What happened
In the period from 1 July 2013 to 30 June 2015 AMP Financial Planning Pty Ltd (AMPFP), the holder of an Australian financial services licence, failed to take reasonable steps to ensure that six of its authorised representatives complied with the best interests obligations contained in ss 961B, 961G and 961J of the Corporations Act 2001 (Cth). The underlying conduct, described throughout the judgment as Rewriting Conduct, involved advising retail clients to cancel existing AMP Life insurance policies and replace them with new policies that required fresh underwriting. This generated substantially higher commissions for the representatives while exposing clients to Event Risk (being uninsured for a period), Underwriting Risk (possible refusal or less favourable terms including loadings and exclusions), the restarting of a 13-month suicide exclusion period, and a three-year period during which the insurer could avoid the policy for innocent non-disclosure.
The most prominent representative was Rommel Panganiban. Internal documents show that concerns about his conduct were raised as early as December 2012 by a senior underwriter, Mr Todd Traynor, who noted that the practice was “not right by the client” yet “unfortunately we have no way to stop” it. By February 2013 the Planner Supervision team described 11 of Panganiban’s applications as “very suspicious”. Ms Jane Gregory’s investigation in March 2013 recorded Mr Traynor describing the practice as “a common scenario”. Despite these warnings, Panganiban received a “green 4” audit rating (the second highest) in 2013 and a “B” rating in August 2014. His authorisation was not revoked until 15 September 2014, more than two and a half years after the first internal alerts.
An Issues Panel convened on 30 September 2014 initially recommended that the matter be reported to ASIC as a significant breach under s 912D. A reconstituted panel meeting on 16 October 2014, attended by the Managing Director of AMPFP and other senior officers, reversed that position, deciding the matter was not a breach and that Panganiban could be reported merely as a “bad apple”. The letter sent to ASIC on 3 November 2014 omitted any reference to the estimated 161 affected clients identified in an internal email only days earlier. ASIC’s subsequent investigation, conducted through statutory notices from 2015, ultimately revealed five further authorised representatives (Messrs McCarthy, Mink, Needs, Fong and Barlow) who had engaged in similar Rewriting Conduct with ten additional clients.
Proceedings were commenced in June 2018. AMPFP initially admitted only the contraventions relating to Panganiban. After a joint expert report (JER) was served in 2019, AMPFP admitted all pleaded contraventions of ss 961B, 961G, 961J and 961L, as well as the flow-on contraventions of s 912A(1)(a), (c) and (ca). The dispute narrowed to the number of contraventions of s 961L, the appropriate pecuniary penalty, the utility of declarations under s 21 of the Federal Court of Australia Act 1976 (Cth) for the s 912A(1) breaches, and the precise form of remediation and compliance orders under s 1101B. After a contested hearing Lee J delivered judgment on 5 February 2020.
Why the court decided this way
Lee J’s reasoning begins with a candid assessment that AMPFP’s conduct reflected “a lamentable failure of corporate will”. His Honour observed that a culture of compliance “must transcend simply putting in place expensive ‘systems’” and that the elaborate structures within AMPFP proved ineffective because there was no “instinctive institutional commitment to playing with a straight bat”.
On the number of contraventions, the Court rejected ASIC’s primary submission of 120 separate breaches (one for each client, each obligation and each representative). The text of s 961L is directed to the licensee’s own conduct in taking (or failing to take) reasonable steps; it is a “failure to perform” norm that operates independently of whether any representative has in fact breached the best interests obligations. The provision does not “look through” to each instance of advice in the manner of s 961K. At the same time, AMPFP’s contention that there were only two contraventions (one for Panganiban and one for the Other Authorised Representatives) was rejected because it ignored the distinct statutory norms in ss 961B, 961G and 961J. Each obligation protects a different aspect of client interest and may require different reasonable steps. The experts had agreed that distinct steps were required for each obligation. Accordingly, there was one contravention for each obligation in respect of Panganiban (three) and one for each obligation in respect of the Other Authorised Representatives (three), producing six contraventions in total. The particular reasonable steps omitted were to be specified in final orders by reference to the JER.
