In Australian Securities & Investments Commission v AMP Financial Planning Pty Ltd (No 2) [2020] FCA 69, the Federal Court found that AMP Financial Planning Pty Ltd (AMPFP) committed six contraventions of section 961L of the Corporations Act related to the provision of advice to 40 clients by AMPFP’s representatives, where in the provision of that advice, each representative contravened each of the relevant best interests obligations (ss 961B, 961G and 961J), giving rise to AMPFP’s failing to take reasonable steps to prevent non-compliance. Justice Lee ordered a total penalty of $5.175 million.

The representative engaged in a form of “churning” which resulted in the payment of higher commissions. He was advising his clients to apply for new insurance products issued by AMP Life Limited (AMP Life). Rather than advising his clients to transfer their existing cover (or, for existing AMP Life insureds, advising them to retain their existing cover), he arranged for his clients to sign cancellation letters and then, some days later, arranged for an application for new insurance to be submitted to AMP Life, which stated that the client did not have other AMP Life insurance in force or was not eligible for insurance transfer.

Justice Lee observed that

“this penalty proceeding reflects a lamentable failure of corporate will to take the necessary steps to prevent greedy and unlawful conduct taking place, and a further failure to adopt a swift and proper remedial response….[its authorised representative] engaged in conduct which, to any right-thinking person, was morally indefensible.

Persons within AMPFP knew about the conduct and yet did not take, or even attempt to take, immediate steps to stop it. This occurred notwithstanding that some within AMPFP had a sufficient moral compass to recognise the conduct was wrong and, as AMPFP now accepts, the conduct amounted to a serious breach of the law…even when senior management at the highest level became involved, the necessary steps were not undertaken by AMPFP, and there remained a failure to take reasonable steps to ensure Rewriting Conduct did not continue to occur in the broader network.”

However the total penalty reflected Justice Lee’s finding that there was insufficient evidence to find that senior management of AMPFP had reason to believe that the Rewriting Conduct was common or widespread at the relevant time.

The total penalty was calculated for each of the contraventions of s 961L as follows.
(1) Failure to take reasonable steps to ensure that Panganiban complied with s 961B of the Act – $850,000

(2) Failure to take reasonable steps to ensure that Panganiban complied with s 961G of the Act – $850,000

(3) Failure to take reasonable steps to ensure that Panganiban complied with s 961J of the Act – $850,000

(4) Failure to take reasonable steps to ensure that the Other Authorised Representatives complied with s 961B of the Act – $875,000

(5) Failure to take reasonable steps to ensure that the Other Authorised Representatives complied with s 961G of the Act – $875,000

(6) Failure to take reasonable steps to ensure that the Other Authorised Representatives complied with s 961J of the Act – $875,000.

The penalty handed down by the Court was determined under the previous penalty regime where the maximum penalty for each contravention was $1 million. Penalties have increased after legislation was introduced in March 2019 and will apply to contraventions that occurred after March 2019. Civil penalties have significantly increased, now to be capped at $525 million.

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