Finance Finance News Banking ASIC sues Commonwealth Bank over alleged shady super advice

ASIC sues Commonwealth Bank over alleged shady super advice

Commonwealth Bank and Colonial are being sued by ASIC over alleged 'conflicted remuneration' totalling $22 million. Photo: TND
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Commonwealth Bank could face fines ranging in the billions of dollars over an alleged agreement where it was paid by a subsidiary to sell its superannuation product to bank customers.

The Australian Securities and Investments Commission lodged a federal court lawsuit on Monday alleging Colonial First State paid $22 million to Commonwealth Bank to promote its Essential Super product to bank customers between 2013 and 2018.

Over the course of those six years, ASIC said about 390,000 customers signed up to the fund under the arrangements.

ASIC is seeking penalties against both Commonwealth Bank and Colonial First State, which could amount to $1 million for every breach of the Corporations Act.

The watchdog said it would pursue Commonwealth Bank over each of the alleged 390,000 breaches, but it’s unlikely it would have to front up the maximum penalty if it loses the court battle.

ASIC said the alleged behaviour contravenes the Corporations Act as it could have ‘reasonably’ influenced superannuation products Commonwealth Bank tellers recommended to retail customers.

“This proceeding reflects the ongoing commitment by ASIC’s Office of Enforcement and its royal commission litigation program to bring the royal commission’s referrals and case studies to litigation when appropriate,” ASIC deputy chair Daniel Crennan QC said.

ASIC’s latest civil suit follows a referral from the Hayne Banking Royal Commission, which found the two firms agreed to a “revenue-sharing model” where Commonwealth Bank would receive 30 per cent of the annual net revenue from its sales of Essential Super.

The product was promoted through Commonwealth Bank’s branches and digital channels after “a transaction, financial ‘health check’ or a request or referral”.

After it was introduced, the lender engaged KPMG to conduct ‘mystery shopper’ testing in September 2013, which found 85 per cent of retail clients were not provided with a financial services guide when presented with the product.

There were improvements in later tests conducted in December 2013 and September 2014, but still found potential breaches of legislation.

ASIC informed Commonwealth Bank in late 2016 or the beginning of 2017 of concerns surrounding “personal advice, as opposed to general advice” provided to customers in the arrangement, according to royal commission testimony.

This included some of the contraventions that prompted the corporate watchdog to launch legal proceedings.

In a statement issued to the ASX after trading closed on Monday, CBA said it acknowledged ASIC’s allegations and would “provide any further update as required.”

The New Daily contacted EY and Deloitte banking analysts, the Financial Services Council and several financial services legal firms, who declined to comment over legal concerns.