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BFCSA: ASIC orders Commonwealth Bank financial planning arm to halt service fees

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ASIC orders Commonwealth Bank financial planning arm to halt service fees

The Australian 9:21am February 4, 2019

Samantha Bailey, Joyce Moullakis


Commonwealth Bank’s financial planning business has been ordered to immediately cease charging service fees from its customers and not enter into any new ongoing service arrangements.

The order by the financial services regulator comes after Commonwealth Financial Planning Limited failed to meet the requirements of an enforceable undertaking struck with ASIC in April 2018 in relation to fee-for-no-service conduct.

The stinging rebuke by ASIC - on the day the Hayne royal commission’s final report becomes public - hits CBA on many fronts.

The bank’s (CBA) Count Financial unit and other planning businesses will be spun off alongside its mortgage broking operations. That will be done via a demerger on the ASX, but investors will tread cautiously on the deal even after the inhouse planners were excluded from it.

In December, CBA said as part of the demerger the bank would hold $200 million as an “indemnity provision” for historical remediation relating to the businesses being spun off, and associated costs.

Yesterday, in a statement to the market acknowledging ASIC’s decision, the bank said it would not enter into any new ongoing service arrangements and has also commenced the process to stop charging ongoing service fees to existing customers until the conditions of the enforceable undertaking had been satisfied. “Commonwealth Financial Planning expects to have completed the stopping of charging ongoing service fees for the vast majority of customers by April 1, 2019,” the statement said.

Commonwealth Bank group executive for retail banking services, Angus Sullivan said: “We recognise the importance of customers getting quality financial advice. Beyond the terms of what is required for the enforceable undertaking, we are evolving the future approach for the delivery of advice.

“CFP will be moving to a new financial advice fee model where customers will pay for advice services when they are delivered. The details of this model are currently being worked through and further information will be communicated to customers when they are finalised.”

CBA is due to report its interim earnings on Wednesday and investors and analysts will grill chief executive Matt Comyn about the bank’s failure to comply with ASIC’s EU, particularly as the royal commission fallout takes hold this week.

It comes after ASIC accepted an enforceable undertaking from two CBA subsidiaries — Commonwealth Financial Planning Limited and BW Financial Advice Limited — after finding they failed to identify evidence regarding annual reviews into about 31,500 ongoing service customers who had paid for those reviews.

As part of the arrangement with ASIC, the two businesses agreed to together pay a community benefit of $3 million, while CFPL also agreed to provide evidence of material changes to compliance systems.

BW Financial Advice ceased trading in October 2016, so CFPL was the focus on the compliance improvements, ASIC said in April.

The two subsidiary companies agreed to compensate affected customers, paying a total of approximately $88.6m plus interest to these customers.

That enforceable undertaking, which commenced on April 9 last year, required Commonwealth Financial Planning Limited to provide ASIC with an attestation and with an acceptable final report from the independent expert.

ASIC wanted a final report by professional services firm EY, on whether the business had taken reasonable steps to remediate customers impacted by fees-for-no-service conduct and on the adequacy of its systems, processes and controls.

The regulator also wanted an attestation from a Commonwealth Bank ‘accountable person’ under the Banking Executive Accountability Regime as to the bank’s remediation program, and the adequacy of its systems, processes and controls.

Last month, EY issued its second report under the enforceable undertaking.

It identified concerns regarding the remediation program and compliance systems and processes, and recommended the bank addressed its concerns within 120 days, including its heavy reliance on manual controls, which presented a higher risk.

That day, Commonwealth Bank’s accountable person provided a written update to ASIC on the remediation program and other work being done to address EY’s concerns.

ASIC said its requirements under the enforceable undertaking for an acceptable attestation were not satisfied, triggering the regulator’s requirement for the business to stop charging ongoing service fees and not enter into any new ongoing service arrangements.

That requirement will continue until the business is able to address ASIC’s issues

“ASIC included this requirement in the enforceable undertaking to ensure that if Commonwealth Financial Planning were not able to satisfy ASIC that the fees-for-no-service conduct would not be repeated, CFPL would have to stop charging ongoing service fees so as to significantly reduce any further risk to clients,” ASIC said in a statement.

“Existing clients will continue to receive services under their ongoing service agreements but will not be charged by Commonwealth Financial Planning Limited.”

At 10.36am (AEDT), shares in CBA were down 25 cents, or 0.36 per cent, at $69.51.

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  • Louie2U
    Louie2U Friday, 08 February 2019

    Never trust CBA ever

    Interesting how the RC would not look "under the hood"about CBA's other behaviours.
    Too hard? Or, too much else to find that this restricted baby RC might uncover?

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