Banking royal commission: CBA admits to more than 15,000 criminal offences

CBA’s wealth management arm has conceded more than 15,000 criminal breaches occurred amid delays in shifting super funds.

CBA’s wealth management arm, Colonial First State, admitted it committed more than 15,000 criminal offences by failing to move super customers from a high-fee fund to low-fee accounts, the financial services royal commission has heard.

However, the regulator responsible for super funds did not prosecute the offences, which would today carry a total maximum fine of about $160m, and allowed CFS to continue flouting the criminal law for another three and a half years.

This enabled financial planners to continue receiving lucrative trailing commissions, worth millions of dollars a year, that they would otherwise have lost.

Giving evidence today, CFS head Linda Elkins also admitted the bank misled customers at least three times in communications designed to get them to stay in the company’s First Choice Super fund.

It is Ms Elkins second appearance at the commission — in April, she agreed that Commonwealth Bank was the “gold medallist” in charging fees for no service when she appeared in the second round of hearings for the royal commission.

The criminal breaches relate to CFS’s failure to move disengaged fund members, who had not told the company where they wanted their money invested, into a low cost MySuper product.

Ms Elkins agreed that CFS had been on notice since 2011 that it would have to move those people into MySuper accounts by January 1, 2014. Failure to do so is a criminal offence under section 29WA of the Superannuation Industry Supervision Act, punishable by a fine.

CFS told the Australian Prudential Regulation Authority it had broken the law in a breach notice filed on March 19, 2014, evidence before the commission revealed.

The bank initially told the regulator there were 13,000 breaches — one for each member it failed to move on time — but later increased the number to 15,000, counsel assisting the commission, Michael Hodge, QC, said.

CFS failed to move the members to the low cost option due to “an error, on our part in recognising” that they were eligible for MySuper, Ms Elkins told the commission.

The bank went on to mislead customers about what was going on in letters and phone calls to members it was trying to keep.

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Asked if she was surprised that APRA took no action over the 13,000 offences Colonial had admitted to at the time, Ms Elkins said she “thought APRA was acting appropriately to ensure that we were resolving the breach”.

Mr Hodge suggested that the misleading communications were designed to obtain investment instructions from members, which meant they could remain in their existing fund and Colonial would stop breaking the law.

“I can’t comment on what APRA was thinking,” Ms Elkins said.

She said she was not surprised APRA allowed the members to be transferred over a three-and-a-half year period, during which Colonial continuously broke the law.

“We felt that we had worked through the contraventions and resolved them satisfactorily,” she said.

Ms Elkins admitted CBA had misled customers after it instructed its call centre operators to tell superannuation members a recent change to legislation “requires” the company to confirm the customers “ investment option”. The legislation required nothing of the sort.

APRA had reviewed the transcripts being provided to CBA’s call centres.

“We had confirmed with APRA that we would be calling these people to confirm the investment selection,” Ms Elkins told the royal commission.

“And APRA didn’t contact you and say, ‘this is obviously misleading, don’t do it?’” Mr Hodge asked? Ms Elkins responded: “Well, no.”

Colonial also sent out letters to members along the same lines as call centre.

“The purpose of this letter was to assist colonial to stop committing an offence?” Mr Hodge asked.

“We were focused, of course, on stopping the breach but we had genuine concern for these members who would turn their mind to their investments and their insurance,” Ms Elkins responded.

In emails tendered to the royal commission, Chris Micallef, CBA’s corporate super relationship manager, handled questions from financial advisers asking about the potential loss of lucrative commissions. On adviser, Michael Williams, said “$188k plus insurance commissions could be lost if we do not get them to change or confirm their investment option, is that right?”. Mr Micallef responded: “yes, if there is no trustee instruction from the member … providers will have to transfer the balance to a MySuper option”.