In a report published on Thursday, the Australian Securities and Investments Commission (Asic) revealed that A$23m had already been repaid by the country’s largest banks - Common Wealth Bank Australia, ANZ, NAB, Westpac - and AMP.
The regulator focused its investgation on the banks as they provide the majority of financial advice in the Australian market, with failures in the industry becoming a hot political issue in recent years.
It now estimates that another A$154m in payments would be required in the future, plus interest which Asic deputy chairman Peter Kell told reporters could total A$10-15m.
The bulk of the fine will be paid by Australia’s largest lender Commonwealth Bank (CBA), which Asic described as the worst offender, facing a total estimated compensation of $105m plus interest.
CBA said in a statement on Thursday that it had failed to provide annual reviews for customers with its financial advisers but has since made significant improvements on this issue and will refund customers by June 2017.
Asic said that for many years the financial advice industry has taken advantage of automatic deductions from customers, many of whom are "passive" customers who don't get regular advice.
The regulator revealed that one of the banks charged customers ongoing fees for "retention of client records by your adviser" because "retaining this information may reduce the cost of providing additional advice and service in the future".
In other instances, financial advisers were allowed keep charging hundreds of customers they "inherited" from departing colleagues even though it was clear they would not be able to advise them all.
Kell said most of the failures happened before the Future of Financial Advice reforms (Fofa) were introduced by the Australian government in 2012, explaining that the overhaul reduced the likelihood of "systematic failures" happening in the future.
Under the reforms, financial advisers are required to send clients a renewal notice to ‘opt-in’ every two years if they wish to receive ongoing advice as well as an annual fee disclosure statement detailing what a client has paid during the past 12 months.
"Our report identifies the institutions' systemic failures in this area, which we are putting right by ensuring that customers are fairly compensated," said Kell.
He added that the compensation is limited to refund of fees plus interest, urging people who lost money due a lack of financial advice to file a complaint with Australia’s Financial Ombudsman Service (Fos).
Asic said it will provide another update in the first half of 2017.
Banks in trouble
The bank fines imposed by Asic come at a time when each of the 'Big Four' – which account for 80% of lending in Australia – have repeatedly come under fire for abuse of market power following scandals involving misleading financial advice, insurance fraud and interest-rate rigging.
As part of an ongoing government investigation, known as a royal commission, in to Australia’s banking industry, the chief executives of the ‘big four’ will be questioned on their treatment of customers before a parliamentary committee this month after they failed to pass on recent interest rate cuts to mortgage customers.
In July, CBA’s chief executive “unreservedly apologised” to more than 1,100 customers who lost savings because of fraudulent and misleading behaviour by the bank’s financial advisers.
Meanwhile, in September, Westpac Banking Corp announced plans to remove all product related incentives from frontline staff in its retail branches as part of efforts to rebuild trust with its customers.