AMP fined $5m for dodgy ‘insurance churn’ by finance adviser

A court has fined AMP’s financial planning arm for its failure to prevent ‘greedy and unlawful conduct’ by its financial planners.

AMP has been ordered to pay $5.175m in penalty. Picture: Hollie Adams

A Federal Court judge has slammed AMP’s financial planning arm for a “lamentable failure of corporate will” to take steps needed to prevent “greedy and unlawful conduct” by some of its financial planners.

In a judgment handed down on Wednesday, Justice Michael Lee criticised AMP Financial Planning’s lack of action in handling the case of financial planner Rommel Panganiban who, in 2013 and 2014, had “engaged in conduct which to any right thinking person was morally indefensible”.

The courted ordered AMP to pay to a penalty of $5.175m after it found the company had failed to take reasonable steps to ensure its financial planners complied with their duty to act in the best interest of their clients and other obligations under the Corporations Act.

The court found that AMP had been involved in a total of six contraventions over a two-year period from July 2013 to June 2015.

The judge said Panganiban was repeatedly engaging in a form of conduct called “churning” — advising clients to cancel their existence insurance policies and take out new policies — a practice which generated a 100 per cent commission for him on the new policies.

While questions about his behaviour were raised internally at the time by staffs who were uncomfortable that it was “not right by the client”, the judgment notes AMP awarded Panganiban a “green 4” rating, the second highest rating during the same period.

The judge was ruling in a case brought by the Australian Securities & Investments Commission against AMP Financial Planning.

ASIC said it believed the penalty applied by the court would “act as a deterrent to AMP and other financial institutions engaged in such misconduct”.

In his judgment, Justice Lee said the “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”.

Panganiban was sacked as an authorised AMP representative in September 2014.

AMP Financial Planning then sent a “bad apple” letter to ASIC in November 2014 alerting them to “a matter of concern in relation to a former authorised representative.”

The judge criticised AMP Financial Planning for telling ASIC that Panganiban’s case was one of a lone “bad apple”, when it had not done a proper investigation to determine the extent of the practice.

“In the absence of a proper and thorough investigation, there was no basis, let alone a reasonable basis, for the idea to be conveyed to ASIC that there was an isolated ‘bad apple’,” Justice Lee said.

The judgment criticised the AMP letter to ASIC for not mentioning the name of the planner or that an internal AMP email estimated his behaviour had affected 161 clients.

Justice Lee made it clear he was honing in on the culture at AMP Financial Planning which allowed Panganiban’s conduct to occur.

He accepted an allegation by ASIC that during the period 2013 and 2014 AMP Financial Planning did not have an adequate “culture of compliance”.

The judgment noted that Panganiban’s behaviour prompted concern within some AMP staff who lamented at the time that there was nothing they could do to prevent him cancelling clients’ insurance policies and then taking out new ones.

He said the contraventions in the case of Panganban and some other financial planners arose because of a “want of corporate will to ensure” the adequate workings of compliance systems.

“This was not the case of a ‘rogue’ falling between the narrow cracks of an otherwise well built compliance system,” Justice Lee said.

“Panganiban, though undoubtedly a rogue, fell through holes in what may well have been an expensive but was an inadequately operated compliance system.”

He said the system operated in such a way as the head of AMP’s new business and underwriting was aware that the conduct which was taking place was “not right by the client (but) despaired that there was nothing to be done”.

“The lack of prompt response to the Panganiban case was the result of passivity and inaction following identified misconduct,” the judgment said.

“Although there is no finding of dishonesty by those who should have taken prompt action, their insouciance is striking.

“One would have thought that alarm bells would have rung.

“The lack of an effective response is an illustration of how badly things had gone wrong within the organisation.”

Concern over AMP Financial Planning’s behaviour prompted ASIC to take action against it in June 2018.

ASIC alleged that five other representatives of AMP had also been involved in cases of churning in contravention of the Corporations Act in relation to advice being given to 10 clients.