ASIC hits CBA with civil action over Colonial

ASIC has acted on a Hayne royal commission referral and hit CBA with civil proceedings over conflicted remuneration.

Commonwealth Bank says it’s reviewing ASIC’s claim. Picture: AFP

The corporate regulator has acted on a referral from the Hayne royal commission and filed a civil suit against Commonwealth Bank and its subsidiary Colonial First State, alleging more than $22m in conflicted pay arrangements which may have entangled as many as 390,000 customers.

The Australian Securities and Investments Commission claims that more than $22m in conflicted remuneration was paid by Colonial First State to CBA over six-years to 2019 for the distribution of its Essential Super product to bank customers.

CBA distributed the Essential Super product through its branch and digital channels and 390,000 customers became members of the fund.

ASIC on Tuesday said it was seeking civil penalties against both CBA and its subsidiary in relation to the alleged misconduct, with each contravention attracting a maximum civil penalty of up to $1m for each of CBA and Colonial First State.

In an ASX statement issued after the market closed on Monday, CBA said it was reviewing the regulator’s claim and would “provide any further update as required”.

During the Hayne royal commission hearings, it was revealed that Colonial First State and CBA had established a “revenue sharing model” whereby CBA branches would sell the Essential Super product to customers in exchange for 30 per cent of the revenue.

The royal commission heard how both CBA and its subsidiary presented the distribution model for the product to ASIC in 2012 and early 2013 because they recognised there were “potential risks around the general advice distribution model … potentially blurring into personal [advice]”.

After CBA staff started selling Essential Super in branches, the lender engaged KPMG to conduct “mystery shopper” exercises, which revealed a high volume of compliance exceptions, including that 85 per cent of shoppers were not provided with a general advice warning as part of the sale.

ASIC in late 2016 informed CBA of its concerns surrounding the sale of the product in its branches.

In July 2018, CBA entered into an enforceable undertaking with the regulator over the issue following ASIC concerns that staff were giving customers unauthorised personal advice by selling the super product alongside financial health checks.

The legal action comes just weeks after CBA agreed to sell a majority stake in Colonial First State to private equity giant KKR & Co. The deal included an indemnity for legal or regulatory action.

It also comes shortly after the bank was slapped with a class action filed by law firm Slater & Gordon over “notoriously worthless” insurance.