Australian banks face $1.15b compensation bill over fee-for-no-service

Australia’s major banks and insurance companies are now facing a $1.15 billion compensation bill to repay victims of their fee-for-no-service scandal, and the size of the bill is still growing.

The corporate regulator has also accused the financial institutions of dragging their feet on attempts to identify more victims, saying internal reviews of their systems have been “unreasonably delayed.”

The fees-for-no-service scandal was one of many identified in the banking royal commission.

The scandal stretches back to 2008 at least, and hundreds of thousands of bank customers have fallen victim.

Danielle Press, a commissioner of the Australian Securities and Investments Commission (ASIC), on Monday accused ANZ, NAB, Westpac, Commonwealth Bank, Macquarie and AMP of taking too long to complete further investigations into their fees-for-no-service system failures, despite repeated requests to make it a priority.

“'These reviews have been unreasonably delayed,” Ms Press said on Monday.

“ASIC acknowledges that they are large scale reviews – they relate to systemic failures over long periods with reviews going back six to 10 years and cover 36 licensees from the six institutions that currently authorise more than 7,000 advisers.

“However, we believe the institutions have failed to sufficiently prioritise and resource their reviews, particularly as ASIC advised them to commence the reviews in mid-2015 or early 2016,” she said.

ASIC estimates the size of the potential compensation bill now hits $1.15 billion - and it could get even bigger.

Under the compensation programs, AMP, ANZ, CBA, NAB and Westpac have collectively paid or offered approximately $350 million in compensation to customers who were charged financial advice fees for no service at the end of January 2019.

However, the institutions have set aside more than $800 million more for further potential compensation, but given their internal reviews are incomplete that amount may not be enough.

Ms Press said ASIC was also conducting a number of investigations into the fees-for-no-service scandal, and it planned to take “enforcement action” against licensees that have engaged in misconduct.