Commonwealth Bank of Australia chief Ian Narev has apologised for breaching customer trust after evidence emerged of serious misconduct by the bank’s financial planning arm, Commonwealth Financial Planning Limited (CFPL).
In a press conference, Mr Narev said the bank would form an Open Advice Review program, which will give customers a chance for compensation.
“They failed in their primary obligation – to act in the best interests of our customers,” Mr Narev said.
“Poor advice provided by some of our advisers between 2003 to 2012 caused financial loss and distress and I am truly sorry for that.”
Mr Narev’s apology follows a scathing Senate inquiry report last week which called for a Royal Commission into the conduct of CFPL.
The report was highly critical of Australia’s corporate regulator, the Australian Securities and Investment Commission, which it said was slow to investigate and insufficiently sceptical of the CBA.
Both Finance Minister Mathias Cormann and Treasurer Joe Hockey, whose mother-in-law was one of the investors negatively affected by CBA planners, have indicated they are not in favour of a Royal Commission.
The Open Advice Review program will be running by mid-August and will review the advice given to customers. It will also give customers “access to an independent customer advocate and an independent review panel”, Mr Narev said.
However, Macquarie University corporate governance expert Michael Quilter said this wouldn’t be the case.
“It’s not independent. It is the bank’s process, and if at the end of the bank’s process the customer isn’t happy, they can go further and the process becomes much more objective outside the bank’s auspices,” Dr Quilter said.
“It seems to have set a fairly rigorous checking process and appeal process, but it’s hard to tell who exactly will be doing the reviewing.”
Dr Quilter said the review process may not be the boon customers were hoping for.
“A problem is the bank has prefaced this by saying it was the global financial crisis and so it was a period that was difficult for everybody. I wouldn’t expect everyone to be able to ring up and get a very positive response because that was a period when even good advice lost people money,” he said.
Melbourne University workplace leadership expert Peter Gahan said the CBA would want to avoid a Royal Commission.
“Obviously they will be concerned about a Royal Commission because a Royal Commission opens them up in all sorts of ways.
"If it goes to a Royal Commission, you would’ve thought this will be a liability for them for many years to come.”
Dr Quilter said customers could start a class action if they don’t feel properly compensated.
“All of this might give rise to groupings developing of Commonwealth Bank customers and the possibility of class actions. It’s a very wide area they’re opening to their customers to make inquiries,” he said.
Professor Gahan said Mr Narev acted well as a leader.
“As a leader he’s acting with integrity. If he had have come out and sought to defend what happened and made excuses for what happened, potentially it would have undermined the commercial position of the bank.
"Acting with authenticity is an important characteristic of leadership in the current environment and, given the circumstances, it was probably the right thing to do,” he said.
He said he expects most of CBA’s customers to stay with the bank.
“It might make people think twice about using some of their services, but given their high degree of goodwill, you would’ve thought the vast majority of customers of the bank will remain with them,” he said.