Discuss about the Australia Banking Group Ltd - ABG.
In the given case it can be clearly said that the banking officials are at fault in several cases like at the time when the bank provided debit and credit card to Raj they did not provided him with required written documents or any official papers related to his deposit or savings account. The second breach was done at the time when Erica suggested him to invest in a specific medical research but failed to provide him with any further details or information related to Raj’s investment. The scheme in which Raj invested was supposed to be checked on a continuous basis by Erica the financial planner of the bank in which she failed and the cost had to be borne by Raj for this. Six months later it came to Raj’s notice that the scheme made many careless decisions related to investments and hence suffered huge losses and as a result Raj has to borne a loss of nearly 65 per cent of his investment which was $120,000. So, here Raj being a common man having no knowledge of financial activities totally depended on the financial planner of ABG bank. But, the bank failed to fulfill the demands of the customer and hence, here bank is clearly at fault as they did not took efforts to find out about the investment of the customer and whether the customer gained any profit from that investment or not.
Bank is the most important financial institution whose basic work is to undertake activities related to accepting deposits and circulating the money in the market by undertaking lending activities. Banks acts as an intermediary between the people who have surplus amount of money and people who need money (Federal Reserve Bank of San Francisco, 2001). Hence banks act like a pool of money for lending to different people and sectors on an interest rate. Because banks’ fundamental work deals in circulating money in the economy and providing loans for industrial activity it becomes a major catalyst in the economic development of a country. It plays an unavoidable role in capital formation as deposits by people are given as loans to traders and big business houses and industrial units. Other areas where banks engage are financial inclusion, mobilization of savings, services to business and raising the standard of living (Commerce atease, 2018).
Banking Services
At times it is seen that banking officials indulge into corrupt practices or undertake breach of their privilege and the direct consequence of this has to be faced by the common people. In such cases of breach by banking officials the customers can go to banking ombudsman in order to complaint about any specific activity as well as to get the fair compensation. Every country has its own banking ombudsman official who acts as a help provider to the victim customers (Joshi, 2016). In Australia Financial Ombudsman Service (FOS) has the responsibility to deal with the disputes between the customers and the financial institutions and provides them with fair and independent resolutions (FOS, 2018).
Banks play a major role in providing first line of financial advice to their customers whether it is related to savings or related to any investment. But, it is seen that many times banks fail in using this as an opportunity to connect with their customers. On the basis of the study conducted by J.D. Power 2018 Canada Retail Banking Advice Study it was found out that only 33 per cent of the retail bank customers agreed to the fact that they receive financial advice from their financial institutions (Business Wire, 2018). People seek for advice from the financial advisor as they trust them and know that they are the expert of this field. One risky advice of the financial advisor can cause the investor to lose their capital amount, interest or the income and in extreme cases all three. Hence, it is important that the financial advisor realizes that they owe a certain duty of care towards their customers and should give them advice carefully. Any advice related to finance should not be provided negligently by the financial advisor nor should they guarantee any fixed amount of return on a specific investment, which was done in this case. Erica assured Raj that he will get a fixed 25 per cent return on his investment on a yearly basis which was a wrong advice (Seth Lovis & Co., 2018).
Erica, to whom Raj trusted with his money gave wrong advice to Raj and invested $120,000 of Raj in higher risk product in breach of her duty. Here, Raj has all the authority to go ahead and file a complaint against the bank as well as the financial advisor of the bank who made him to invest in a high risk product. Also any official written documentation had not taken place between the bank as well as the customer which is again a breach of duty on the part of banks. Another breach of duty on the part of financial advisor of the bank is that she did not made continuous review of the investment and because of this did not came to know about the wrong decisions of the investment company because of which Raj suffered such a huge loss (Hopcraft, 2015). According to the Australian Securities and Investments Commission, breach of an obligation because of which the customer suffers a loss or has the possibility of suffering a loss is an offence on the part of the financial institution (ASIC, 2014).
Banking Ombudsman
Raj in this case has been suffered because of the wrong financial advice provided to him and as a result he is entitled for the compensation of his claim. As being an individual Raj is entitled to claim for his loss because of the breach of statutory duty by the financial institution the ABG bank. Also the banks did not give any proper documents to Raj and this is also one of the breaches of duty. This reflects that the bank was trying to stay clear and safe from any further prosecutions against them as they did not indulged in any kind of written agreement with Raj in order to provide them with any kind of financial advice. And this way the bank as well as the financial advisor played bad with Raj. They did not provide Raj with any official documents that reflect the relationship being shared between Raj and the bank making the situation more critical for Raj to claim his compensation (Kingsley Napley, 2013).
There are many legislation as well as regulatory bodies and also international standards that help in the governing as well as in the supervision of the bank activities. The banks of Australia are guided by the legal framework led down in the Banking Act 1959, Reserve bank Act 1959, Financial Sector (Shareholdings) Act 1998, Corporations Act 2001, as well as the Financial Sector (Collection of data) Act 2001. There are also certain banking regulators that are established in order to control and manage the activities of bank like, Australian prudential Regulation Authority (APRA), Australian Securities and Investments Commission (ASIC), and Reserve Bank of Australia (RBA). These legislations and authorities have the responsibility to look into the working of all the financial institutions in Australia (Paterson & Mallesons, 2017).
