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Thursday 9 August 2018

18-235MR Banks to improve fraud protection systems following ASIC review

Following a review by ASIC, five Australian banks will improve their compliance measures and controls for deposit accounts that can be operated by a third party, such as a financial adviser.

ASIC’s industry-wide review was prompted by concerns raised through an investigation of the conduct of persons involved in Sherwin Financial Planners Pty Ltd (in liquidation) and Wickham Securities Pty Ltd (in liquidation). By the time the Sherwin group of companies collapsed in January 2013 they owed nearly $60 million to approximately 400 clients.

ASIC's review looked at the policies, procedures and controls that banks have in place to prevent fraud and unauthorised transactions for consumers who have deposit accounts that can be operated by their adviser.

ASIC’s review did not identify concerning levels of fraud, but found that banks could do more to manage the risks to customers associated with third party access to money in customers' accounts.

At the time of review, there were around 455,000 of these accounts open across the banks we reviewed, held by approximately 530,000 customers with balances totalling around $28.6 billion. These accounts are often marketed as 'cash management accounts'.

The findings of the review, outlined in Report 584, include:

  • The amount of control that advisers are provided with over a consumer's deposit account varies between different banks – from 'view only' access to complete control.
  • Banks should do more to explain the level of access that customers are providing to their financial adviser, and the potential risk of unauthorised transactions.
  • Control measures for protecting customers' accounts from unauthorised activity should be strengthened, and banks should do more to reduce the risks to customers.

The banks involved in the review have agreed to make improvements to their current practices based on our findings, including:

  • Ensuring account application forms adequately explain to customers that they will be giving the adviser authority to operate on their account, and sending follow up communications to customers after the account is opened with details of the authority that has been given;
  • Better monitoring of the advisers' use of these accounts and their transaction requests, and investigating any suspicious requests; and
  • Considering the circumstances of any fraud that occurs using these accounts and, where appropriate, remediating a customer who has lost funds due to unauthorised transactions by their adviser.

ASIC Deputy Chair Peter Kell said banks offering these accounts should review the measures they have in place to address the risk of fraud where a third party has authority to withdraw a customer's money and make improvements where necessary.

"Banks and advisers are often entrusted with their customers' life savings. They must be clear in communicating to their customers about any authority the customer's adviser has over their money."

"Moreover, banks must also have robust systems in place that ensure their customers' funds are protected from the risk of fraud."

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REP 584

Background

ASIC's review found that adviser-operated deposit accounts are most popular with older Australians. Of the 497,000 individuals identified through ASIC’s report, 73% were aged 50 years or older.

Banks have a legal obligation to exercise reasonable care and skill when processing transactions on a customer's account to ensure that those transactions are consistent with the wishes of the customer.

The five reviewed banks were:

  • Bendigo and Adelaide Bank Limited
  • Commonwealth Bank of Australia
  • Macquarie Bank Limited
  • National Australia Bank Limited
  • Westpac Banking Corporation.

While Bank of Queensland also provides accounts of this kind, it was not included in this review because it had been the subject of a separate earlier investigation.

ASIC has identified financial services for older Australians as an important area of focus. More information is here.

ASIC's MoneySmart website has information for consumers about working with a financial adviser and using cash management accounts.

It also has information about how to make a complaint about the operation of adviser-operated deposit accounts.

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Last updated: 09/08/2018 12:00