CommSec, AUSIEX fined millions for compliance failures

The Federal Court has ordered Commonwealth Securities Limited (CommSec) and Australian Investment Exchange Limited (AUSIEX) to pay a penalty of $20 million and $7.12 million, respectively, for breaches of the Market Integrity Rules and the Corporations Act.

For CommSec, the fine also includes breaches of the ASIC Act for systemic compliance failures, including overcharging brokerage fees to CommSec customers on 120,933 occasions, totalling over $4.3 million.

In a statement on Wednesday, ASIC said this is the largest ever penalty handed down for breaches of the Market Integrity Rules.

“CommSec and AUSIEX both demonstrated widespread, systemic compliance failures over a nine-year period. CommSec’s failures also resulted in millions of dollars being overcharged to customers,” said ASIC deputy chair, Sarah Court.

“When market participants fail to comply with the Market Integrity Rules, they undermine the integrity of Australia’s financial markets. As today’s decision demonstrates, the penalties for engaging in this conduct are significant. ASIC will continue to take action and seek significant penalties where market and trading participants fail to comply,” Ms Court added.

The court has also ordered an independent review and assessment of all systems and controls relating to the provision of financial services by CommSec and AUSIEX, along with a review of the remediation undertaken by the entities.

Moreover, the court declared that CommSec and AUSIEX contravened the Market Integrity Rules on multiple occasions, including when:

• CommSec overcharged brokerage fees to customers on 120,933 occasions, totalling over $4.3 million.
• CommSec and AUSIEX failed to comply with client money reconciliation requirements.
• CommSec and AUSIEX did not provide accurate confirmations to customers for certain market transactions.
• CommSec did not have appropriate system filters to detect possible trades where there would be no change of beneficial owner (known as wash trading).
• CommSec and AUSIEX failed to comply with their best execution policies and procedures.
• CommSec failed to enter into the required warrant agreement forms with clients and provide an explanatory booklet before accepting an order from a client to purchase a warrant on the market for the first time.
• CommSec and AUSIEX failed to include the required intermediary identification in regulatory data submitted to relevant market operators.

The court also said that CommSec and AUSIEX failed to do all things necessary to ensure its financial services were provided efficiently, honestly and fairly.

“The number, breadth and duration of the reported conduct is significant and indicates that CommSec and AUSIEX did not have adequate systems and processes in place to ensure compliance with their relevant obligations under their AFSLs and pursuant to the Market Integrity Rules and consequently, the Corporations Act (and additionally for CommSec, the ASIC Act),” said Justice Abraham in reaching the penalty.

“The conduct is properly characterised as being extensive and systematic, occurring over an extended period of time, which affected multiple aspects of the businesses of both CommSec and AUSIEX.”