Financial Institutions AMP and MLC Fined Millions for Breaching Customers’ Trust

The head office building of AMP Ltd, Australia's biggest retail wealth manager, is seen in central Sydney, Australia on Oct. 28, 2016. David Gray/Reuters

Australia’s Federal Court has issued AMP Group with a $24 million (US$16 million) fine for charging over 2000 deceased customers life insurance premiums and advice fees for nearly a decade.

Additionally, the court has also fined MLC $10 million (US$6.6 million) for failing to pay benefits to nearly 120 injured or disabled customers it had promised to cover from its rehabilitation programs.

The federal watchdog, the Australian Securities and Investments Commission (ASIC), made the announcement on May 19 after reaching settlements between the insurance company and the regulator.

Originally formed in 1849 as the Australian Mutual Provident Society, AMP Limited is a retail wealth management and banking business that operates in Australia and New Zealand, with wealth management platforms in Australia that offer superannuation, retirement and investment products.

The AMP Australian banking sector offers customers home loans, deposit and transaction accounts but does not provide credit cards or business or corporate banking services.

MLC is part of the Insignia Financial Group, which is one of the largest wealth managers in Australia, where the Insignia Financial Group provides services to around 2 million clients.

MLC provides investments and superannuation to corporate, institutional and retail clients and retirement solutions.

AMP and MLC both self-reported the violations and admitted to misconduct after failing to issue refunds or benefits to impacted customers, breaching the trust of customers in the process.

“ASIC will continue to take action against insurers who aren’t acting in accordance with their duty of utmost good faith towards their customers,” ASIC Deputy Chair Sarah Court said in the media release.

Charging Dead Customer’s Life Insurance

Four companies that are or were under the AMP Group breached the law and received more than $600,000 (US$399,000) in life insurance premiums and advice fees from superannuation accounts of deceased customers.

Of the $600,000 AMP received, over $500,000 (US$330,000) in insurance premiums were from superannuation accounts of deceased customers, with at least $350,000 (US$230,000) charged between May 2015 and August 2019.

Meanwhile, over $100,000 (US$66,000) in advice fees were charged from deceased customer accounts, with at least $75,000 (US$50,000) between May 2015 and August 2019.

The federal court found all four AMP companies had breached their obligations as Australian financial services licensees to act “efficiently, honestly and fairly.”

However, only two of the four were ordered to pay.

AMP Life Limited, which is now part of the Resolution Life Group, was penalised $18 million (US$12 million), and AMP Financial Planning Proprietary Limited was penalised $6 million (US$4 million).

AMP reported it has already remediated approximately $5.2 million (US$3.5 million) to more than 10,000 customers from 2011-2019. The remediation was completed in May 2020.

AMP Life Limited and AMP Financial Planning admitted that they accepted the insurance premiums and advice fees, even though there were reasonable grounds for believing that they were not able to supply the insurance or advice.

AMP Superannuation Limited and NM Superannuation Proprietary Limited had breaches that did not include a civil penalty.

Justice Hespe described the conduct of AMP as “very serious, wrongful behaviour.”

“The deceased members affected were vulnerable, obviously unable to monitor their accounts and were entirely reliant on the representatives of their estates,” Hespe said.

“The beneficiaries of those estates involved individuals who may be expected to have been emotionally vulnerable and unlikely to be familiar with the terms of a policy not issued to them or on their behalf.”

With AMP assuming there were no systemic issues, Hespe added that “the lack of oversight and executive management awareness of the issue was part of the problem,” which resulted in “a failure to have a process in place that was capable of identifying, investigating and remediating systemic issues for many years.”

AMP Group General Counsel David Cullen said in a media release that even with the strong progress in becoming a “customer-focused and purpose-led organisation” the incident “is not reflective of the AMP we are today.”

Cullen said AMP has apologised to all those affected and has been working with ASIC to remediate the estates of affected customers.

“We have made significant changes to our systems and processes in recent years designed to prevent this from recurring,” Cullen said.

Disabled Customers Left Out

Meanwhile, the federal court found MLC had not paid 119 injured or disabled customers after it promised to compensate them before they signed up for approved rehabilitation programs.

ASIC reported that MLC staff were not adequately trained and did not have clear systems in place to communicate to customers regarding their policy, policy schedules and premium notices.

MLC also did not have enough processes to review and update its medical definitions for critical illnesses in certain policies.

ASIC reported that MLC paid $11.8 million (US$7.8 million) to approximately 1,000 impacted customers.

The corporate watchdog also found that the insurer’s definition of “severe rheumatoid arthritis” wasn’t updated to keep up with the current standards, which would have resulted in customers suffering from the condition being denied the insurance coverage; while other customers were not mailed their policy statements properly, reported AAP.

“Customers should be able to trust that their insurer will pay the benefits promised to them and keep them properly informed if there are changes to their policies,” the court said.

“The failings recognised by the Court are the result of poor governance, poor controls and poor systems, such as legacy IT systems. MLC customers deserve to have their insurance policies administered properly.”

The court also ordered MLC to publish an ad outlining its misconduct on its website.