ASIC's submissions
81 In seeking pecuniary penalties in the aggregate sum of $20 million, ASIC submits that Mercer's contravening conduct was extensive, with thousands of contraventions committed affecting many clients. ASIC submits that the contraventions were very serious, including the charging of fees by Mercer to clients which it was not entitled to charge, failing to provide FDSs to clients or providing FDSs to clients which were inaccurate or incomplete, and making false and misleading representations to clients within the relevant FDSs.
82 In particular, ASIC submits that:
(a) the contraventions of s 962P concerning Mercer's charging of ongoing fees to Post-FOFA FDS Affected Clients without entitlement after the deemed termination of the clients was a serious failure;
(b) each deemed termination of the client's OSA (for the purposes of s 962P contraventions) was the consequence of the failure to provide any FDS at all or to give accurate and complete information in the FDS as to the client's entitlement to a Review Meeting, non-receipt of an invitation to a Review Meeting, or whether the client had received a Review Meeting;
(c) the contraventions of s 962S(1) concerned similar serious failures by Mercer to provide any FDS, or the FDS provided was inaccurate or incomplete in relation to Pre-FOFA Affected Clients; and
(d) the contraventions of s12DB(a), (e) and (i) concerning misleading representations as to there being an ongoing OSA on foot, Mercer being entitled to charge and the client being obliged to pay ongoing fees, and Mercer having provided all service entitlements in accordance with the terms of the OSA, were also objectively serious.
83 ASIC points to the fact that many clients were not told that they were entitled to a Review Meeting or whether such a meeting had taken place in the prior period. ASIC submits that the impact on clients not receiving FDSs was that they did not receive any up-to-date information on the services they were receiving for the fees they were paying. The clients who received inaccurate or incomplete information because they were not told they were entitled to a Review Meeting or whether a Review Meeting had taken place in the prior period were similarly deprived of meaningful information to determine whether or not to continue with the OSA. As to the false or misleading representations, ASIC submits they had the capacity to lead clients into error as to their rights and entitlements in respect of services, namely the Review Meeting.
84 ASIC submits that the Review Meetings were a valuable service, and formed a significant part of any OSA package offered by Mercer, pricing them at around $3,000 (increasing over the Relevant Period). ASIC draws particular attention to the fact that the contraventions occurred over a prolonged period, with Mercer admitting to contraventions from the start of the Relevant Period.
85 ASIC accepts, however, that because most of the contraventions occurred prior to 13 March 2019, it is appropriate to penalise the entirety of the contraventions by reference to the penalty regime applying before that date. This is a significant concession having regard to the fact that penalties increased substantially for conduct from 13 March 2019. ASIC also accepts that given the large number of contraventions it would not be appropriate to impose a penalty for each contravention, and nor would it be utile to impose a penalty in respect of each contravened provision. Rather, ASIC contends, the penalty to be imposed is best assessed by reference to other factors which promote specific and general deterrence.
86 ASIC submits that the contraventions arose from concerning deficiencies in Mercer's policies, procedures, and systems. It is said that these systems, and Mercer's internal audit processes, were incapable of identifying the failures or raising alerts, and, most significantly, that Mercer's systems and records have not allowed it to identify the genesis of the deficiencies. ASIC contends that this should have important consequences in relation to penalty determination. ASIC claims that this failure to identify the genesis of the problem makes it more difficult for the Court to be satisfied that Mercer has fully understood what went wrong so as to ensure this type of conduct is not repeated, and that it is unclear whether Mercer has placed itself in a position to avoid or minimise the prospect of similar contraventions occurring again. ASIC submits also that there is no evidence that Mercer has taken steps to improve its systems and records.
87 ASIC points to the fact that both Mercer and the wider Mercer Australia Group are significant providers of financial services, drawing particular attention to Mercer's revenue and profit/loss during the Relevant Period. ASIC notes that Mercer made a profit of between about $2.6 million and $6.9 million each year from 2012 to 2019, then made a large loss of approximately $18 million in 2020, and a significant profit of approximately $29 million in 2021. These large variations in profit/loss in 2020 and 2021 are due to redemption payments made to Mercer's clients in 2020, and capital contributions and intercompany loans received from its parent company (MAPL) in 2021. ASIC highlights that MAPL made a profit of around $26.76 million in 2020 and $80.98 million in 2021, and that its ultimate parent entity in the US made a profit of around USD $2 billion in 2020 and USD $3.14 billion in 2021. ASIC highlights that despite the resources of Mercer and the Mercer Australia Group, Mercer failed to ensure that its systems were capable of preventing the conduct in question or identifying the issue until late 2018, after a period of six year.
