The federal government has given a cool reception to calls for a royal commission into widespread fraud by financial advisers at the Commonwealth Bank.
The federal government appears unlikely to back a call for a royal commission into the Commonwealth Bank’s handling of fraud and misconduct by financial advisers that resulted in more than 1100 customers losing savings.
Prime Minister Tony Abbott and Finance Minister Matthias Cormann have given a lukewarm response to a damning senate economics committee report calling for a powerful inquiry into the Commonwealth Bank’s financial planning arm.
The critical report highlights failings of the Commonwealth Bank and the Australian Securities and Investments Commission (ASIC) in dealing with fraudulent activity by advisers in the bank’s Commonwealth Financial Planning (CFPL) business between 2006 and 2010.
The senate committee investigated ASIC’s slow response to whistleblowers inside the Commonwealth Bank who raised the alarm on misleading and deceptive conduct by financial advisers that included forging client signatures to allow profit-producing product switches.
Customers were switched into high-risk investment products without their consent and then lost large amounts of their savings when the global financial crisis hit.
Also under investigation was the bank’s response. One adviser, Don Nguyen, was suspended for compliance failures but was later promoted.
Mr Nguyen was banned from being a financial service provider for seven years in 2011.
The committee, chaired by outgoing Labor senator Mark Bishop, said a royal commission was justified by the seriousness of the misconduct and ASIC’s “severely undermined” ability to monitor the bank’s compensation process to affected customers.
Mr Abbott said the government would carefully consider the report, but await the results of its current financial system inquiry before taking any action.
“Obviously some terrible things happened and it’s good that the parliamentary inquiry into this has been able to expose some of the problems,” he told reporters in Sydney on Friday.
Senator Cormann told ABC radio he would respond to the report after working through the 61 recommendations of the 550-page document.
However, he spoke favourably of a dissenting report filed by committee deputy chair, Liberal senator David Bushby, who opposed establishing a royal commission.
“He did make a very persuasive argument that yet another inquiry might not be the best way forward,” Senator Cormann said.
The Commonwealth Bank said it was sorry some of its advisers had failed customers but denied accusations from Senator Bishop that it had downplayed the extent of wrongdoing or sought to minimise compensation to affected customers
CBA said it strongly refuted those accusations, as it had worked openly with the senate committee and ASIC.
However, the committee did find that “CBA deliberately played down the seriousness and extent of problems in CFPL in an attempt to avoid ASIC’s scrutiny, contain adverse publicity and minimise compensation payments”.
To date about $52 million has been paid to more that 1100 victims in compensation for lost earnings.
ASIC has imposed licence conditions on the bank requiring it to allow 4000 more customers the opportunity to check if they are eligible for compensation.
ASIC chairman Greg Medcraft said the regulator had made changes to its processes as a result of the committee investigation, but defended his organisation, saying it did what it could with its current resources
“Our job is to do the best with the resources and powers we have,” he said.
“We have 30 staff looking to monitor over 40,000 financial planners.”