In fixing penalty Lee J applied the well-established principles summarised by Wigney J in Australian Securities and Investments Commission v Westpac Banking Corporation [2019] FCA 2147. Objective factors demonstrated high seriousness: the omissions were not mere inadvertence but, after early detection, amounted to recklessness; the conduct persisted over two years; senior management became involved yet chose damage control rather than rigorous investigation; the compliance culture was deficient; clients suffered actual detriment (loadings and exclusions for five named clients) and were exposed to material risks; and there was an indirect commercial benefit in not reprimanding productive advisers. Subjective factors provided some mitigation: AMPFP is a large entity within the AMP Group but made late admissions after the JER, cooperated to an extent, and ultimately agreed to a comprehensive remediation programme. The admissions, while necessary, were given modest weight because they came shortly before trial. Claims of contrition were viewed sceptically given the delayed and reactive nature of the response.
Applying the course of conduct principle, the Court adjusted the individual penalties to avoid double punishment for interrelated failures while still reflecting the distinct wrongdoing involved in failing to address each statutory norm. The final penalties were $850,000 for each of the three contraventions relating to Panganiban and $875,000 for each of the three relating to the Other Authorised Representatives, producing a total of $5,175,000. Totality was satisfied; the aggregate was “an inadequate reflection of the seriousness of the conduct” yet proportionate having regard to the statutory maximum of $1 million per contravention at the time.
Declarations for the s 912A(1) contraventions were declined on utility grounds. The detailed reasons already expressed the Court’s disapprobation; additional declarations “should not … be spread around like confetti”.
Orders under s 1101B were indicated for both a backward-looking review and remediation programme (RRP) using data analytics (KRIs and conversion reporting) to identify all affected clients across approximately 1.3 million files, and a forward-looking compliance plan requiring a policy prohibiting Rewriting Conduct, revised training and revised monitoring. The Court expressed concern about the selection of PwC by AMPFP to implement the RRP, noting the risk of “subconscious partisanship and selection bias”, but accepted the programme subject to later verification by affidavit from the partner in day-to-day charge.
Before and after state of the law
Prior to this judgment the law on the number of contraventions of s 961L was unsettled. Decisions such as Australian Securities and Investments Commission v NSG Services Pty Ltd [2017] FCA 345, Australian Securities and Investments Commission v Financial Circle [2018] FCA 1644 and Australian Securities and Investments Commission v Golden Financial Group Pty Ltd (No 2) [2017] FCA 1267 had proceeded on the basis that a separate contravention arose for each client or each underlying breach, but those passages were delivered without argument or detailed reasoning and were therefore not binding. Lee J held that comity did not require deference to propositions assumed without adversarial contest.
The judgment clarifies that s 961L is not a “look through” provision. Its focus is the licensee’s own omission to take reasonable steps. The explanatory memorandum’s language of penalties “flow[ing] through” to the licensee was treated as neutral. The decision confirms that distinct best interests obligations may require distinct reasonable steps, so that a failure addressed to each obligation can ground a separate contravention. This approach sits comfortably with the Full Court’s later emphasis on the distinctness of ss 961B and 961G in Australian Securities and Investments Commission v Westpac Securities Administration Limited [2019] FCAFC 187 (cited at [130]).
On penalty principles the judgment applies without innovation the instinctive synthesis method, the primacy of deterrence, the course of conduct principle and totality. Its contribution lies in the detailed application to a licensee’s systemic failure to respond to churning. The treatment of compliance culture as requiring genuine will, not merely systems, reinforces observations in earlier cases such as Australian Securities and Investments Commission v Maxwell [2006] NSWSC 1052 but does so with greater emphasis on institutional inertia.
The utility principles for declaratory relief restate Ainsworth v Criminal Justice Commission [1992] HCA 10 and the reluctance to grant declarations that add nothing to published reasons. The cautious approach to s 1101B orders, insisting they be clear and capable of compliance, draws on Advan Investments Pty Ltd v Dean Gleeson Motor Sales Pty Ltd [2003] VSC 201.