88 ASIC also submits that Mercer's failures and contraventions caused financial harm to clients. During the Penalty Period, the Post-FOFA FDS Affected Clients suffered loss and damage in the amount of $4,764,110 in ongoing fees paid after the termination of their OSA and despite not having been provided with complete information as to their OSA. The Pre-FOFA FDS Affected Clients suffered loss and damage in the amount of $9,701,233 in ongoing fees despite not having been provided with complete information as to their OSA. In addition, the 1,598 No FDS Clients received false or misleading information as their OSA. The misleading information concerned a service (the Review Meeting) that each client was contractually entitled to receive during the previous year.
89 On the other hand, however, ASIC acknowledges a number of mitigating factors. These include that:
(a) Mercer has not been found to have engaged in similar conduct in the past. Neither has it, nor any entity within the Mercer Australia Group, been the subject of previous regulatory action.
(b) Mercer has cooperated with and voluntarily assisted ASIC during its investigation prior to the commencement of this proceeding (including beyond mere compliance with compulsory notices) and has apologised for its conduct.
(c) Mercer has developed and implemented a review and remediation program. The program involved the review of all client files for 8,625 OSA clients for the period 6 January 2012 to 30 June 2019. The focus of the review was the ascertainment of whether Review Meetings had been conducted.
(d) Once the relevant issues were identified, Mercer worked promptly to investigate and address the errors, and to remediate affected clients. In total, Mercer has paid $30,383,536 in remediation and $14,794.254 in interest, with $8,764,976 of remediation and $4,288.849 of interest relating to clients where there was some evidence of their having received the Review Meeting. Mercer has accepted that these clients should nonetheless be regarded as not having received a Review Meeting. Further, as to remediation for failures within the Penalty Period, Mercer has refunded fees in the amount of $14,596,640.13 to OSA clients where there was no evidence or insufficient evidence to substantiate substitute the provision of a Review Meeting and has also paid $4,158,729.04 in interest.
90 ASIC accepts that this significant level of cooperation by Mercer and its remediation program are relevant to the assessment of penalty. ASIC maintains that but for such cooperation and remediation, a significantly higher penalty would have been sought.
91 Despite the limitations of the parity principle, ASIC submits that it retains importance and that like authorities offer some guidance as to the appropriate penalty. It refers in this regard to Australian Securities and Investments Commission v National Australia Bank Limited [2021] FCA 1013 (Davies J) (ASIC v NAB), where the Court imposed a pecuniary penalty of $18.5 million in respect of admitted contraventions of ss 962P and 962S of the Corporations Act, and s 12DB(1) of the ASIC Act. The conduct in question concerned NAB's failure to provide clients with all ongoing services in a relevant period and the failure to issue proper FDSs in time or at all.
92 In ASIC v NAB, Davies J noted that the seriousness of the contraventions lay "in the fact that the statutory objectives of the disclosure requirements…were not met" (at [86]). Her Honour viewed as important a potential loss of confidence in the reliability and accuracy of disclosure statements which was similar to banking customers' reliance on the integrity and good faith of their banks. ASIC submits that the same concerns are engaged in the present circumstances, all the more so given the nature and extent of the relevant contraventions.
93 In analogising the present case with ASIC v NAB, ASIC contends as follows:
(a) Nature and extent of contravening conduct: The contravening conduct in ASIC v NAB related to NAB's failure to provide clients with all ongoing services in a relevant period, and its failure to issue proper FDSs in time or at all. Compared to the current proceeding against Mercer, ASIC notes that there were significantly fewer contraventions committed by NAB, much less financial harm resulting to NAB's clients, and the contraventions were not as serious in critical respects. ASIC v NAB did not involve contraventions where NAB charged for services that were not provided. Rather, its clients received their contracted review meeting, but only after the statement period. ASIC acknowledges, however, that other aspects of NAB's contraventions were more serious, in particular, the FDSs in that case were seriously misleading.
