CommBank victims closer to royal commission
Senate inquiry says a royal commission should be established into the fraud, forgery and cover ups of the Commonwealth Bank's financial planning arm, reports Fairfax business columnist Adele Ferguson.PT4M29S http://www.canberratimes.com.au/action/externalEmbeddedPlayer?id=d-3avfj 620 349 June 26, 2014
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A powerful Senate inquiry has called for the Commonwealth Bank of Australia to face a royal commission to investigate fraud, forgery and allegations of a cover-up inside its financial planning arm.
There was forgery and dishonest concealment of material facts.
Thousands of Australians have lost their life savings as a result of allegedly shoddy financial advice given to them by planners at the country’s biggest bank.
Calls for a royal commission: Senate inquiry wants a probe of CBA's financial planning arm. Photo: Dominic Lorrimer
The inquiry said the bank’s existing compensation program for financial planning victims should be completely re-done, and the offers made to victims reviewed.
Inquiry chairman, Labor Senator Mark Bishop, has indicated this could increase the CBA’s compensation bill from about $51 million to $250 million.
The inquiry has also called for a wider investigation into the financial planning arms of other industry players including Macquarie Group.
Other recommendations of the inquiry, which was sparked by Fairfax Media reports of widespread misconduct among financial planners and managers at the CBA, include changes to the Australian Securities and Investments Commission to make the corporate regulator leaner, meaner and more effective.
“There was forgery and dishonest concealment of material facts,” the inquiry found in its report, tabled on Thursday. “Clients lost substantial amounts of their savings when the global financial crisis hit; the crisis was also used to explain away the poor performance of portfolios.
“Meanwhile, it is alleged that within CFPL there was a management conspiracy that, perversely, resulted in one of the most serious offenders, Mr Don Nguyen, being promoted.”
The report concluded that “ASIC has limited powers and resources but even so appears to miss or ignore clear and persistent early warning signs of corporate wrongdoing or troubling trends that pose a risk to consumers.”
It said in one case ASIC was shown to be “a timid, hesitant regulator, too ready and willing to accept uncritically the assurances of a large institution that there were no grounds for ASIC's concerns or intervention.”
A user-pays model should be introduced, ASIC’s registry business sold and penalties and fines for misconduct should also be increased, the committee said.
One of the committee members, Senator David Bushby, released a dissenting report which rejected the recommendation for a royal commission or any other inquiry on the basis it would "incur significant costs to taxpayers without delivering any greater level of understanding or financial restitution." He said it could raise false hopes that further compensation may become available.
ASIC was alerted to misconduct in the CBA’s financial planning arm by whistleblowers six years ago, but took almost 16 months to mount an official investigation.
The corporate regulator’s performance was heavily criticised during the inquiry, with victims and whistleblowers complaining that ASIC ignored complaints and was too close to the bank.
ASIC chairman Greg Medcraft admitted to the Senate that the regulator’s trust in the CBA had been ‘‘misplaced’’.
The Senate committee said an independent inquiry, ‘‘possibly in the form of a judicial inquiry or royal commission’’, should be set up to ‘‘thoroughly examine the actions of the Commonwealth Bank of Australia relating to the misconduct of advisors and planners... and the allegations of a cover-up’’.
A fortnight ago, Committee chairman Senator Mark Bishop said that his ‘‘fears that a large number of client files have not been properly reviewed and full compensation made’’ were true, the bank might have to pay as much as $250 million to properly compensate victims.
It has so far paid just $52 million in compensation, but has already been forced to re-open the files of more than 4000 customers as part of new license conditions announced by ASIC last month.
In a move designed to clean up an industry that has been plagued by scandals and collapses including Storm Financial, Timbercorp, Great Southern and Westpoint, the committee said ASIC should undertake ‘‘intense surveillance’’ of other financial advice businesses that have previously drawn scrutiny, including Macquarie Private Wealth, to ensure there are no remaining problems.
The committee recommends that company boards should also appoint a designated director who is responsible for receiving and reporting violations of compliance to ASIC.
Among the 61 recommendations in the report are measures designed to improve the lot of whistleblowers by offering them rewards and strengthening laws protecting them from reprisal.
In other recommendations:
- Financial advisers should have a university qualification, industry experience and sit an exam.
- The Murray inquiry into the financial system should examine the regulation of investment products.
- ASIC’s performance should be monitored by the parliamentary joint committee on corporations and financial services.
- The government should consider changing corporate insolvency law to bring in a regime that has features of the US’ Chapter 11 regime, which gives greater protection to management and shareholders at the expense of creditors.