Macquarie cops $10m court fine over fraud exposure

Macquarie Bank will cough up a $10m penalty for poor systems and checks on its cash management deposit accounts that allowed a rogue adviser to siphon almost $3m in client funds.

Macquarie’s bulk transaction facility “effectively exposed their customers to the risk” of fraud, Justice Michael Wigney said on Friday.

Macquarie Bank has been slapped with a $10m penalty for having poor systems and checks on its cash management deposit accounts that allowed a rogue adviser to siphon almost $3m in client funds.

On Friday, Justice Michael Wigney said the bank had admitted, after being taken to court by the corporate regulator, that a system that allowed third parties such as financial advisers and stockbrokers to use a “fee authority” to withdraw funds from Macquarie’s CMA accounts – did not have effective controls and had put clients at risk.

As such, Macquarie had admitted to contravening section 912 of the Corporations Act by failing to do all things necessary to ensure its financial services were provided efficiently, honestly and fairly, the judge said.

“I order … that Macquarie pay to the Commonwealth of Australia within 28 days a pecuniary penalty in the amount of $10m in respect of Macquarie’s contravention,” Justice Wigney said.

The Australian Securities & Investments Commission in 2022 sued Macquarie over the failures, asking for “significant” fines for failing to properly monitor such withdrawals to ensure they were not fraudulent.

That came after disgraced financial adviser Ross Andrew Hopkins was sentenced to jail for embezzling millions of dollars from the Macquarie cash management accounts of wealthy clients using Macquarie’s bulk transacting systems.

Macquarie’s bulk transacting system or facility enabled third parties who had been granted authority by Macquarie’s cash management account holders to make multiple withdrawals from multiple CMAs at once.

The system could be used to embezzle clients funds as Macquarie did not have effective fraud defective systems up until May 2020, despite being aware of the risks.

“Macquarie admitted that its conduct between 1 May 2016 and 15 January 2020 failing to implement effective controls to prevent or detect conduct by third parties through its bulk transacting system that were outside the scope of the authority conferred on them in respect of fees, contravened section 912A (1)(a) of the Corporations Act,” Judge Wigney said in a verbal Judgement delivered Friday morning.

Macquarie’s bulk transaction facility “effectively exposed their customers to the risk that the third parties might conduct fraudulent transactions outside the terms of their authorities,” he said. He added that there was “no doubt” that senior Macquarie employees were “aware of that risk” over the relevant period.

“Specifically, (Macquarie) was aware that third parties who had been granted authorities in respect of their fees might misuse those authorities when using the bulk transacting system or facility.

“Indeed it was aware that third-party intermediaries including Mr Hopkins had so misused their authority,” the judge said. “He was not the only third party involved in such wrongdoing.”

Macquarie implemented a fraud monitoring program for bulk transacting in May 2020, and a review conducted in late 2020 and early 2021 did not identify any further instances of fraudulent transaction “involving bulk transactions concerning fees,” judge Wigney added.

ASIC chair Joe Longo said the penalty imposed on Macquarie - well short of the maximum $525m - was nonetheless sending an important message to banks and other financial institutions that they must have appropriate controls in place to protect customers from fraud.

“‘Fraud controls are increasingly important,” he said. “ASIC expects financial institutions to prioritise and invest in systems that protect their customers.

“Macquarie fell short of its obligation to do all things necessary to provide its financial services efficiently, honestly and fairly and as a result it has become liable for a substantial penalty.”

Macquarie dodged the maximum penalty of $525m available to the court due to several factors, including the need to impose a penalty that achieves its purpose to “deter not to punish” Justice Wigney said.

The judge also said that despite Macquarie not making any “clear or direct expression of contrition or remorse” it had eventually admitted its contravention after initially trying to defend itself against the regulator’s allegations.

ASIC had initially also accused Macquarie of misleading customers by falsely promoting its “limited party access” cash management accounts, telling clients it would check that the withdrawals actually pertained to fees, when in fact, it did not make the checks.

The “false or misleading representations” accusations however, were not addressed by Justice Wigney on Friday. This suggests the accusations were dropped during the mediation process that resulted in the admissions made by Macquarie and the joint statement of facts submitted to the court.

A media representative for the regulator declined to comment on the mediation talks but said those accusations “were not pursued”.

The statement of facts was not yet available as Macquarie had successfully asked for confidentiality orders to block parts of the joint statement of facts, particularly regarding how its current fraud monitoring systems work.

In a statement, Macquarie said its “dispute” with ASIC regarding the matter had been “resolved”.

“The Federal Court approved the parties’ proposed resolution of ASIC’s case,” said the company.

It said that after Mr Hopkins, who was not a Macquarie employee, misappropriated client funds through Macquarie’s CMA between 2016 and 2019, and after he failed to compensate the clients for their losses, “Macquarie took the decision to fully reimburse the 13 clients.”

“Macquarie acknowledges that it had contravened a statutory obligation in connection with the controls to monitor bulk transactions made under third party fee authorities on the CMA,” it said.

“In 2020, Macquarie introduced new controls and processes for third party fee authorities on the CMA to address the issue.”

The judge also ordered Macquarie to pay ASIC’s costs of the proceedings.

Originally published as Macquarie cops $10m court fine over fraud exposure