AMP to pay $5.2m for failing to prevent insurance churn
AMP has been ordered to pay a $5.175 million penalty for failing to take reasonable steps to ensure its financial planners complied with the best interests duty and related obligations under the Corporations Act.
The Federal Court has ordered AMP to pay a hefty penalty for failing to prevent insurance churn by its financial planners.
In this case, ASIC alleged that a number of AMP’s financial planners engaged in ‘rewriting conduct’ – which is providing advice that results in the cancellation of the client’s existing insurance policies and the taking out of similar replacement policies by way of a new application rather than through a transfer.
By cancelling insurance policies and advising clients to submit new applications, clients were exposed to a number of significant risks and the planners received higher commissions than they would have by simply transferring the policies.
On Tuesday, the Federal Court noted that the rewriting conduct by one of AMP’s financial planners, Rommel Panganiban, was ‘morally indefensible’.
The Court accepted ASIC’s case that, having become aware of Mr Panganiban’s conduct, it was necessary for AMP to ascertain the extent of breaches by other planners to meet its legal obligations. AMP failed to do so, and the Court found, “the lack of an effective response is an illustration of how badly things had gone wrong within the organisation”.
In May 2019, the Court noted that AMP had admitted ASIC’s case against it. The Court on Tuesday found there was a total of six contraventions of section 961L of the Corporations Act and imposed a penalty of $5.175 million.
The Court also indicated that it will make orders requiring AMP to undertake a review and remediation program to ensure financial planning clients who were subject to rewriting conduct are detected and properly remediated.
“ASIC had a strong case against AMP, which resulted in AMP’s admissions in relation to ASIC’s case in May last year. We now have a decision from the Court which agrees with ASIC’s case that AMP failed to monitor and supervise its financial planners properly and in accordance with its legal obligations,” said ASIC deputy chair Daniel Crennan.
"ASIC believes the penalty applied by the Court today will act as a deterrent to AMP and other financial institutions to engage in such misconduct. AMP and other financial institutions must act in their clients’ best interests," Mr Crennan concluded.