(b) Compliance systems: NAB accepted that its policies, procedures and systems were inadequate to identify whether review services were provided to clients in accordance with the relevant arrangements, whether FDSs were provided to clients in accordance with its statutory obligations, whether the FDSs provided accurate information to the clients, and whether it was prohibited from charging any ongoing fees to particular clients. Mercer has admitted to similar deficiencies in its systems. However, NAB's systems deficiencies were the result of identified and articulated procedural failings. Mercer's systems and records, by contrast, have not allowed it to identify the causes or origins of the failings. ASIC submits that this aspect makes the present wrongdoing by Mercer more troubling than the conduct committed by NAB.
(c) Knowledge: ASIC acknowledges that NAB's contraventions were aggravated by a higher degree of knowledge than that in the present case, and does not contend that Mercer's contraventions were in any way intentional. In ASIC v NAB senior management were aware of relevant deficiencies in its systems, but the contraventions continued for some months after that. In the present case, once Mercer's management became aware of the relevant issues they conducted a series of reviews to identify the extent of the issues, and began developing a remediation plan shortly thereafter. ASIC submits, however, that Mercer's lack of knowledge cannot be a mitigating factor given the state of its records and systems. Rather, ASIC contends that Mercer's lack of knowledge can equally be said to be a consequence of its systemic deficiencies in recognising and raising alarms as to its own contravening conduct.
(d) Remediation, contrition and cooperation: ASIC accepts that as occurred in ASIC v NAB, Mercer has made generous remediation to relevant clients, admissions of the relevant contraventions, has co-operated with ASIC in its investigations, has been contrite, and has made public acknowledgements of its failing. ASIC accepts that Mercer's cooperation is relevant to penalty.
(e) Financial stature: While Mercer's financial stature is not of the same magnitude as that of the NAB, ASIC submits that its group resources are still significant and there is a substantial degree of interconnectedness within the group. Mercer's financial reports show that it has been directly supported by its parent entity (MAPL) with annual revenues in the hundreds of millions of Australian dollars (through the provision of a capital contribution in February 2021 and an intercompany loan in March 2021), and is indirectly supported by its ultimate parent entity, with annual revenues in the billions of US dollars.
94 It is ASIC's position that a higher penalty is required in the present case than that imposed in ASIC v NAB, by reason of the higher number of contraventions involved, the greater financial harm to clients, and the more serious deficiencies in Mercer's compliance systems.
95 ASIC submits finally that the course of conduct principle is of little assistance in the present case where thousands of different customers were affected over a long period of time. ASIC also notes that the course of conduct principle was not applied in ASIC v NAB. ASIC contends that the proposed penalty has already taken various mitigating factors into account and does not require any moderation by reference to the totality principle.
96 ASIC maintains that despite the various substantial mitigating factors which have saved considerably in public expenditure, the objective seriousness of Mercer's contraventions calls for a significant pecuniary penalty to satisfy general and specific deterrence. As to general deterrence, ASIC submits that the proposed penalty is intended to create a strong disincentive for large financial institutions to engage in similar conduct, and/or fail to maintain adequate processes and systems. As to specific deterrence, ASIC submits that the proposed penalty will encourage Mercer to ensure that its systems are adequate and to identify proactively and address compliance issues, mitigating the prospects of further contraventions.
97 In oral submissions senior counsel for ASIC noted that while Mercer may now no longer offer OSAs to clients and require them to opt-in to the services provided each year, a substantial penalty is still required in the interests of specific deterrence. ASIC submits that Mercer still enters into fixed term advisory arrangements for six or 12 months where the clients receive review services and pay monthly fees, and there remains a risk of contraventions reoccurring in relation to these arrangements. Additionally, ASIC submits that there is still a need to ensure that documents issued and template documents used are accurate and compliant with legislative requirements. Consequently, ASIC contends that a higher penalty is required to deter the same or similar contraventions, especially in circumstances where the root cause of the failures have not been identified.
98 Ultimately, it is ASIC's position that the $20 million penalty it seeks is required to impose the necessary "sting or burden" upon a financial service provider of Mercer's size, which is also a part of a far larger and very profitable group.