ASIC will keep probing a group of current and former advisers that provided deficient advice.

ASIC will keep probing a group of current and former advisers that provided deficient advice. Photo: Photo: Bloomberg

The corporate regulator has put Macquarie Group's private wealth division on probation for another year as it seeks further compliance assurances, investigates current and former advisers and navigates a vast remediation program for aggrieved customers.  

The Australian Securities and Investments Commission said on Friday it would not continue a two-year enforceable undertaking at Macquarie Private Wealth. But at the same time, the regulator acknowledged more needed to be done by Macquarie to ensure changes in systems and processes were sustainable and that clients were receiving appropriate advice.

While it not pursuing action against those that cheated on adviser exams with the help of the so-called Penski file, ASIC will keep probing a group of current and former advisers that provided deficient advice or failed to meet compliance standards. 

ASIC ordered Macquarie to do further work and continue reporting regularly, via KPMG, on how it is fixing compliance shortcomings and managing future risks. 

The regulator slapped an enforceable undertaking on Macquarie in 2013. The group faced accusations of misclassification of clients, sloppy paperwork and rampant cheating on continuous professional development exams.

ASIC said Macquarie had now met the EU requirements although would need to conduct a "program of further work" over the next 12 months, to ensure the changes put in place under the undertaking were sustainable.

The regulator's deputy chairman, Peter Kell, said while Macquarie would continue reporting to ASIC in the same way as required by the undertaking, he didn't believe extending the EU was necessary.

"We are certainly satisfied that there has been significant improvement," Mr Kell said of Macquarie. "There are still areas where further improvement is required ... What we want to see is further evidence that their changes are sustainable."

ASIC said KPMG would test whether Macquarie advisers were appropriately recording the advice they provided, had given enough information as to why they recommended particular strategies and products and gave consideration to other products beyond those recommended.

Mr Kell said the quality of advice was a top priority for ASIC and the option of a further enforceable undertaking for Macquarie was also possible if progress wasn't made or additional deficiencies were uncovered during the 12 months.

"We have all the regulatory options open to us if we don't see the improvements," he said. "The whole sector remains an area where ASIC wants to see improvement and better outcomes for consumers overall."

But despite saying Macquarie should continue work to compensate clients who were affected by compliance failings, shortcomings in record-keeping or poor advice, the ASIC's statement provided little detail on the steps Macquarie was taking to remediate clients. Mr Kell did say Macquarie was firstly assessing remediation for clients of advisers deemed "higher-risk". In the latter half of 2014, Macquarie sent about 189,000 letters to clients dating back to 2004 to inform them of a remediation process.

However, Maurice Blackburn Lawyers principal John Berrill was critical of Macquarie's process, questioning why the company took 18 months to set up a formal mechanism for client redress. 

He said the lion's share of the 150 Macquarie clients in contact with his firm had faced delays of up to six months for responses and had difficulties in gaining access to their files. Mr Berrill also noted a narrow definition by Macquarie for participation in the remediation process. 

"This Macquarie scheme is very similar to the Commonwealth Bank of Australia mark-one scheme which the Senate committee canned," he said. 

CBA was pressured last year to establish an independent panel to oversee remediation following a high-profile financial planning scandal. Macquarie also came under fire when a Senate committee report called for  ASIC to be "far more intrusive and less trusting" and recommended a royal commission on conflicted financial advice.

Asked about concerns former Macquarie advisers who were being investigated by ASIC may have been hired by other firms, Mr Kell said the regulator would often speak to the new employer to alert them of the matter.

"It's something that licensees also need to consider carefully," he said. However, Mr Kell was mindful the slated introduction of a financial adviser register would help in tracking movements between firms. 

The adviser register and debate around a national competency exam for individuals operating in the industry are part of considerations of a Senate Economics committee's inquiry into the scrutiny of financial advice. 

Macquarie Private Wealth's adviser numbers had dropped by 25 per per cent during the two-year period, but additional staff had been recruited to support advisers complying with their obligations, ASIC said. 

Macquarie outlined last year it had spent $49 million on systems upgrades and improving processes. "Macquarie notes comments made in ASIC's media release, in particular that all of the deliverables outlined in the EU implementation plan have been completed and there have been significant improvements in Macquarie's retail financial advice business," a spokeswoman said.

Macquarie's head of banking and financial services, Greg Ward, will update investors and analysts on Tuesday on measures being taken after the undertaking.

Mr Kell said the latest testing by KPMG showed no evidence of inappropriate advice by Macquarie advisers and improved in record keeping.  But when asked about allegations by current and former Macquarie employees about favourable treatment of some clients in the disastrous float of BrisConnections in 2008, Mr Kell said that matter was not part of the EU imposed by ASIC. He declined to comment further on the BrisConnections float. 

Mr Kell did admit the existence of a Penski file, which provided answers to advisers ahead of exams and was widely circulated, and conceded there was overwhelming evidence of cheating in exams and a blatant manipulation of adviser training regimes.

"Macquarie Equities was significantly deficient in this area," Mr Kell added. "There will be no Penski files in the future." 

Despite his comments, Mr Kell said an investigation of individual advisers who had cheated would not lead to further action agains those involved, due to difficulties in pursuing penalties within the regulatory framework. "The priority is on advisers that have caused detriment, put clients in the wrong products and caused loss."