Shares of Westpac Banking Corp (ASX: WBC) are trading lower this afternoon after the Australian Securities and Investments Commission (ASIC) successfully appealed a court decision against the big four ASX bank. WBC shares opened at $29.06 this morning, but are swapping hands for $28.94 at the time of writing – a drop of 0.38%.
What are the details of the ASIC appeal?
According to a report in the Australian Financial Review (AFR), a panel of Federal Court of Australia judges unanimously ruled that ASIC's appeal of its previous decision from last year be allowed with costs, dismissing a counter-appeal by the Westpac-owned BT Funds Management.
The court had previously ruled that the actions of the bank in moving $640 million worth of its customers' super balances to super funds owned and operated by the bank did not constitute 'personal' financial advice.
However, this ruling has now been overturned on appeal and many experts are saying that this particular 'test case' has now provided a powerful precedent on the distinctions between 'general' and 'personal' financial advice.
In the decision paper, Chief Justice James Allsop AO had this to say:
Westpac's attempts to have customers transfer funds from their external accounts with other superannuation funds into their BT accounts were carefully calculated to bring about this desired result by giving no more than general advice….the difficulty is that the decision to consolidate superannuation funds into one chosen fund is not a decision suitable for marketing or general advice … this was personal advice.
What does this mean for Westpac shares?
In my view, not all that much in the short term. Whilst it isn't yet clear whether any financial penalties will be thrown at Westpac, the bank was already in the process of separating itself from BT and the rest of its wealth management arm (as are many of the other ASX banks). Therefore, I believe today's decision from the court is unlikely to drastically affect Westpac's structural profitability from a long-term perspective.
However, from a publicity standpoint, it's not a great look for a bank that's just come out of the Royal Commission with a "we've changed our ways" mantra. Westpac was far from being squeaky-clean before this decision and it seems it might need to take yet another bath.
