CBA’s financial planning arm making reasonable steps but could do better, notes Ernst & Young

CBA’s financial planning arm has a low level of control awareness, notes an ASIC-ordered report by Ernst & Young.

A Commonwealth Bank branch in Sydney. Picture: AAP

Commonwealth Bank’s financial planning arm has a low level of control awareness and a limited ability to analyse and report information for tracking and reporting of compliance centrally, an independent report by Ernst & Young has found.

It comes after ASIC announced in April that Commonwealth Financial Planning Limited had accepted a court-enforceable undertaking arising from its fees-for-no-service conduct, which included a provision that the company appoint EY to prepare an independent expert report.

However, the validity of nominally independent reports produced for the finance industry by big accounting, legal and professional services firms has been called into question several times during the financial services royal commission.

In an update on the report released by the Australian Securities & Investments Commission today, EY said that Commonwealth Bank could do more to address a low level of control awareness and a high prevalence of manual processes and the sustainability of its manually intensive processes.

It found limitations on bank’s ability to analyse and report information for tracking and reporting compliance centrally.

Still, the report said that there was nothing to suggest systems and processes weren’t reasonably adequate to ensure that Commonwealth Financial Planning was able to meet its obligations to customers.

ASIC said that EY found no evidence to suggest that Commonwealth Financial Planning had failed to take reasonable steps to ensure that customers receive remediation in a period from July 2015 to May 2016, and then between June 2017 and January 2018.

“EY found that Commonwealth Financial Planning is in the process of taking reasonable steps to identify and remediate those customers who should have received remediation,” the report said.

EY will report on whether Commonwealth Financial Planning has addressed EY’s findings in January next year, after CBA requested an extension to allow it to improve its systems and controls.

Commonwealth Bank is required by ASIC to submit a detailed plan setting out the specific actions that it will undertake to ensure that it addresses EY’s findings and recommendations.

In April, it was revealed that AMP had ordered extensive revisions to a report authored by lawyers Clayton Utz. The report examined how much the most senior executives at the wealth manager knew about the fees-for-no-service issue and as many as 22 drafts were produced. AMP general counsel Brian Salter departed following the revelations and royal commissioner Kenneth Hayne indicated that AMP may have misled the commission over the affair.

It “may be open to conclude that AMP knew that the report was not an independent report,” the commissioner said

Last month, EY itself was forced to deny that it had made any material changes to a critical compliance report produced for Allianz for submission to APRA. EY had agreed to accept from Allianz information for the report, despite not having any means of verifying the information, the commission heard. Four drafts of the EY report were required.

The EY report came after Allianz had killed off an earlier report from Deloitte on culture and governance which was also critical of the insurer. Allianz chief risk officer Lori Callahan told the commission that the Deloitte report had only been an early draft, but conceded that binning it was not her “finest moment”.

Commonwealth Bank issued a brief statement acknowledging the report.

“The additional review and remediation work will ensure every customer has received the services they paid for in the additional 12 month review period, prior to the implementation of improvements to advice business systems and processes that were made in June 2017,” the bank said.