AMP finance scandals – lessons to be learnt from this controversy

Last week, the wealth manager AMP has finally accepted its fate. It has stopped its operations and has put up the ‘For Sale’ sign. As you might have guessed, this was not a sudden decision. The firm had been struggling for quite a while before deciding that things will not get better. In fact, its downfall will be remembered for a long time to come in the financial world since it offers so many valuables lessons. Some experts advance that AMP is destined ‘to become a case study on the subject for financiers everywhere’.

What is AMP?

AMP is an investment advice company offering financial services and banking products in Australia and New Zealand. It has established itself as a reputable firm for 171 years and it is very well-renowned for backing privatisations and other big transactions. A pretty big deal right? How then did it fall so low? What led to its downfall? These factors are important since it will prevent other firms from making the same mistakes.

The firm’s demutualisation process took place in 1998. This was a very good time for it. At a high point, having a lot of money and an additional $18 billion market capitalisation from an initial public offering, the company decided to expand internationally. This was the beginning of the end.

The beginning of the end for AMP

One of the biggest mistakes of AMP is that they were ill-advised! Surprising for an institution of that renown, right? But this just goes to prove what can happen to the best of us if we do not have the proper guidance at the very beginning of a venture itself. So, here goes lesson number 1: Always research and get guidance from experts. AMP started spiralling when they began the process of their ill-advised expansion and things just accelerated over the last couple of years. Instead of increasing, their equity value plummeted to $4 billion.

What did AMP do wrong?

In 2018, a public inquiry into the country’s financial sector revealed several abuses by the firm. For instance, thousands of customers were charged for services that were never provided. Additionally, during the inquiry, the firm admitted that they lied to the regulator. Senior executives intervened in the drafting of what was supposed to be an independent report for the enquiry. The company also admitted to providing false information to the stock market watchdog Australian Securities and Investment Commission (ASIC) in the aim to mislead. This had a huge impact on approximately 15,700 clients between 2009 and 2016. Following this, both the chairman and the firm’s CEO resigned. A close scrutiny of the firm’s operations revealed several other malpractices such as a breach of various anti-money laundering laws and benchmark interest rates rigged.

Just recently, there was a huge scandal surrounding the promotion of an executive. The latter was given the task of running AMP Capital, its fund management crown jewel. Shareholders were revolted because afterwards it was disclosed that the said executive was charged, in-house, for inappropriate behaviour when dealing with a female colleague. This led to more resignations/dismissals.

Could things have gone better for AMP?

While things are now very bad for AMP, things could have gone better for the firm. According to many experts, there is an important lesson to be learnt from the way they handled things and this is: start digging and fixing things as from the beginning itself. Instead, at the beginning, the firm blamed its scandal on just a few rotten apples. However, this was not the only issue that they had to deal with. There were huge concerns about its corporate culture. AMP started dealing with that two years ago when it hired Francesco De Ferrari from Credit Suisse as its CEO. Since then, the firm has been trying to save itself with actions such as offloading its life insurance business. Clearly the ‘For Sale’ sign shows that things did not end well and this could have been avoided if AMP started digging into the way its operations were being managed sooner.

This is an issue rampant in other parts of the world as well. For instance, the American banking firm Wells Fargo is still recovering from and suffering from the fallout of a scandal, involving a fake account, that took place four years ago.

How not to become AMP?

We do not want to turn into AMP right? The first lesson mentioned in this article is to get the right advice and counsel. Secondly, you must make sure to research into the regulations, laws, policies and the overall corporate culture of the jurisdiction that you are investing in. For instance, if you want to invest in Africa, you can choose to establish your business in Mauritius.

The island has proven to be a reliable jurisdiction with economic activities that are regulated by both local organisations, FSC and FSPA, and international institutions; it is an active member of the Eastern and Southern Africa Anti Money Laundering Group which aims to decrease money laundering in Eastern and Southern Africa.

With the country’s fiscal regime defined by fairness and transparency and exchange of information. This ensures that financial institutions in the country are trustworthy and reliable which means that you will be able to get the proper counselling to either establish or expand a business.