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Which bank is on notice after ASIC probe into scandal?

ASIC has slapped new conditions on Commonwealth's licences. ASIC has slapped new conditions on Commonwealth's licences.
Commonwealth Bank could face suspension or cancellation of its two financial planning licences if it breaches new conditions imposed on it late last week by the corporate regulator.

In the latest embarrassment for the CBA over the financial planning scandal, ASIC slapped the new conditions on the bank's licences on the basis its compensation process for customers of dodgy CBA planners was inadequate.

Imposing licence conditions rather than entering an enforceable undertaking speaks volumes about how serious ASIC is taking the latest development.

The fact that CBA has agreed to these conditions and waive its right to challenge them at a hearing shows how serious it is taking the regulator on this matter.

It comes after a joint investigation by Fairfax Media and Four Corners found the regulator had misled the Senate in terms of the size of CBA's compensation to customers.

In a statement released on Friday, ASIC said: ''Some of the information ASIC put to the Senate inquiry about the compensation process was inaccurate because it was based on its understanding of information from Commonwealth Financial Planning (CFPL), in particular CFPL's submission to the Senate inquiry.''

In its submission, ASIC said CFPL had paid out $51 million in compensation. The joint investigation exposed another financial planning division, Financial Wisdom, and a financial planner, Rollo Sherriff. It also exposed that $7 million of the $51 million compensation had been given to 98 of Sherriff's clients.

The Senate inquiry into ASIC's performance was sparked by ASIC's delayed response to information about a cover-up in Commonwealth Financial Planning, which saw hundreds, possibly thousands, of clients lose millions of dollars.

Financial Wisdom was never subject to an enforceable undertaking because there was no whistleblower who went public with what was going on.

In the case of the CBA financial planning scandal, which resulted in the banning of eight planners who controlled hundreds of millions of dollars of clients' money, ASIC extracted a two-year enforceable undertaking in October 2011 on the bank's Commonwealth Financial Planning division.

That undertaking ended late last year with the blessing of ASIC, but after revelations about Financial Wisdom and the compensation process the corporate regulator has decided to ratchet it up and expand ASIC's scrutiny from CFPL to its other arm, Financial Wisdom, through new licence conditions.

ASIC will contract an independent expert to review the compensation process.

It comes less than a month before a Senate inquiry chaired by Senator Mark Bishop is due to report its findings into ASIC's performance as well as whether to reopen CBA's compensation even further.

Jeff Morris, the bank insider who blew the whistle at CFPL, said: ''The extraordinary thing about this is that the truth has only emerged as a result of media exposure of the Rollo Sherriff case, which in turn only came about because of the public exposure of the CFP scandal.''

He said out of the 7000 people compensated, at least 4000 need to be reviewed. ''So much also for the independent expert, the bank's auditors, who supposedly supervised the operation of the scheme,'' Morris said.

''I suspect ASIC is also trying to pre-empt the findings of the Senate committee by announcing this limited reopening of compensation. As I testified to the Senate, in a business of 750 financial planners, where ASIC themselves found 'widespread problems with the quality of advice' way back in 2007, there were a lot more than eight 'rogue' planners whose advice needs to be compensated for and therefore tens of thousands more clients, than the 7000 looked at to date, who should be compensated for the poor advice received. This is the real 'reopening' needed.''

ASIC said it had no problem with the initial compensation model, merely the process. Many would beg to differ, particularly given there are a number of customers whose files went missing.

Or as Financial Resolutions Australia points out: ''There is the case of a client, arguably with the correct risk profile, who was put into the Colonial Mortgage Fund which was the wrong product. Even if he received 100ยข in the dollar back, what about compensation for no income over the period? CBA received income - it still charged management fees.''

Author : Adele Ferguson
Source : The Age

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