The Federal Court of Australia recently imposed a substantial penalty of A$10 million (equivalent to $6.4 million USD) on Macquarie Bank due to its failure to establish robust controls aimed at identifying and preventing unauthorized fee transactions carried out by third parties on customer accounts. This regulatory action was disclosed by the Australian Securities and Investments Commission (ASIC) on Friday, shedding light on systemic deficiencies within the bank’s oversight mechanisms.
Macquarie Bank’s lapse in control primarily stemmed from its practice of granting customers the ability to delegate transaction authority to third parties, such as financial advisers and stockbrokers. These permissions included the authority to withdraw fees from customer accounts. Despite providing a tool for bulk transactions to these third parties, allowing them to make withdrawals across multiple accounts simultaneously, Macquarie Bank neglected to implement adequate monitoring mechanisms to verify the legitimacy of these transactions, particularly those conducted under fee authority.
This oversight persisted between May 2016 and January 2020, during which Macquarie Bank failed to institute effective controls to scrutinize the nature of bulk transactions authorized for fee withdrawals. Consequently, this loophole facilitated financial adviser Ross Hopkins to unlawfully withdraw around A$2.9 million from his clients’ accounts without detection by Macquarie Bank’s internal systems. Hopkins’ fraudulent activities, utilizing Macquarie Bank’s bulk transaction system, culminated in his sentencing to a six-year imprisonment term in 2021 for the misappropriation of clients’ funds.
In response to ASIC’s findings, Macquarie Bank acknowledged its failure to fulfill its statutory obligations in implementing robust controls to prevent such unauthorized transactions. While the bank did implement more effective controls from January 2020 onwards, the repercussions of its earlier oversights were significant, leading to substantial losses for the affected clients. Macquarie Group, the parent company of the bank, took responsibility for compensating the 13 affected clients who suffered financial losses due to the unauthorized transactions initiated by Hopkins.
Furthermore, as part of the regulatory settlement, Macquarie Bank has agreed to pay the A$10 million fine imposed by the Federal Court, as mandated by ASIC. This penalty serves as a stark reminder of the critical importance of robust controls and oversight mechanisms within financial institutions to safeguard customer assets and prevent fraudulent activities perpetrated by internal or external parties.