Regulator slams Macquarie unit

AUSTRALIA'S biggest stockbroking firm, Macquarie Equities, has been forced by the corporate regulator to have an independent investigator oversee its operations after the broker was found to have "serious compliance deficiencies" over four years.

Macquarie Private Wealth, the retail division of investment bank Macquarie Group, has been lambasted by the Australian Securities and Investments Commission for "recurring deficiencies" which the corporate regulator claims may have led to Macquarie giving clients inappropriate advice.

The regulator is concerned that hundreds of its brokers and advisers failed to keep proper client records - as required under financial services laws - which may have also resulted in some of the firm's clients not having enough information to make informed decisions.

ASIC chairman Greg Medcraft said clients of stockbrokers needed to be confident they were informed - a key requirement to ensuring financial services were provided efficiently, honestly and fairly.

"Our surveillance found Macquarie Private Wealth fell significantly short of this mark," Mr Medcraft said.

As a result of an enforceable undertaking entered into by Macquarie, the broker must meet the Australian Securities and Investments Commission monthly to report back on risk testing and progress on its plan to overhaul its compliance systems. The undertaking marks one of the biggest compliance agreements between a stockbroker and regulator in recent times.

The undertaking comes amid a prolonged downturn for full service stockbrokers. While the stockmarket has started gaining traction in recent months, volumes remain thin amid broader investor caution. This has prompted many brokerages, including Macquarie, to make deep cuts to staff.

A Macquarie spokeswoman said the broker was committed to the changes set out in the enforceable undertaking signed on Tuesday.

"We take our obligations to regulators very seriously. We have a strong track record of compliance practice and if concerns are raised, we work diligently to resolve them. Accordingly, we have been working and will continue to work constructively with ASIC," the spokeswoman said.

The problems were first identified by Macquarie Equities during a 2008 internal review of the client files kept by hundreds of Macquarie representatives.

"Those reviews indicated compliance deficiencies involving a significant number of the representatives, which were recurring and not reported to ASIC . . . nor were they rectified in all cases," Macquarie's retail division head Peter Maher said in the enforceable undertaking.

BusinessDay first revealed the investigation in September last year. The ASIC review found up to 80 per cent of staff were not following the rules.

But the review ended in early 2010 in favour of a new coaching and training program. Two years later a second internal review found that "a significant proportion of representatives were classified as needing improvements" in client record keeping.

ASIC launched an investigation in December 2011 and over eight months found the internal compliance systems were "of limited effectiveness". In particular, it was concerned that Macquarie failed to comply with obligations "regarding the provision of personal advice, general advice and execution-only dealing transactions, including necessary detail in advice documents to enable retail investors to make informed decisions."

Macquarie has agreed to hire an independent expert - approved by ASIC - to judge the risk framework at the firm against "generally accepted standards".

The expert will look at how Macquarie pays its staff, the internal structure and accountabilities, development within the company, competence among advisers, and how documents are created and filed.

A preliminary report is due within four months.

Macquarie has also agreed to help report to ASIC any clients who claim to be adversely affected by the sloppy behaviour of Macquarie's representatives.