The compensation bill to bank customers who were charged for services they never received has skyrocketed to $180 million and could still go higher.

A report from the Australian Securities and Investments Commission into the charging of advice fees without providing advice by banks and major financial institutions has found more than 200,000 customers have so far been identified as affected by the scandal.

So far the big four banks, as well as wealth manager AMP, have paid out — or agreed to pay out — $23.7 million to more than 27,000 customers.

“We expect these compensation figures to increase substantially in the coming months as the process to identify and compensate affected customers continues,” the ASIC report said.

“Our current estimate is that compensation may increase by approximately $154 million plus interest to over 176,000 further customers, meaning that total compensation for related failures could be over $178 million.”

ASIC stresses the figures were based on estimates supplied by the banks this month and it will report on the actual compensation figures at a later date.

Unlikely fee gouging would have been discovered without FOFA

The inquiry was sparked by a series of significant breaches about fee-for-service failures ASIC received between August and December last year.

In all, the breaches related to 21 different licensed advice providers owned by the Commonwealth Bank, NAB, ANZ, Westpac and AMP.

CBA has owned up to the largest likely compensation payout of $105.7 million, plus interest, while the ANZ is looking like paying out at least $50 million.

ASIC deputy chair Peter Kell was pointed in his observations about the banks’ behaviour.

“Charging fees without providing a service is not what a profession does,” he said.

Mr Kell said, without the Future of Financial Advice (FOFA) reforms – which were strongly opposed by the banks, it is highly unlikely the problems would have surfaced.

“The industry had a focus on fee maximisation and an opaque fee structure,” he said.

He said the FOFA reforms requirements for an annual fee disclosure statement and clients to sign an “opt-in” statement every two years forced the banks to self-report the breaches.

“To a large degree it is a legacy issue but it does not mean for one minute firms should not pay the money back.”

ASIC releases report on the charging of advice fees without providing advice by major financial institutions https://t.co/Pkq3ZDrX9Z

— ASIC Media (@asicmedia) October 27, 2016

Two key failures around fee but no advice

ASIC identified two key areas where the banks failed customers.

The first concern ASIC identified was when customers who have financial advisers pays fees to receive ongoing advice from that adviser, but the adviser does not provide the advice.

Secondly ASIC found instances where customers who do not have a financial adviser — because, for example, the adviser departed the advice licensee or retired — is charged a fee for ongoing advice, which the customer does not receive.

ASIC said, given the extent of the failures so far uncovered, the banks and financial institutions will be required to conduct even deeper reviews over a longer period of time.

The new reviews will cover all businesses authorised to give financial advice and extend back an additional seven years to July 2008.

Automatic payments and culture of fee generation to blame

ASIC said the its study identified numerous cultural issues in the systemic failure.

These included:

• A culture of reliance on automatic periodic payments, such as sales commissions and adviser service fees
• Advice licensees prioritising revenue and fee generation over ensuring that they delivered the required services
• A failure to keep adequate records or to capture sufficient data electronically to enable monitoring and analysis

The regulator uncovered evidence of one business charging customers for retention of records it was obliged to keep by law, while another believed that three answered phone calls to a client could be considered “financial advice”.

ASIC was not entirely happy with the response to the review and remediation process.

“On some occasions advice licensees proposed review and remediation processes that were legalistic and did not prioritise the interests of customers,” ASIC observed.

The banks have been under increasing pressure from regulators, politicians and the public over mounting scandals relating to commission-driven sales, fee gouging, poor remediation practices and a lack of protection for “whistleblowers” who report deceptive practices.

A recent independent report found the banks were falling behind their own self-imposed schedule aimed at improving customer outcomes and restoring public trust.

– ABC