After the judgment the law is clearer: s 961L contraventions are counted by reference to the distinct licensee failures corresponding to each relevant best interests obligation and each materially distinct class of representatives. Licensees can no longer assume that an elaborate paper compliance system will insulate them from liability or significant penalty where red flags are ignored.
Key passages with plain-English translation
At [2]: “A ‘culture of compliance’ is an amorphous concept. But whatever it actually means, it must transcend simply putting in place expensive ‘systems’; or it must be more than persons, whose titles include terms such as ‘governance’ and ‘compliance’, declaiming platitudes. One might question the point of such structures and roles in a company, if the corporate will to do the right thing is absent.”
Plain-English translation: Having expensive compliance departments and thick policy manuals is pointless if the company does not actually want to do the right thing when no one is watching.
At [19]: “This was not ‘missing the point’; it was evidently an exercise in damage control.”
Plain-English translation: Senior management understood exactly how serious the problem was; they chose to minimise it rather than investigate properly.
At [123]: “As explained above, the actual conduct to which s 961L is directed is the taking of reasonable steps by the licensee, not the provision of advice by representatives … Properly understood, what we are concerned with is a ‘failure to perform’ norm.”
Plain-English translation: The law looks at what the licensee itself failed to do, not at how many times an adviser gave bad advice. It is about the licensee’s own omission.
At [18]: “On the evidence before me, in the absence of a proper and thorough investigation, there was no basis, let alone a reasonable basis, for the idea to be conveyed to ASIC that there was an isolated ‘bad apple’.”
Plain-English translation: Without doing a proper investigation AMPFP had no reasonable basis for telling ASIC the problem was limited to one rogue adviser.
At [144]: “Declarations should not, however, be spread around like confetti.”
Plain-English translation: The Court should not hand out formal declarations just because a breach has been found; they must serve a real purpose.
At [254]: “It may be this problem is insuperable because of the need for speed, but it seems to me to raise issues not dissimilar to those that have been often addressed in the context of the selection by parties of expert witnesses. There is a danger that even with the best will in the world, a partner of a firm retained by a large institution earning very significant sums from professional fees charged to the institution, could display a degree of ‘subconscious partisanship’ … moreover, issues of ‘selection bias’ might arise.”
Plain-English translation: When a company under investigation hires its own big accounting firm to run the fix, the Court is left with a done deal that may be unconsciously tilted in the company’s favour. This is like the well-known problem with partisan experts.
What fact patterns trigger this precedent
This precedent is triggered when a financial services licensee becomes aware, or ought reasonably to become aware, of Rewriting Conduct or similar churning that breaches the best interests obligations and then fails to take the reasonable steps identified in expert evidence or industry practice. The critical trigger is not the representative’s misconduct in isolation but the licensee’s subsequent omission: failure to suspend the representative, escalate appropriately, conduct staged file reviews (initial sample of six, then deep dive of 20–30 if issues found), communicate findings, impose consequences, revise incentives, issue a clear policy prohibiting the conduct unless the representative can demonstrate client benefit in writing, update training, revise monitoring programmes targeted at the risk, analyse data for wider occurrence, assess control effectiveness and escalate outcomes to a committee with power to act.
The precedent applies with particular force where internal documents (emails, file notes, audit ratings) show early knowledge, yet response is delayed, audits continue to give high ratings, or senior management characterises the conduct as isolated without proper investigation. It is engaged even if the licensee ultimately admits the underlying representative breaches; the s 961L question is separate. The size of the licensee’s representative network (here 1,600–1,700 advisers writing 20,000 policies per year) and the use of commission structures that incentivise rewriting are relevant contextual facts but do not alter the core obligation.
Fact patterns that do not trigger the precedent include cases where the licensee, upon first reasonable suspicion, immediately suspends the adviser, conducts the staged investigation recommended by the JER, escalates to senior decision-makers, revises policies and incentives, and implements targeted monitoring. A licensee that has done all that could reasonably be expected will not contravene s 961L even if a representative nevertheless “goes rogue”.
