SYDNEY (Reuters) - Australia's largest listed wealth manager AMP <AMP.AX> engaged in "unconscionable" conduct and the country's biggest banks also broke laws when providing financial advice, a powerful judicial inquiry said in its preliminary findings on Friday.
They were announced by Rowena Orr, a barrister assisting the year-long inquiry into financial sector misconduct. Her remarks ended the second round of the inquiry, which focused on financial advice.
The Royal Commission, as the judicial inquiry is called, has been a political embarrassment for the government and a severe setback for Australia's major lenders and AMP, which have come under share price pressure as a result of revelations of serious wrongdoing.
The second set of hearings, which began two weeks ago, was told that over the last decade advisers at AMP had misappropriated funds of thousands of clients by charging them without providing advice and that Commonwealth Bank of Australia <CBA.AX> had continued to charge some client accounts even after they had died.
The inquiry also heard that for many years Australia and New Zealand Banking Group <ANZ.AX> have not had adequate controls to ensure its advisers were complying with the law, and that some National Australia Bank <NAB.AX> advisers had engaged in dishonest and illegal conduct such as misappropriation of client funds.
Under questioning, bank executives have admitted to many of the instances of misconduct, but they will also have the opportunity to respond to Friday's preliminary findings.
Persons guilty of breaching some of the sections of the Corporations Act mentioned by Orr in her findings face criminal penalties, according to lawyers.
Orr said on Friday that CBA as well as AMP, which is facing calls for the immediate resignation of its board over the misconduct, also breached a number of sections of the Australian Securities and Investments Commission (ASIC) Act.
"It is open to the Commissioner (leading the inquiry) to find that this conduct was attributable, at least in part, to the culture and governance practices within AMP," Orr said, adding that the conduct by CBA was due to its remuneration practices and inherent conflict of interests in its businesses.
Orr said the inquiry would consider whether the regulatory culture in the financial advice industry contributed to the misconduct and what changes where needed to correct it.
"Can financial advisers effectively manage the conflicts of interests associated with providing advice as a representative of an institution that also manufactures financial products? Is it necessary to enforce the separation of products and advice?" she said.
The banks, AMP and the corporate regulator will have one week to respond to the preliminary findings and to submit their opinions of whether the industry needs to be radically restructured to fix the wrongdoings.
The inquiry's final recommendations could lead to criminal or civil prosecutions as well as greater regulation on the financial sector.
The effectiveness of the Australian corporate regulator in enforcing the law was also scrutinised.
Louise Macauley, who heads the financial advisers unit at ASIC, told the inquiry earlier on Friday that the regulator had not used its powers to impose bans sufficiently to deal with the egregious conduct exposed by the inquiry.
The regulator also said that in the last decade, it had not brought a single civil court action against a company for failing to act in the best interest of customers, as required by law.
Macauley told the inquiry that in the last five years ASIC, which is tasked with enforcing corporate laws and overseeing the operating licences of financial services companies, had only temporarily suspended two company licences for legal breaches.
Last week, the government vowed to double prison terms for financial crimes, dramatically increase penalties and ramp up the investigative powers of the corporate regulator.
(Reporting by Paulina Duran; Editing by Muralikumar Anantharaman)