One the basis of the above mentioned laws and regulations following recommendations can be given to the customer. In this case under the liability of tort along with the fraudulent advice given by the banker- financer due to her negligence there is a clear failure of the exercise of care on the part of the financer in giving advice to the customer that required a certain duty of care according to the general law. Also according to the Trade Practices Act 1974, the banker-financers are imposed with the duty mentioned under S. 52 that prohibits them from engaging in any kind of deceptive or misleading advices or conduct. Also S. 74(1) of Trade Practices Act 1974 reflects that the service related to advice to the customers should be rendered with due care as well as skills and also that the service being provided is able to satisfy the requirements of the customer (ALLAN, 1987). In this case Raj can sue on the basis of the contract for loss suffered because of the negligent advice given by the banker- financer. In this case the customer can also sue the bank on the grounds of negligence (Sadler, 2009). The customer in this case can also solve this issue with the help of the resolution procedures of the Financial Ombudsman Service. Many amendments have taken place in order to ensure that the financial advisor who is giving advices to customers is sufficiently skilled or not to give professional advices. As mentioned above the customer in this case can file case against the bank or the financial advisor on the grounds of breach of contract, negligence, as well as statutory duties (Law Institute of Victoria Limited, 2016). Apart from Financial Ombudsman the customer can also go to the Code Compliance Monitoring Committee (CCMC), who undertakes the activity of investigation related to any breach of code of the banking practice (CCMC, 2018).
Banks Role as Financial Advisor
The letter referred to the customer by the ABG Bank in which the bank claims that Erica the financial advisor was not wrong and that any of the industry code does not apply in his case is legally wrong and the evidence to this has been mentioned above. The Trade Practices Act 1974 clearly defines in its section that the financial advisor should not give any advice that is misleading. In this case Erica is clearly at fault as she guaranteed the customer that he is going to get regular fixed returns over his investment which turned out to be false. Also according to one clause the advice should be given with due care which was also neglected by Erica. Also many laws related to breach of duty, statutory claims as well as negligent behavior applies to the customer. Hence, the bank was not legally correct in their letter to the customer. Hence, in the end it can be said that banks should be more careful when it comes to giving financial advices as well as at the time of hiring financial advisors as peoples savings are at their risk. Customers ask for advice from the financial advisor by having their whole trust on the financial advisor and it is the duty of the financial advisor as well as of the bank to ensure that this trust based relationship is not hampered because of such negligence.
References
Allan, D. E., 1987. Bankers' Liability For Financial Advice. [Online] Available at: https://www.austlii.edu.au/au/journals/MelbULawRw/1987/18.pdf [Accessed 05 May 2018].
ASIC, 2014. Breach reporting by AFS licensees. [Online]
Available at: https://download.asic.gov.au/media/1239857/rg78-published-26-february-2014.pdf
[Accessed 05 May 2018].
Business Wire, 2018. Retail Banks Play Valuable Role as First Line of Financial Advice for Customers, J.D. Power Finds. [Online] Available at: https://www.businesswire.com/news/home/20180226005173/en/Retail-Banks-Play-Valuable-Role-Line-Financial [Accessed 05 May 2018].
CCMC, 2018. Banking Code Compliance Monitoring Committee (CCMC). [Online] Available at: https://www.ccmc.org.au/ [Accessed 05 May 2018].
Commerce atease, 2018. Bank- Meaning, Importance and Types. [Online] Available at: https://commerceatease.com/bank-meaning-importance-and-types/
[Accessed 05 May 2018].
Federal Reserve Bank of San Francisco, 2001. What is the economic function of a bank?. [Online] Available at: https://www.frbsf.org/education/publications/doctor-econ/2001/july/bank-economic-function/ [Accessed 05 May 2018].
FOS, 2018. About Us. [Online] Available at: https://www.fos.org.au/about-us/ [Accessed 05 May 2018].
Hopcraft, S., 2015. Claims against financial advisers for negligent investment advice and breach of statutory duty. [Online] Available at: https://www.wrighthassall.co.uk/knowledge/legal-articles/2015/12/01/claims-against-financial-advisers-negligent/ [Accessed 05 May 2018].
Joshi, D., 2016. Important features of Banking Ombudsman. [Online] Available at: https://www.taxdose.com/important-features-of-banking-ombudsman/ [Accessed 05 May 2018].
Kingsley Napley, 2013. Claims against banks – your 10 point guide. [Online] Available at: https://www.kingsleynapley.co.uk/insights/blogs/dispute-resolution-law-blog/claims-against-banks-your-10-point-guide [Accessed 05 May 2018].
Law Institute of Victoria Limited, 2016. Battleground of claims. [Online] Available at: https://www.liv.asn.au/Staying-Informed/LIJ/LIJ/May-2016/Battleground-of-claims [Accessed 05 May 2018].
Paterson, I. & Mallesons, K. &. W., 2017. Banking regulation in Australia: overview. [Online] Available at: https://uk.practicallaw.thomsonreuters.com/w-006-9098?transitionType=Default&contextData=(sc.Default)&firstPage=true&bhcp=1 [Accessed 05 May 2018].
Sadler, P., 2009. Liability for Negligent Misrepresentation in the Finance Industry. The Finance Industry, Volume 11, pp. 17-25.
Seth Lovis & Co., 2018. Negligent Investment Advice - Claims Against Financial Advisers. [Online] Available at: https://www.sethlovisproneg.co.uk/site/professional_negligence_claims/negligent_investment_advice/ [Accessed 05 May 2018].
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