What does the call for an inquiry into the Commonwealth Bank’s financial planning arm mean?

The allegations

The Senate committee has accused the Commonwealth Bank’s (CBA) financial planning arm of putting client’s money into risky investments that led to thousands of Australians to lose their life savings.

“There was forgery and dishonest concealment of material facts,” the inquiry found in its report.

“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.”

During the Senate committee, Labor senator Mark Bishop urged the CBA “to reopen its existing compensation program for victims and review offers made so far”.

The main accusations against Commonwealth Financial Planning Limited (CFPL) include:

• Fraud
• Knowingly giving false advice
• Forgery
• Cover-ups

Inquiry was into ASIC

Though Commonwealth Bank’s financial planning arm has received the bulk of the media attention, the senate committee was initially briefed to look into the effectiveness of the Australian Securities and Investments Commission.

The committee has also criticised ASIC’s slow response to the CFPL and “lack of scepticism”.

In its main submission in August last year ASIC explained how it handled the CFPL case “several years ago” and the outcomes it achieved in that matter.

It was in this handling, the Senate committee found the evidence it needed to call for the royal commission against the CFPL and examine the relationship between ASIC’s limited attention to the problem and the negligent behaviour by the financial planners.

Report findings by senate on CFPL

Released yesterday the Senate’s Economics Reference Committee report found “the conduct of a number of rogue advisers in the CFPL was unethical, dishonest, well below professional standards and a grievous breach of their duties—in particular the advisers targeted vulnerable, trusting people”.

Actions of the CFPL adviser’s were examined between 2006 and 2010 at the height of the global financial crisis. The inquiry looked at how the advice they gave was misguiding clients and led to thousands to lose substantial amounts of savings.

The report also noted problems in disciplinary measures by both the CBA and ASIC in reigning in the misconduct of the financial planners, which exacerbated the situation:

• The ASIC and CBA failed to hold accountability as reports of fraud were put in the ‘too hard basket’ and ignored.
• CFPL provided bad advice to clients and ASIC failed to address the problems quickly.
• ASIC ignored whistle blowers who raised serious concerns about the conduct of Mr Nguyen and the actions of CFPL.

The call for royal commission was not unanimous

In an interview with ABC Radio, Finance Minster Mathias Cormann emphasised how he would consider the report and send his assessment after he reviews the recent recommendations made by the committee.

He touched on how liberal senator David Bushby, who has released a dissenting report, expressed his defiance to the proposed inquiry and suggested it may not be the best course of action right now.

Abbott against another inquiry

Prime Minister Tony Abbott said another inquiry into the financial sector on top of the current one going on now, may not be the best solution, but noted he would take the committee’s request into careful consideration as the Australian Government is already looking to reign in the problems through financial system reforms.

ASIC’s response to the inquiry

ASIC has admitted in its response to the report that the organisation needs to change its approach to “build a financial system we can trust”.

Greg Medcraft, ASIC chairman, said in a statement it had used the process to “learn from the people who made submissions, take a close look at how we do things, and then act on all this to do a better job”.

Mr Medcraft said ASIC has been hamstrung to properly do its job due to the amount of a small work force to watch over some 40,000 financial claims.

The ASIC also noted in its statement its continued need to tackle other problems including:

• Handling of whistle-blowers.
• Increased transparency of processes.
• Mechanisms to identify emerging risks, and the way we ensure enforceable undertakings and deliver good results for consumers.
• ASIC is also working to fix the “inconsistent treatment of customers in the compensation process”.