Australia's Federal Court has ordered wealth giant AMP to pay a A$5.175m ($3.48m) penalty after the court found that the bank had failed to prevent its financial planners from engaging in insurance churn.
Financial planners within AMP were found to have engaged in "rewriting conduct", which means they cancelled and renewed clients' insurance policies instead of transferring the existing ones. This practice exposed clients to a number of significant risks, while securing higher commissions for planners.
AMP first came to ASIC with the issue in November 2014, after becoming aware that one of its financial planners, Rommel Panganiban, was involved in misconduct.
The lack of an effective response is an illustration of how badly things had gone wrong within the organisation"
In its decision, the court noted that the rewriting conduct of Panganiban was "morally indefensible", but claimed that once it became aware of his misconduct, AMP failed to ascertain the extent of breaches by other planners to meet its legal obligations.
The court ruled that "the lack of an effective response is an illustration of how badly things had gone wrong within the organisation".
Justice Michael Lee found AMP was "the right place" for greed and said it was arguable the penalty - which was more than Australian Securities and Investments Commission (ASIC) asked for - was "an inadequate reflection of the seriousness of the conduct" exposed in the case, but the law limited the fine he could impose.
By writing a new policy, instead of continuing the old one or arranging a transfer into a new one, the planners earned large commissions and put clients at a financial disadvantage.
AMP initially admitted 40 clients might have been ripped off in this way but has subsequently identified an additional 626 clients who might have been exploited by their advisers, the court heard.
Although the payment of just over A$5m could be seen as significant, the penalty was determined under a previous regime, where the maximum fine for each contravention was A$1m.
Since then, civil penalties have substantially increased, now to be capped at A$525m, following legislation being introduced in March last year - but it applies to breaches that occurred after then.
In a statement issued following the ruling, AMP admitted to breaches of the best interests duty and its licensee responsibilities and apologised "unreservedly" for the conduct.
"AMP acknowledges the Federal Court's decision of six contraventions and a penalty of $A5.175 million.
"While insurance rewriting was not a common practice by financial advisers at AMP financial planning, the conduct identified in the case was clearly unacceptable and customers were let down."
The giant added that it has since improved monitoring and supervision processes within its advice network and introduced stronger measures to protect clients.