On Friday, CBA chief executive Matt Comyn told the House of Representatives standing committee on economics the bank’s remediation process for misconduct in its aligned advice businesses was the “most challenging”, because of how far back it reached and the lack of documentation.
“So far, our progress has been slower than we would have liked,” Mr Comyn said.
“And we’re very focused, given the scale of the dollars that are there that we want to refund those customers as quickly as possible.”
CBA has made total provisions for remediation matters related to its aligned advice businesses of $834 million, having boosted its stash by $300 million at the end of July. The total covers $689 million in customer refunds (including $280 million in interest) and $136 million in program costs.
In contrast, Mr Comyn noted the bank completed its remediation for matters related to salaried advisers a number of years ago, which cost it around $150 million.
“The difficulty which is an explanation rather than an excuse, is that aligned advisers who never worked with the Commonwealth Bank, they were typically running their own businesses but they operated under our financial services licence, which means we are liable,” Mr Comyn said.
“In some cases we are going back to up to 10 years ago, trying to track down the individual advisers. In one example, we are actually going back to approximately four years before the Commonwealth Bank even owned or had anything to do with a particular financial services licence.
“We’re trying to track down the advisers, understand what their record keeping is. Because there’s both a combination of customers who may have paid for a service that they didn’t receive [and] there’s also customers who may have received the service but the record keeping, which is a critical requirement, isn’t adequate or robust enough, which means they need to be refunded in full with compound interest applied to that.”
Liberal MP Jason Falinski also pointed to how ASIC had criticised the banks for splurging on expensive external advisors to assist their remediation processes, instead of paying customers.
CBA added 343 full-time staff to its internal remediation team in the 2020 financial year.
“We have hundreds of people in our internal team, but we have also supplemented that with external advisors, mainly because we’re trying to find a faster way to actually return money to our customers and in some cases, and remediation projects [are] an example, we just don’t have the resources internally,” Mr Comyn said.
“Given everything else we’ve got on, we’re just trying to find ways to accelerate those programs.”
The chief also noted CBA is refunding money that had been paid to advisers and not to the bank.
“So, unfortunately, it is complex. We would acknowledge it is taking too long,” Mr Comyn said.
“We share the regulator’s frustration and it’s incumbent upon us to distribute the funds back to customers as quickly as we possibly can.”
The bank had also considered cutting down the process and paying customers more than they were otherwise entitled to, if it had proceeded a thorough remediation.
“In our minds, [it is] fine and appropriate,” Mr Comyn said.
“Of course you can’t do that across the entire customer base because these are fees and income that were received by the Commonwealth Bank. And you can imagine shareholders, quite rightly as the owner of any company would, would feel strongly about refunding things that weren’t actually entitled.
“So there is a trade-off between certainly the customers where, let’s say they’re owed in this case, a small amount of money, but then the cost of trying to investigate to see whether that money is owed or not could actually be larger than the money that’s owed.”
Matt, you were happy to collect the Licencee/ Dealer Group fees but now don’t want to ‘man up to’ the associated responsibilities that those fees were paid for…. sounds like fee for no service to me!
Ok then, well who was managing the advisers when they caused all this crap? Yes Matt is was you old mate, it was ALL you. Remember sacking people in PFS for not meeting sales targets? Well we do! So don’t get all high and mighty now, it was all done on your watch, you got some very fine bonuses out of riding the advisers as hard as you could. Don’t you remember the old pearls notes, capital protected lending and the crap floats you wanted the advisers to push onto the clients? PS the hairs gone grey quick, is the money really worth it?
It was actually Bill Shortens deceptively simple looking but almost-impossible-to-fulfil-to-current-ASIC-standard legislation that created the rot.
And yes, the banks got greedy and management got bonuses but that has changed.
Very well said mate! Matt is a slick snake.
If this remediation process (i.e. historical file note examination) was applied to every second and third tier AFSL, it would literally bankrupt them. Is the current ASIC (file note) project going to stop with ANZ, CBA, NAB, WBC, IOOF & AMP? Or are they intending to expand the project and bankrupt the remaining AFSL industry?
So far they are gung ho. It makes sense for those who won’t survive an audit to be a micro licensee. Hiding in a crowd.
No licensee of any size would survive a historical file note audit based on today’s different standards. Currently, remediation is only being paid because those particular licensees are cross funded by a massive bank. Those licensees would not survive without that cross funding, nor would any standalone second and third tier licensee.
It would bankrupt smaller licensees if they paid back fees to clients for whom service was actually provided. But they wouldn’t do that. Large licensees are doing it for PR reasons. In most cases there hasn’t actually been any breach of the law, or “fees for no service”.
While CBA and ASIC have both been morally duplicitous in this whole “fee for no service” charade, Comyn’s comments do highlight one of the big problems with the licensing model.
It is simply impractical for AFSL licensees to effectively exercise their responsibilities over third party small businesses. They have too little control and visibility, and small businesses by their nature want to do things their own way. No amount of compliance audits or gimmicky “RegTech” will change this. The whole concept of “authorised representatives” is flawed. All advisers should be either self licensed, or directly employed by a licensee.
C b a are a disgrace they don’t know any questions you ask I have spent last week I rang them mondayto thurs ten times a day twenty minutes at each call never once got through
This whole remediation process is a fools errand. The records don’t exist for 10 years ago, because at that time, those records weren’t required to be kept. It’s great the banks are happy to pay people, but I know many of our clients received payment though the ANZ when they certainly have been getting serviced. Well my clients are happy to get the refund. To pretend this isn’t an overreach though is a laugh. The banks only folded because they had already decided to exit the advice business and can’t be bothered with bad publicity.
Clearly $834 Million isn’t worth bad publicity. It would be nice to have that sort of lazy money sitting around.
Clients that willingly accept refunds even though the agreed service has been provided (and they are aware the service has been provided and more) are as unprincipled and despicable as the organisations that created this disaster.