Commonwealth Securities (CommSec) and Australian Investment Exchange (Ausiex) have been ordered to pay collective penalties of $27.12 million for systemic compliance failures related to brokerage fees.
The penalties, ordered by the Federal Court, relate to overcharging brokerage fees to CommSec customers on 120,933 occasions totalling over $4.3 million and will require CommSec to pay $20 million and Ausiex to pay $7.12 million for breaching the market integrity rules, Corporations Act and ASIC Act (CommSec only).
In addition to the penalties, the court also ordered an independent review and assessment of all systems and controls relating to the provision of financial services by CommSec and Ausiex, and a review of the remediation undertaken by the entities.
The court said CommSec and Ausiex contravened the market integrity rules on multiple occasions when overcharging the brokerage fees and failed to comply with client money reconciliation requirements and with their best execution policies and procedures.
It also stated CommSec and Ausiex did not provide accurate confirmations to customers for certain market transactions and did not have appropriate system filters to detect possible trades where there would be no change of beneficial owner.
Additionally, it also held that CommSec made a false or misleading representation by stating ASX Centre Point was an execution venue for orders, although it was not the case for orders from the Commonwealth Bank of Australia (CBA)-owned ASB Securities Limited trading platform from March 2015 to March 2018, despite ASB customers being advised their orders could be traded there.
In relation to the penalty decision, Justice Abraham said: “The number, breadth and duration of the reported conduct is significant and indicates that CommSec and Ausiex did not have adequate systems and processes in place to ensure compliance with their relevant obligations under their Australian financial services licences and pursuant to the market integrity rules and consequently the Corporations Act (and additionally for CommSec, the ASIC Act).”
At the time of the breaches, both CommSec and Ausiex were wholly owned subsidiaries of CBA and the court acknowledged their early admissions and cooperation in this matter. Ausiex has since been acquired by Nomura Research Institute.