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BFCSA: Bankers' failed charm offensive with corporate regulators

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Bankers' failed charm offensive with corporate regulators

Australian Financial Review Aug 15 2018 11:00 PM

Karen Maley


Banks, it seems, have a touching faith in the ability of their top executives to resolve conflicts with even the stroppiest of corporate regulators – either by relying on their considerable personal charms, or on the reverence that must surely be felt for those occupying such elevated positions.

Earlier this week, the Hayne royal commission heard Andrew Hagger, a senior executive of the National Australia Bank, describe the "proactive courtesy call" he had made to ASIC commissioner, Greg Tanzer, in which he had obliquely indicated that the NAB's plan service fee problem was worse than indicated in the regulator's draft fee-for-no-service report.

The phone call was designed to shield the bank from claims that it had not been candid with ASIC when the full extent of the bank's plan service fee issues subsequently came to light.

But Commonwealth Bank has shown it is not averse to relying on the appeal of Matt Comyn – who before becoming the chief executive ran the bank's sprawling retail operations – to placate an angry regulator threatening to slap an enforceable undertaking on the bank.

Last year, ASIC was on the warpath with Commonwealth Bank over the bank's practice of giving clients a financial health check before trying to flog them a superannuation product.

Not unreasonably, the regulator took the view that customers would conclude that CBA branch staff had formed the view that the super product suited their particular financial circumstances. The problem is that branch staff are not permitted to provide personal financial advice.

ASIC initially threatened court action, but subsequently proposed that the bank agree to an enforceable undertaking. CBA's view was that a preferable solution would be for ASIC to put out a press release.

But even though the bank realised there was little likelihood of ASIC backing down, it decided to pull out all stops.

Comyn agreed to use his personal authority, and to call ASIC's deputy chairman, Peter Kell, to check whether the matter could be resolved on the basis of an media release rather than an enforceable undertaking. This would mean overruling a senior ASIC executive, Tim Mullaly.

Meanwhile, Larissa Shafir, CBA's head of compliance, set to work trying to persuade Mullaly that ASIC should wait until the case between ASIC and Westpac was decided before the corporate regulator took any action against CBA. Again, ASIC proved surprisingly obdurate.

In late October, Shafir sent another email to Comyn querying whether there was "any great need for you to meet with Kell this Friday unless you would like to have a further go at pursuing this".

Comyn, however, still thought it worth a shot. "I think we should keep trying. I don't think it will achieve much, but don't think I've got much to lose either," he wrote back.

His best efforts, however, were to no avail. Last month the CBA entered into an enforceable undertaking that stopped the bank's staff from selling superannuation products in tandem with "financial health checks".

But at least bankers feel they have to put in an effort with ASIC. They clearly feel no such pressure when it comes to the Australian Prudential Regulation Authority, which is responsible for overseeing superannuation.

On Tuesday, the Hayne royal commission heard that CBA's wealth arm, Colonial First State, admitted that it committed as many as 15,000 offences by failing to pay default super contributions into low-fee MySuper funds from January 1, 2014.

But APRA did not prosecute the offences, which would carry a total maximum fine of about $160 million, and allowed CFS to continue flouting the law for another 3½ years.

"Were you surprised at the end of this 3½-year period that APRA never took any enforcement action with respect to Colonial First State for its many admitted contraventions?" counsel assisting, Michael Hodge, QC, asked CFS head Linda Elkins. "No", she replied.

Why not? "We felt that we had worked through the contraventions and resolved them satisfactorily," Elkins replied.

And when APRA pushed CFS to speed up the transfer of 60,000 members to low-cost superannuation accounts, Colonial flouted the regulator, citing "operational risks" for its delay.

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