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CommSec, AUSIEX fined $27 million for violating integrity rules
Commonwealth Bank-owned brokerage platform CommSec must pay the Australian government $20 million over “extensive and systematic” breaches of the Australian Securities and Investment Commission’s market integrity rules, the Federal Court of Australia has ruled.
The order also requires former CBA subsidiary AUSIEX, a wholesale broker bought by Nomura Research Institute in 2021, to pay $7.1 million for similar violations. The total penalty is the largest ever handed down for violations of ASIC’s integrity rules, according to the regulator.
The ruling stems from civil penalty proceedings ASIC began in the Federal Court in March 2021 against CommSec – Australia’s largest online brokerage – and AUSIEX, which now trades as Australian Investment Exchange Limited, alleging the companies breached the market integrity rules as well as the Corporations Act and, in CommSec’s case, the ASIC Act through systemic compliance failures in their delivery of financial services. CommSec was further accused of overcharging customers more than $4.3 million in brokerage fees.
“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 the Corporations Act and the market integrity rules, Federal Court Justice Wendy Abraham said in the October 25 order. “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.”
Justice Abraham agreed with ASIC that CommSec overcharged brokerage fees on more than 120,000 occasions. While she said the brokerage has fully repaid the overcharged customers, the judge also noted that this is not CommSec’s first violation of the market integrity rules: it has been before ASIC’s Markets Disciplinary Panel for breaches seven times since 2012, racking up more than $1 million in fines.
Both CommSec and AUSIEX also failed to comply with client money reconciliation requirements, give customers accurate confirmations for certain transactions, comply with their own best-execution policies, and include required information in regulatory data submitted to market operators, Justice Abraham ruled.
The judge found CommSec did not have appropriate filter systems in place to detect wash trading and failed to enter into required warrant agreement forms with clients. She said the company also misled customers by mischaracterising orders made on its ASB Securities trading platform as being ASX Centre Point-eligible.
“It is essential that market participants have appropriate systems, governance and controls in place to ensure they meet their obligations to both their customers and the financial markets in which they operate,” ASIC deputy chair Sarah Court said in a statement following the ruling.
“When market participants fail to comply with the market integrity rules, they undermine the integrity of Australia’s financial markets,” she added. “As today’s decision demonstrates, the penalties for engaging in this conduct are significant.”
In addition to issuing the monetary penalty, Justice Abraham ordered an independent review of CommSec’s and AUSIEX’s systems and controls and a review of each company’s remediation processes. The ruling notes that both defendants have been cooperative throughout the civil penalty proceedings, including through early admission of their breaches.
“In the circumstances of this case, the agreed penalty is appropriate as reflecting the seriousness of the contravention, yet recognising the mitigating factors present, including that there is no evidence to indicate any of the contraventions were deliberate or the conduct of senior management,” Justice Abraham concluded.
