1.

1 Macquarie Equities Limited

Ethical, legal and corporate governance issues
It failed to keep records of client advice and the basis of that advice. ]

They focused on generating commissions from clients.

Internal Controls:

Identified major shortcomings including that more than 80 per cent of advisers were
in breach of their financial advice obligations. It recommended a major overhaul of
training, supervision and compliance practices.
The final E&Y report apparently encouraged Macquaries belief there was no need to
report the problem to ASIC.
The deficiencies identified by ASIC include that Macquarie may not have: provided
financial services efficiently, honestly and fairly"; adequately resourced financial,
technological and human resources; adequately trained advisers, invested in proper
risk management systems; taken reasonable steps to investigate a clients financial
circumstances and recorded statements of financial advice.
Throughout the years there was under-investment by MPW management in
compliance systems including training, supervision and the technology
infrastructure required to keep up to date, satisfactory records.

So the independence of risk and compliance staff was threatened

A series of reports identified problems
Background
In January 2013, Macquarie and the Australian Securities and Investments
Commission (ASIC) agreed to an Enforceable Undertaking (EU). The EU followed an
extensive ASIC investigation into Macquaries financial product advice business
which revealed a series of serious deficiencies including:

client files not containing statements of advice;

advisers failing to demonstrate reasonable basis for advice provided to the

client;

poor client records and lack of detail contained in advice documents;

lack of supporting documentation on files to determine if there was a

reasonable basis for the advice provided to the client; and

failing to provide sufficient evidence that clients were sophisticated investors.

Owing to the systemic nature of these deficiencies, hundreds or even thousands of

Macquarie customers may have been misclassified as sophisticated or wholesale
investors rather than retail investors, with the result that they may have been pushed
into exotic, high risk investment products unsuitable for them.

Macquarie Equities Ltd

Macquarie Equities Ltd were guilty of breaching a number of ethical duties and suffered from
a culture of poor corporate governance which eventually lead to the emergence of several
wrongdoings perpetrated by the advisors in Macquarie Private Wealth.
It failed to address the recurring compliance issues at the group which though had been
identified by the management as early as 5 years previously, Previous internal management
reports showed that major shortcomings were identified as financial advisors were deemed
to be in breach of their financial advice obligations and yet the management failed to
undertake any steps to correct or strengthen the internal controls to prevent these breaches.
Over the course of years, there was inadequate investment by the management for the
installation of compliance and risk management systems as well as for training and
supervision required to ensure satisfactory records. All of these directly increased the risk to
unaware retail investors.
Finally, in 2013, ASIC lead an extensive investigation into the practices at Macquarie Private
Wealth which revealed a number of further serious breaches such as: financial advice not
being present in client files, lack of supporting documentation for financial advice given to
client as well as not providing reasonable basis for financial advice given to clients.
As a result of these breaches, several thousand clients were wrongly classified as
sophisticated investors rather than retail investors resulting in pushing these investors into
high risk investment products unsuitable for them

The company failed to maintain a culture with proper commitment to compliance. The
advisers did not keep proper records and lack of detail in advice documents. Its effectiveness
of its licensee risk processes, controls and systems having regard to the nature, size and

complexity of the MPW business. Dealing with compliance standards of its advisers in an
appropriate and consistent manner. No compliance with the obligations on personal advice,
general advice and execution-only dealing transactions. Inadequate consideration of personal
circumstances where advice is given to retail clients. .Not ensuring adequate record keeping
and related controls over client records to enable MEL to appropriately supervise its
representatives. Not having sufficient appropriate resources available to carry out supervisory
services.
ASIC's actions following identification of recurring adviser compliance deficiencies at MPW
is a warning signal for AFS licensees to ensure employees and authorised representatives
meet legal and regulatory obligations. Regular reviews of client files maintained by
representatives will help to ensure any risks and breaches are identified. AFS licensees must
then diligently respond to all identified deficiencies by taking appropriate remedial action.

ASICs review found these deficiencies, which were not reported to ASIC, to be
serious and that any remediation initiatives attempted by MEL over a four year period
had been