Litigation risks in the financial sector are not abating with Suncorp Group Ltd (ASX: SUN) the latest to be hit with a $180 million lawsuit today.
The Suncorp share price tanked 1.3% to $12.86 on Monday but its peers were also on the backfoot with the AMP Limited (ASX: AMP) share price and Westpac Banking Corp (ASX: WBC) share price suffering a similar scale decline.
Large financial institutions on the S&P/ASX 200 (Index:^AXJO) (ASX:XJO) index have been trying to recover since the Hayne Royal Commission and the latest lawsuit is another setback for Suncorp, which recently lost its CEO.
Not acting in customers' best interest
Members of the group's superannuation funds are suing for up to $180 million for allegedly acting against their best interests when it exploited a loophole in the Future of Financial Advice reforms, according to the Australian Financial Review.
The allegations were revealed in August during the Royal Commission proceedings when Suncorp used grandfathering provisions in the law to ensure the ongoing payments of trailing commissions to financial advisors.
While not technically illegal, the plaintiffs will claim that Suncorp acted against their best interest.
"The class action will allege that Suncorp Super executed agreements to entrench fees that would otherwise have become unlawful or unenforceable," said William Roberts Lawyers, which is leading the lawsuit.
"In doing so, the action will allege that Suncorp Super breached its duties to avoid conflicts, act with due care and diligence and act in the best interest of its members."
Growing litigation threat against ASX companies
Other ASX-listed financial institutions have also been hit with class actions, including the big four banks.
While there's talk that the worst could be over for the sector, investors shouldn't discount the risk posed by legal action.
You only need to look at the big crash in Nufarm Limited (ASX: NUF) share price today to see what I mean. The stock dived 4.8% to a more than five-year low of $3.75 on worries that it will face a multi-million-dollar class action that's similar to the ones its peer Monsanto is facing.
Nufarm uses the same active ingredient in its weed killing solution as Monsanto, and the chemical is alleged to be linked to cancer.
