Commonwealth Bank-owned stockbroker CommSec faces $20 million in penalties after it overcharged customers more than 100,000 times at a total cost of $4 million.
The Australian Securities and Investments Commission (ASIC) appeared before the Federal Court on Thursday, where it argued for $20 million in total penalties against the CommSec retail broking business.
ASIC also pushed for an extra $7.12 million penalty against AUSIEX, formerly known as CommSec Adviser Services, a wholesale broker sold to Japan’s Nomura Research Institute last April, for systemic breaches between August 2010 and June 2020, The Australian Financial Review reported.
“AUSIEX identified and reported the issues in this case to ASIC and AUSIEX is undertaking an extensive programme of compliance,” an AUSIEX spokeswoman told AFR.
CBA said it is not defending the proceedings and is awaiting judgment.
“CommSec has previously agreed with ASIC to enter into a court-ordered compliance program as part of the proceedings,” a CBA spokesman told the publication. “The proceedings relate to errors that were reported to ASIC by CommSec.”
CBA lawyers agreed with the regulator’s proposed penalties and “unreservedly apologised” for the breaches.
The proposed penalties were way below the maximum $525 million civil penalties to companies found to have breached the Corporations Act, following amendments to the act in 2019.
The legal action was first filed by ASIC in March 2021, alleging the two brokers of breaching the Corporations Act after failing to ensure financial services covered by their financial services licences were provided honestly, efficiently, and fairly, AFR said.
CommSec allegedly overcharged brokerage fees worth $4,352,194 between 2010-2020, on 120,933 occasions, and both CommSec and AUSIEX purportedly did not provide accurate confirmations to customers for certain transactions.
While some customers were charged $29.95 to make a trade, even if they were eligible for a lower $19.95 fee, others were charged a $59.95 phone broker rate instead of a cheaper internet rate.
Elizabeth Collins, counsel for CBA, said the “unacceptably large” breaches occurred for a significant amount, but the platforms did not gain any financial benefit from the failures.
“There’s no suggestion of intent to profit,” Collins told AFR. “We would say that, without seeking to detract from the seriousness, many of the breaches may be described as technical in nature.”
ASIC also said the two platforms did not comply with client money-reconciliation requirements, nor did they have appropriate system filters to detect trades with no change of beneficial owner, or wash trading.
CommSec allegedly also failed to enter into required warrant agreement forms with clients and offer explanatory booklets before accepting first-time client warrant orders, AFR said.
The stockbroker has refunded a total of $6.5 million of overcharged brokerage fees with interest in remediation.
Sarah Pritchard, counsel for ASIC, said the total penalties include a 30% discount proposed by both parties to account for CBA’s willingness to cooperate, steps taken to remediate customers and commitment to improvement.
Justice Wendy Abraham has reserved her decision on appropriate penalties, AFR reported.
