A damaging admission by the Commonwealth Bank will boost concern about the government’s plan to weaken protections for consumers seeking financial advice and throw into doubt its timetable for announcing changes.
The bank’s earlier failure to provide a parliamentary inquiry with full information about its handling of the aftermath of financial advisers' misconduct has forced a last-minute delay to a Senate report into the affair.
The bank now admits not all the relevant clients were contacted and offered the promised $5000 to help them get fresh advice. More than 4000 cases are now to be dealt with.
Full information was apparently withheld by the bank for some time from the inquiry and from the Australian Securities and Investments Commission.
The government’s proposed changes to Labor’s Future of Financial Advice (FoFA) law would advantage the banks. They would apply the ban that exists on “conflicted renumeration” only to the provision of personal advice - exempting general advice provided by employees of banks and product manufacturing institutions.
The controversial package was put on hold for further inquiry and consultations. Seniors groups have been particularly critical.
Finance Minister Mathias Cormann is anxious to finalise the measures quickly and does not want to revise them substantially.
But what the Senate economics references committee on Wednesday described as “surprise developments” – the production of new information from ASIC and the bank - will increase suspicion.
The committee, investigating the performance of ASIC, had been due on Friday to present a report expected to be very critical of the bank.
One of the committee’s main concerns has been the misconduct of some financial advisers in Commonwealth Financial Planning Ltd (CFP), part of the Commonwealth Bank of Australia Group, and ASIC’s response to allegations of wrongdoing.
The committee said in an interim report on Wednesday that it was particularly interested in the adequacy and integrity of the ASIC-approved compensation arrangements for affected clients.
It had been well advanced in preparing its report when on May 16 ASIC and the CBA advised there were inconsistencies in the way in which compensation arrangements had been applied.
“This revelation suggested that, for some time, the CBA had not kept either the committee or ASIC fully informed about the compensation process for clients affected by serious misconduct within CBA’s businesses,” the interim report said.
Although ASIC and the CBA had attempted to correct the record, the committee said the evidence provided was “sketchy” and many questions were left unanswered.
The committee chairman, Labor’s Mark Bishop, said these included how many affected clients were “kept in the dark by the CFP, for how long, and the number who missed out on the offer of $5000 to help them pay for an expert assessor to assist their claim”.
Concerned it might still not have a full understanding of what had happened, the committee has asked for more information from ASIC and the bank.
Bishop tweeted that he was alarmed that “ASIC says over 4000 clients affected by inconsistent approach CBA applied to compensation measures. Maybe ten of thousands”. The latter number is a reference to possible unidentified clients.
The committee’s final reporting date has been delayed to no later than June 26.
The Senate economics legislation committee, with substantially overlapping membership with the ASIC inquiry, is examining the proposed FoFA changes.
It will report on June 16. Cormann has planned to announce the government’s position immediately after that.
But the government could expose itself to more criticism if it did not wait until the report dealing with the Commonwealth Bank.
Financial Planning Association chairman Matthew Rowe told The Conversation one would expect the latest development to push out the timetable for the government’s announcement.
His organisation, a professional body representing financial planners, has written to Cormann with its concerns about the reintroduction of commissions. It says the selling of products should be clearly separated from providing professional advice.
“Consumers are becoming increasingly suspicious of the behaviour of some of our major institutions,” Rowe said.
“The government needs to take great care with the arguments of those with significant vested interests where there is a real and significant public interest at stake.”
On FoFA the government is trapped in the triangle of what it wants to do, what politically it should do, and what the Senate will allow it to do.