How later courts have treated it
Because the judgment is relatively recent (5 February 2020) and deals with a specific factual matrix, subsequent appellate consideration has been limited. However, its construction of s 961L as a licensee-focused “failure to perform” norm independent of representative breaches has been cited with approval in later first-instance regulator proceedings as confirming that the number of contraventions is not mechanically tied to the number of clients advised. Courts have adopted its emphasis on the distinctness of the obligations in ss 961B, 961G and 961J when assessing reasonable steps.
The penalty reasoning, particularly the weight given to deficient compliance culture, recklessness after early detection, and the need for penalties to have a real “sting” for large licensees, has been treated as consistent with the High Court’s statements in Commonwealth v Director, Fair Work Building Industry Inspectorate [2015] HCA 46 on the primacy of deterrence. The observations on the utility of declarations for non-penalty provisions have been followed in cases where regulators seek s 21 relief for s 912A(1) breaches that do not themselves attract civil penalties.
The cautionary remarks on remediation programmes managed by the contravener’s own professional advisers have prompted greater judicial scrutiny of proposed s 1101B programmes in subsequent matters. Later decisions have required independent verification mechanisms or Court-appointed reviewers where the scale of review is large, reflecting Lee J’s concern about subconscious partisanship.
Overall the decision has been treated as reinforcing that elaborate compliance systems are necessary but not sufficient; the corporate will to act promptly on red flags is the decisive factor. No court has doubted the six-contravention analysis or the $5.175 million penalty in analogous churning cases.
Still-open questions
Several questions remain unresolved. First, the precise boundary between “reasonable steps” and perfection in large, legacy IT environments is unclear. The judgment accepts that data analytics across 1.3 million files is resource-intensive yet insists that “reasonable efforts should have been made”. Future cases will need to calibrate what constitutes reasonable effort when systems comprise multiple unlinked databases.
Second, the interaction between s 961L and s 912D breach-reporting obligations was expressly left open. Although the Issues Panel’s reversal was characterised as damage control, the Court declined to make a finding on s 912D because ASIC did not plead it and additional evidence might exist. The extent to which a licensee’s characterisation of conduct as an isolated “bad apple” without thorough investigation can itself constitute a s 912D breach remains unanswered.
Third, the weight to be given to a remediation programme that is still being implemented at the time of hearing is unsettled. The judgment gave significant mitigating weight to the eventual comprehensive RRP but required later verification by affidavit. It is unclear whether a licensee that proposes an inadequate programme at the outset (as AMPFP initially did in June 2019) can still obtain full mitigation if it improves only after judicial prompting.
Fourth, the judgment leaves open the appropriateness of “retraining and monitoring” a representative whose conduct is as egregious as Panganiban’s. Lee J expressed the view that such a person should not be retained but deferred to the experts. Whether a licensee that retains an adviser after clear evidence of “stupidity and greed” can ever demonstrate reasonable steps is not finally determined.
Finally, the precise content of a s 1101B order requiring revision of incentive structures remains open. Although the Court accepted that different commissions for transfers versus new policies contributed to the problem, it did not ultimately order a review of the incentives framework because the parties reached agreement on other measures. Whether such an order is necessary in every churning case is yet to be tested.
Gotchas
Most practitioners assume that producing a thick compliance manual and spending tens of millions on a FOFA project (AMP had spent $48 million by August 2014) will provide a defence. The judgment demonstrates that courts look behind the paper to the corporate will. A system that cannot detect or act on “suspicious” applications flagged by its own underwriters is worse than no system at all because it creates a false sense of security.
Another gotcha is the belief that late admissions after an expert report will attract full credit. The Court gave them only modest weight because they were forensically inevitable once the JER was served. Contrition evidenced only after judicial prompting during hearing (the belated client letters) was given little credence.
Finally, many licensees still allow their own professional services firm to design and run the remediation programme presented to the Court. The judgment warns that this creates an unavoidable appearance of selection bias. Regulators and judges are increasingly alive to the risk that the expert retained by the contravener may unconsciously soften findings. In high-stakes matters the safest course is to invite the Court to appoint the reviewer.