ASIC, CFS respond to conflicted remuneration ruling

On Thursday morning, the Full Federal Court dismissed the Australian Securities and Investments Commission’s (ASIC) appeal against an earlier Federal Court decision to dismiss its case against the Commonwealth Bank of Australia (CBA) and Colonial First State Investments Limited (CFS) for allegedly breaching conflicted remuneration laws.

In the proceeding, ASIC alleged that CBA and its wholly owned subsidiary, CFS, breached conflicted remuneration laws when they reached an agreement in which CFS paid CBA to distribute its Essential Super product to retail clients through CBA’s branch and digital channels. Essential Super was distributed to over 390,000 individuals.

In the judgement, Justice Michael O’Bryan said: “Although ASIC succeeded in respect of a number of grounds of appeal, it failed on the ultimate issues in dispute. The grounds on which it succeeded were integers of the ultimate issues on which it failed.

“In those circumstances, it is appropriate that ASIC pays the respondents’ costs of the appeal and that there be no change to the orders made by the trial judge dismissing the proceeding with costs.”

ASIC deputy chair Sarah Court said, “ASIC pursued this matter because conflicted remuneration has the potential to cause consumers to be given financial product advice that may not suit their needs.

“While the Full Court dismissed the appeal it accepted a number of ASIC’s submissions and, importantly, clarified the meaning and reach of the conflicted remuneration provisions for future matters.”

ASIC did not rule out further action on the matter, noting that it will “consider the judgment carefully”. The regulator has 28 days to lodge any application for special leave to appeal to the High Court, should it decide to do so.

A Colonial First State spokesperson said: “CFSIL welcomes the judgment handed down by the Full Court of the Federal Court of Australia, dismissing ASIC’s appeal and finding that the distribution arrangement between CBA and CFSIL did not result in conflicted remuneration.”

In September 2022, Justice Stewart Anderson found the payments made by Colonial to CBA did not constitute benefits within the definition of “conflicted remuneration”.

He added the statutory context of the provisions were focused on situations where a financial adviser had a financial incentive.

ASIC launched the appeal in October 2022, with the corporate regulator concerned that the court’s decision would limit the operation of conflicted remuneration laws introduced in 2012.

“Conflicted remuneration has the potential to cause significant consumer harm because it can prevent consumers from receiving appropriate advice and financial products free of influence,” Ms Court said at the time.

The arrangements between CBA and CFS regarding the distribution of Essential Super was the subject of a case study by the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry.

The conflicted and other banned remuneration provisions were introduced in June 2012 as part of the Future of Financial Advice reforms, representing the Australian government’s response to the 2009 inquiry into financial products and services in Australia by the parliamentary joint committee on corporations and financial services.