up for financial products in which Westpac or associated companies had an interest,” said Justice Wigney.
“As will be seen, that rather cosy arrangement turned out to be fruitful for both Mr Sinha and Westpac, but not always for their clients.”
ASIC deputy chair Daniel Crennan QC said Westpac had failed to properly monitor and supervise Sinha.
“This meant his customers were not provided with advice in their best interests,” Crennan QC said.
“ASIC brought this case as a result of Westpac’s suspected contraventions of the law and failures to observe its duties. The court has found that Westpac contravened the law in this regard.”
Westpac benefited from Sinha’s wrongdoing
According to the Federal Court judge, Westpac was reaping the benefits of the misdeeds.
“Westpac also stood to gain from Mr Sinha’s actions,” Wigney said.
“That perhaps explains why Mr Sinha was permitted to continue as Westpac’s representative and partner despite the serious compliance breaches which were exposed by the 2010 investigation.
“It is tolerably clear that, at least prior to the commencement of the FoFA reforms, some officers or employees at Westpac were either unable or unwilling to terminate the services of a representative who achieved high achievement ratings and was plainly proficient and successful at promoting the financial products of Westpac and its associates.
“It may readily be inferred that Westpac’s compliance systems and practices were less than rigorously applied, at least in Mr Sinha’s case.”
Wigney also said that recommendations Sinha made to clients were “deficient and defective, both as a matter of process and in substance”.
“That should not have been a complete surprise to Westpac because Mr Sinha’s less than satisfactory conduct as a financial adviser had previously come to the attention of certain senior officers of Westpac as a result of various internal compliance reviews, audits or investigations,” the judge said.
Westpac should have known from 1 July 2013 that there was a significant risk that Sinha wouldn’t comply with the obligation to act in clients’ best interests. In this way, Westpac failed to do everything necessary to ensure that the financial services provided under its license were given efficiently, honestly and fairly, and complied with the law. This also contravened other sections of the Act.
ASIC banned Sinha from providing financial services for five years in June 2017.
Westpac responds
In a statement to Yahoo Finance, a Westpac spokesperson said it acknowledged the Federal Court’s findings.
“Westpac has continued to fully co-operate with ASIC since reporting the former adviser more than four years ago,” the spokesperson said.
The bank had identified compliance concerns with Sinha in May 2014 through a data analytics tool called Planner Risk Insights.
“Following detection, Westpac commenced an investigation, suspended Mr Sinha in September 2014 and subsequently dismissed Mr Sinha in November 2014.
“Westpac proactively initiated remediation to identify and compensate affected customers and has completed remediation activities,” the spokesperson added.
$9.15 million fine rounds out a bad year for Westpac
Westpac was recently rocked by a money laundering scandal that found the major bank breached the law 23 million times, resulting in “serious and systemic non-compliance”.
Financial crime watchdog AUSTRAC alleged that Westpac didn’t carry out due diligence on transactions to the Philippines and South East Asia that had known child exploitation indicators.
As a result of the scandal, the bank’s CEO Brian Hartzer and chairman Lindsay Maxsted stepped down from their roles, with chief financial officer commenting in the top job on 2 December 2019.
A class action claim has been launched against the major bank by law firm Phi Finney McDonald on behalf of shareholders that bought shares between 16 December 2013 and 19 November 2019.
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