🗞️ ASIC Chair Warns of Importance of Fraud Controls After Macquarie Bank's $10 Million Fine

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Macquarie Bank Ltd. has been ordered by the Federal Court to pay a $10 million penalty for failing to implement adequate controls to stop and identify unauthorised fee transactions on customer cash management accounts that were carried out by third parties, like financial advisers, using Macquarie's bulk transacting facility. Joe Longo, the chair of ASIC, stated, "This case sends an important message to financial institutions and other financial service licensees that they must have appropriate controls in place." Fraud controls are becoming more and more important.Although Macquarie put in place strong controls starting in January 2020, because of its past mistakes, financial advisor Ross Hopkins was able to take approximately $2.9 million from his clients' accounts without Macquarie realising it.

"Financial institutions should prioritise and invest in systems that protect their customers," according to ASIC. Due to Macquarie's failure to fulfil its duty to take all reasonable steps to deliver its financial services effectively, truthfully, and fairly, it may be subject to a sizable fine. Macquarie allowed its clients to grant varying degrees of authority to third parties—such as accountants, stockbrokers, and financial advisors—to conduct business on their accounts, including the ability to withhold a portion of the third party's fees.

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Macquarie also made available to third parties a bulk transacting tool to make multiple withdrawals across multiple customer accounts simultaneously.

Between 1 May 2016 and 15 January 2020, Macquarie failed to implement effective controls to monitor whether third party bulk transactions under the fee authority were actually for fees.

While Macquarie initially defended the proceeding, it later admitted that it contravened its obligation to provide its financial services efficiently, honestly and fairly.

Macquarie agreed to pay a penalty of $10 million for its conduct.

ASIC and Macquarie Bank Limited have settled their disagreement over the cash management account's (CMA) third-party fee authority, according to a statement. The Federal Court granted approval to the parties' proposed resolution of ASIC's April 2022 lawsuit. The case concerned an independent financial advisor who, between 2016 and 2019, stole client funds using Macquarie's CMA. The financial advisor, who did not work for Macquarie, entered a guilty plea to fraud in 2021 and was found guilty. Macquarie decided to fully reimburse the 13 clients after he failed to make up for the losses incurred by them.In relation to the controls to monitor bulk transactions made under third party fee authorities on the CMA, Macquarie admits that it had broken a statutory obligation. To address the issue, Macquarie implemented new procedures and controls for third-party fee authorities on the CMA in 2020.

Background

Between October 2016 and October 2019, Mr Hopkins made 167 unauthorised transactions on 13 of his client’s cash management accounts via Macquarie’s bulk transaction system, totalling $2.9 million.

Macquarie admitted that it failed to do all things necessary between October 2016 and 15 January 2020 to ensure that the financial services covered by its financial services licence were provided efficiently, honestly and fairly by failing to implement effective controls to prevent or detect transactions conducted by third parties through its bulk transacting system that were outside the scope of the fee authority conferred on them, including those carried out by Mr Hopkins.

Mr Hopkins was sentenced to six years’ imprisonment after an investigation and referral of a prosecution brief from ASIC (21-114MR) and has also been permanently banned from providing financial services or from controlling an entity carrying on a financial services business (21-242MR).

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