5.2.4 The evidence of Mr Gration
139 By his affidavit, Mr Gration deposed that Ms Dean spoke to "almost every customer" who had submitted an application to invest in High Livez.
140 In its Written Statement Required Under Section 912C Notice dated 25 November 2022 (Written Statement), Firstmac gave this answer to the following question posed by ASIC:
7 Was there a requirement for Kerry Scutt (nee Dean) to contact an individual via phone prior to the individual investing in High Livez?
Firstmac considers that there was a requirement for Ms Scutt to speak to an individual via telephone prior to that individual investing in High Livez. However, Firstmac now understands that, although Ms Scutt did contact the vast majority of individuals via phone prior to the individual investing in High Livez, and cannot recall a specific instance where this did not occur, Ms Scutt did not consider it to be a requirement. Firstmac became aware of this when making enquiries with Ms Scutt on receipt of this notice. Ms Scutt is mistaken in this view.
Firstmac has since conducted a training session with Ms Scutt and confirmed with Ms Scutt that it is a requirement to speak to every individual prior to them investing in High Livez. Compliance with this requirement will be monitored by Ms Scutt's manager.
(Emphasis original.)
141 When taken to this answer, Mr Gration indicated that Ms Dean was mistaken in her view that it was not a requirement to speak to an individual via telephone prior to that individual investing in High Livez.
142 By his affidavit, Mr Gration deposed that he "was confident that [Ms Dean] was aware of the capital guarantee and investment timeframe features of High Livez and able to explain those features to customers" and that he was "also aware that a sales script was available to [Ms Dean] and her assistant to use as a guide for conducting calls" which contained "information regarding the capital guarantee and investment timeframe aspects of High Livez".
143 Under cross-examination, Mr Gration said that the script is one of the reasonable steps that he took in the implementation of the DDO in determining whether TD Holders were in the target market: T407/33-36. When he was asked whether he was aware that Ms Dean was not using the approved scripts for almost all of the relevant period, Mr Gration said that he had been made aware that she was not using the scripts (in that she was not meticulously reading from them), but for specifically what period, he was not aware: T408/32-40.
144 The Written Statement gave these answers to the following questions posed by ASIC:
8 In relation to paragraph 7 above, if such a requirement existed:
8.1 identify when the requirement was introduced and whether it is ongoing;
8.2 if the requirement was recorded in writing, identify:
8.2.1 any books or records that record the requirement;
8.2.2 when those books or records were created;
8.2.3 who was responsible for creating them;
8.3 if the requirement was not recorded in writing, identify:
8.3.1 who was responsible for creating the requirement; and
8.3.2 how was the requirement conveyed to Ms Scutt.
8.4 as part of the requirement, was Ms Scutt required to inform Firstmac Term Deposit holders of the following attributes of High Lives [sic]: that there was no government guarantee; and the minimum investment timeframe was three to five years.
8.1 The requirement has been in place since Ms Scutt commenced her current role in February 2015 and is ongoing.
8.2 The requirement is recorded in writing by the scripts that were provided to Ms Scutt. While the scripts do not explicitly state that every customer must be called, the existence of the scripts and the requirement to discuss the information in the script with customers evidences the requirement that customers be spoken to. The scripts were originally created by Mr Andrew Dear, a financial planner employed by Firstmac in 2012.
8.3 Not applicable as the requirement was recorded in writing - see 8.2 above.
8.4 Firstmac understands that Ms Scutt was required to inform all prospective investors in High Livez (whether they were term deposit holders or not) that there was no government guarantee, and of the minimum recommended investment timeframe in High Livez. These matters were dealt with in Ms Scutt's script, and Firstmac understood that Ms Scutt ensured these items were mentioned on every call with prospective investors. However, Firstmac now understands that, although Ms Scutt did inform some individuals to whom she spoke of these matters, she did not consider this to be a requirement in all cases. Ms Scutt is mistaken in this view.
Firstmac became aware of this when making enquiries with Ms Scutt on receipt of this notice. Firstmac has since conducted a training session with Ms Scutt and confirmed with Ms Scutt that it is a requirement to mention these items to every prospective investor in High Livez. Compliance with this requirement will be monitored by Ms Scutt's manager.
(Emphasis original.)
145 When asked if Ms Dean's failure to raise on calls with TD Holders the issue of whether they held a capital guaranteed objective or short investment timeframe objective was a systemic failure in her training and instruction, Mr Gration answered that the training "could have been better", but he would not describe it as a systemic failure. Mr Gration also agreed that, in terms of Ms Cunningham monitoring whether Ms Dean was complying with the disclosure requirements in relation to capital guaranteed objectives and short investment timeframe objectives, it would have been a simple matter for Ms Cunningham to listen to the calls which Ms Dean had with customers in her audit and compliance function: T411/45 to T412/9.
146 As to the issue of sending a High Livez PDS to a TD Holder who had told Ms Dean that the government guarantee was important to them, or that they were not interested in investing for more than a short investment timeframe, Mr Gration initially agreed that it was possible that that had occurred, but then there was this exchange:
Well, it wasn't part of Firstmac's systems and processes during the relevant period to prevent the sending of the PDS to a term deposit holder in those instances, was it?---If a customer had made that statement to Kerry, and as I mentioned, and you also mentioned, every call was recorded. Every customer transaction, activity, job, was in the system, and there was an opportunity for Kerry to make notes in that system with regard to those sorts of comments. And I also believe that Kerry had - had such a good hold of customer information, that she would retain that.
