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Wednesday 10 April 2019

19-085MR ASIC releases final report on CBA’s compliance with financial advice licence conditions

ASIC today released KordaMentha Forensic’s final report on CBA’s advice compensation program under its additional licence conditions.

ASIC had imposed additional conditions on the Australian financial services (AFS) licences of CBA’s Commonwealth Financial Planning Ltd and Financial Wisdom Ltd with the consent of the licensees in August 2014, and appointed KordaMentha Forensic as the independent expert to monitor the licensees’ compliance with the additional licence conditions.  

ASIC took this action because the licensees did not apply review and remediation processes consistently to customers of 15 financial advisers, disadvantaging some customers. The additional licence conditions required that CBA offer compensation for inappropriate advice that caused financial loss (where applicable) and offer affected customers up to $5,000 to get independent advice from an accountant, financial adviser or lawyer.

KordaMentha Forensic has produced five reports since the licence conditions took effect. In the first report, the Comparison Report, KordaMentha Forensic identified inconsistencies in treatment of clients and required the licensees to correct the inconsistencies for approximately 2,740 customers.

In the second report, the Identification Report, KordaMentha Forensic found that the licensees had taken reasonable steps in 2012 to identify which clients of the 15 advisers had to be included in the compensation program.

KordaMentha Forensic also found that the licensees had taken reasonable steps to identify other potentially high-risk advisers, but that the licensees had not adequately reviewed advice given by 17 of those advisers. To address this, KordaMentha Forensic prescribed the scope of the additional reviews (of the 17 advisers) that the licensees had to undertake.

KordaMentha then produced three additional reports describing the licensees’ compliance with the conditions, the additional steps that the licensees were required to take, and the compensation outcomes. Compliance Report Parts 1 & 2 assessed the steps taken by the licensees to communicate with and compensate (where applicable) customers of 15 former advisers for advice provided between 2003 and 2012.

Compliance Report Part 3 described the licensees’ review of the 17 potentially high-risk advisers and KordaMentha Forensic’s conclusion that the licensees should apply the compensation program to customers of five of those advisers.

In the final report, Compliance Report Part 4, published today, KordaMentha Forensic covers the last of CBA’s advice compensation program under the licence conditions. The report states that CBA has offered a further $2.3 million to 232 clients of the five advisers. This is in addition to:

  • $4.95 million (including interest) offered to customers of different advisers under the licence conditions (reported in KordaMentha Forensic's Compliance Report Parts 1 & 2);
  • $1.9 million (including interest) offered to additional customers as a result of CBA’s review outside the licence conditions. The need for these reviews was identified during  the licence conditions process.

This means that CBA has offered approximately $9.3 million to customers whose advice has been reviewed as a result of the licence conditions imposed by ASIC in August 2014.

Compliance reporting

The final report also provides KordaMentha Forensic’s assessment of compliance by Commonwealth Financial Planning Ltd and Financial Wisdom Ltd with processes they were required to follow under the licence conditions. These are summarised in the table below.

Table 1 - Summary of compliance for the Second Compensation Program [Condition 29(c)]  

Licence Condition

Description

Compliance

Condition 23(a)(ii) - Additional Elements

Written communication in the form of an Initial Letter

98.68%

Condition 24

Reasonable access for Compliance Expert

Yes

Condition 25

Written communications with the Other Affected Clients

98.76%

Condition 26

Provision of information to Independent Advisor where requested

 

 

- Reasonably sufficient information requirement

Yes

 

- Timing requirement (provided to clients within 14 days)

96.77%

Condition 27

Further Licensee Review (completed within 90 days of client request)

100.00%

Condition 28

Further Licensee Review outcome letter (completed within 30 days of completion of Condition 27)

100.00%

Condition 29(c)

Application of Second Compensation Program and Additional Elements

Yes

Condition 30

Licensee status reports to ASIC

Yes

Condition 31(a)

Inclusion on CBA Board meeting agenda

Yes

Source: KordaMentha Forensic, Compliance Report Part 4.

The compliance breaches identified were failures by CBA to meet strict deadlines for providing information to clients (see Condition 23, 25 and 26 in the table above). CBA subsequently rectified these failures by writing to the clients after the deadlines.

As a final step, before ASIC makes a decision on the removal of the additional licence conditions, the boards of directors of Commonwealth Financial Planning Ltd and Financial Wisdom Ltd must confirm in writing to ASIC that the licensees have complied with the additional conditions.

Download

Compliance Report Part 4

Background

The report released today is KordaMentha Forensic's fifth report under the additional licence conditions. Previous reports are available on ASIC's website at the following links:

Last updated: 10/04/2019 12:00