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Response to the Sydney Morning Herald, 31 July 2014

Sydney, 31 July 2014

In January 2013, Macquarie and ASIC agreed an Enforceable Undertaking (EU).  In the agreement, Macquarie acknowledged ASIC’s concerns about the Macquarie Private Wealth (MPW) business.

MPW takes its obligations to clients and regulators seriously.  Since entering into the EU, MPW has been working closely with ASIC to make the necessary improvements to the business.  These include the introduction of new management, new compliance professionals, new systems, training and processes.

A review of client files and client classification is ongoing where concerns have been raised by clients or identified by MPW.   In addition, MPW is contacting all clients to ensure they have the opportunity to raise concerns. Client remediation will be undertaken with oversight by Deloitte and ASIC.

An update on the EU was provided to the market last week during Macquarie Group's Annual General Meeting.  In detail, MPW has carried out extensive work on the EU over the past 18 months.  This work is ongoing and includes:

  • Ongoing review of client files and client classification where concerns have been either identified by MPW or raised by clients and contacting all clients to ensure they have the opportunity to raise concerns
  • Ongoing review of all advisers (approximately 300) and advice they provide as part of newly implemented supervision and monitoring program
  • Ongoing client remediation, based on consistent application of Financial Ombudsman Service principles, which is subject to oversight by Deloitte and ASIC
  • Together with the implementation of FoFA regulatory changes, significant investment is being made in new processes, practices and systems – approx. $A49m over two years (forecast at July 2014)
  • Technology to support the supervision and training of advisers
  • New adviser assessments
  • 11,500 hours in face-to-face adviser training  to date (including FoFA and other training)
  • Supervised compliance knowledge assessment for advisers and the implementation of external compliance training
  • Providing all requested information to KPMG in its role as Independent Expert, including information required to carry out comprehensive testing of new systems and processes
  • Meeting ASIC’s breach reporting requirements

With respect to the Bavistock and Buda court proceedings, these were mutually resolved in 2009 and 2013 respectively.

For completeness, ASIC’s original concerns in the January 2013 EU document are outlined in the table below, along with the measures taken to address them.

 

Concerns outlined in the EU Measures to address concerns outlined in EU

Effectiveness of the licensee risk framework including policies, processes, controls and systems

  • Together with the implementation of FoFA regulatory changes, significant investment is being made in new processes, practices and systems – approx. $A49m over two years (forecast at July 2014)

 

Effectiveness of client classification in relation to the provision of personal advice, general advice and execution only services; and adequate client record keeping

  • Ongoing  review of client files and client classification where concerns have been either identified by MPW or raised by clients and contacting all clients to ensure they have the opportunity to raise concerns
  • Ongoing review of all advisers (approximately 300) and advice they provide as part of newly implemented supervision and monitoring program

Adequacy of consideration of retail client’s personal circumstances in the provision of advice

  • Ongoing  review of client files and client classification where concerns have been either identified by MPW or raised by clients and contacting all clients to ensure they have the opportunity to raise concerns
  • Supervised compliance knowledge assessment and the implementation of external compliance training

Consistent application of consequence management for adviser misconduct

  • Ongoing  review of all advisers (approximately 300) and advice they provide as part of newly implemented supervision and monitoring program
  • New adviser assessments
  • 11,500 hours in face-to-face adviser training  to date (including FoFA and other training)
  • Supervised compliance knowledge assessment and the implementation of external compliance training

Effectiveness of the identification and remediation of recurring compliance issues

  • Ongoing review of all advisers (approximately 300) and advice they provide as part of newly implemented supervision and monitoring program
  • Together with the implementation of FoFA regulatory changes, significant investment is being made in new processes, practices and systems – approx. $A49m over two years (forecast at July 2014)
  • Providing all requested information to KPMG in its role as Independent Expert, including information required to carry out comprehensive testing of new systems and processes

Effectiveness of data analytics to detect potential compliance issues

  • Technology to support the supervision and training of advisers
  • New adviser assessments
  • 11,500 hours in face-to-face adviser training  to date (including FoFA and other training)
  • Supervised compliance knowledge assessment and the implementation of external compliance training
  • Risk based data analysis driving supervision and monitoring

Quality of record keeping to enable appropriate supervision and monitoring of advisers

  • Together with the implementation of FoFA regulatory changes, significant investment is being made in new processes, practices and systems – approx. $A49m over two years (forecast at July 2014)
  • Technology to support the supervision and training of advisers
  • New adviser assessments
  • 11,500 hours in face-to-face adviser training  to date (including FoFA and other training)
  • Supervised compliance knowledge assessment and the implementation of external compliance training

Sufficient resources to supervise and monitor advisers

  • New management
  • New compliance professionals
  • Introduction of Practice Development Managers to directly supervise advisers
  • Ongoing review of all advisers (approximately 300) and advice they provide as part of newly implemented supervision and monitoring program
  • Together with the implementation of FoFA regulatory changes, significant investment is being made in new processes, practices and systems – approx. $A49m over two years (forecast at July 2014)
  • Technology to support the supervision and training of advisers

Effectiveness of compliance training and education

  • New adviser assessments
  • 11,500 hours in face-to-face adviser training  to date (including FoFA and other training)
  • Supervised compliance knowledge assessment and the implementation of external compliance training
  • Technology to support the supervision and training of advisers

Appropriate identification and recording of incidents and breaches internally and to ASIC

  • Together with the implementation of FoFA regulatory changes, significant investment is being made in new processes, practices and systems – approx. $A49m over two years (forecast at July 2014)
  • Meeting ASIC’s breach reporting requirements

Maintenance of a proper commitment to and culture of compliance

  • New management
  • New compliance professionals
  • Together with the implementation of FoFA regulatory changes, significant investment is being made in new processes, practices and systems – approx. $A49m over two years (forecast at July 2014)
  • Technology to support the supervision and training of advisers
  • New adviser assessments
  • 11,500 hours in face-to-face adviser training  to date (including FoFA and other training)
  • Supervised compliance knowledge assessment and the implementation of external compliance training
  • Meeting ASIC’s breach reporting requirements

Comply with the AFSL condition “to establish and maintain compliance measures that ensure, as far as reasonably practical, that the licensee complies with financial services laws”

  • Ongoing  review of client files and client classification where concerns have been either identified by MPW or raised by clients and contacting all clients to ensure they have the opportunity to raise concerns
  • Ongoing review of all advisers (approximately 300) and advice they provide as part of newly implemented supervision and monitoring program
  • New adviser assessments
  • 11,500 hours in face-to-face adviser training to date (including FoFA and other training)
  • Supervised compliance knowledge assessment and the implementation of external compliance training
  • Enhanced governance framework to manage licensee obligations