I don't think that answered my question, Mr Gration. My question was, it was not part of Firstmac's systems or processes to prevent the sending of the PDS to a term deposit holder where Ms Dean had actually found out that they either had a capital guarantee objective or a short investment time frame.?---Well, Ms Dean was operating a number of those systems and processes. So she certainly had the ability to do exactly what you're describing.
Yes, so - - -?---So there wasn't any system trigger, if that's what you're asking.
Well, let's just be clear. If a term deposit customer had told her that they were interested in a capital guarantee objective, it was not part of Firstmac's systems or processes to stop the email going out without the PDS attached?---Well, part of the Firstmac systems and processes were being conducted by Kerry, and it certainly was Firstmac's system and process that we didn't deliver any material across the entire business to any prospective customer that they specifically told us not to deliver.
Right. So - - -?---However, there was not, that I'm aware of, a button or a trigger in the - built into the system itself to prevent that from happening.
…
And it was your understanding, was it, that if a customer had expressed the view that they held a capital guarantee objective or a short investment time frame or were just not interested in High Livez, your understanding was the PDS would not be sent to them, is that right?---My understanding is that Kerry, being the very qualified, experienced and successful operator that she is, would not intentionally send a document of any type to a customer who had said that they didn't want to receive it, as part of her process, as part of her good customer service.
Well, I think you answered part of my question, Mr Gratian [sic]. Let's focus again on this. Is it your understanding of Firstmac's systems and processes that Ms Dean should not send a PDS to someone who had expressed to her that they held a capital guarantee objective or a short investment time frame?---My expectation of Kerry is if they had expressed that view to her, that she would not send them High Livez information.
147 By his affidavit, Mr Gration deposed that, by reference to emails which were sent to TD Holders whose term deposits were nearing maturity, "I am aware that these types of emails have been sent to customers who held Firstmac Term Deposits which were nearing maturity for a number of years prior to the introduction of DDO, and Ms [Dean's] practice was to speak to these customers to obtain instructions from them at maturity".
148 Mr Gration gave evidence under cross-examination that it was important that Firstmac call the TD Holders upon the maturity of their term deposit, which was also an opportunity to introduce High Livez. He said that he understood that this had been going on since at least about November 2016: T432/8-17.
149 Mr Gration also agreed that TD Holders should have been asked about their investment timeframe before they transferred into High Livez, saying:
They certainly should have been - and this is going back to the script. That same - the investment time frame is mentioned in the script, and it's the role of the salesperson to provide an overview of the product and hit the key messages in a call of this nature.
150 He also said he would regard that as essential and important, and he agreed that it was essential not only in relation to the investment timeframe but also the capital guarantee, saying "[t]hat's why the script is there. That's why the PDS is there. That's why those steps leading up to the investment are there": T436/5-20.
151 As to the manner in which communications with customers were able to be recorded and retained by those within Firstmac, Mr Gration gave this evidence:
Okay. And you would agree, wouldn't you, that a reason for having a written product governance framework setting out the steps to be taken to comply with the DDO is so that Firstmac staff could readily refer to it before engaging in retail product distribution conduct. Would you agree with that?---I made the comment earlier that everything we did was on the system. There was nothing off system. So all documentation, including scripts, for example, were available on the system. So - and everything was - every communication, every interaction was captured by the system. And something I wanted to add was that, you know, when Kerry sent email she didn't send them from her email account. She sent them from the system, and at the time of opening that system, she had an opportunity to review any hot messages that were on the system - that were always on the front page of the system, and if there had been a hot message in there that said "Capital guarantee required", she would have seen that at the time of interacting with that customer.
152 His evidence continued:
It can be, including, would you agree, if a customer has previously said that they hold a capital guarantee objective or a short investment time frame?---Well, if they had said that, Kerry has the opportunity to record that on the system, including, as I say, as a what are they called - for a hot note - which is a front and centre note that she would see whenever she opened that customer's account, to do anything with that customer, which is what's required. It's all on the system. So when Kerry was sending her - sending an email, she didn't go to her email account. She went to the customer's system account, and had a summary of the information of the customer in front of her, including the hot message.
[Is] what you're telling me is, if a customer had said, "I have a capital guarantee objective or a short investment timeframe," that would have been recorded as - - -?---Kerry had the opportunity to record that.
So it's an opportunity?---Well, I can't say categorically that she did that ever.
I see, so in terms of ---?---That's - that was the purpose of the system.
I see - - - ? - - - and that function.
And so, in terms of - so that system, if it was implemented and used, should have prevented emails going to Firstmac term deposit holders who had expressed the view that they had a capital guarantee objective or a short investment timeframe?---That was certainly - - -
Is that right?--- - - - the way it could have operated, yes.
And when the hard copy mail-out went out, I think you just told me that kind of data was not consulted?---Well, I think you asked me, did I - did I review any data.
Okay. Yes. You didn't - - - ? - - - and I'm not aware [of] that hot message existing on any account. I'm just saying it was possible for that to happen.
I see?---I'm not saying it did, in fact, happen.
153 On the issue of a written product governance framework, Mr Gration conceded that, with the benefit of hindsight, there might have been some more documentation prepared: T423/40-41.