Illustration: Simon Bosch
The Commonwealth Bank could be forced to pay hundreds of millions of dollars in additional compensation to customers who claim they were victims of misconduct including fraud and forgery in its financial planning business.
A powerful Senate inquiry into the Commonwealth Bank’s financial planning scandal is set to hand down a report later this month.
Fairfax Media understands that it will call for a broadening of the compensation being offered to thousands of customers.
The chairman of the Senate inquiry, Senator Mark Bishop, told Fairfax Media he was not satisfied that adequate compensation had been paid to affected customers of the bank, some of whom lost their life savings due to inappropriate advice, fraud and forgery by financial planners working for the bank.
”If my fears [are correct] that a large number of client files have not been properly reviewed and full compensation made, then clearly we are talking hundreds of millions of dollars,” he said, adding that up to $ 250 million might be needed. The bank has paid out $ 52 million to about 1100 customers.
CBA, Australia’s biggest bank which boasts the largest number of customers, makes almost $ 1 billion a year from its wealth management business and financial planning operations. It is tipped to make a record $ 8.5 billion profit this financial year.
The Senate inquiry was triggered by a series of articles in Fairfax Media that highlighted a scandal in the bank’s financial planning division and a regulator that was slow to act on a tip-off by a group of whistleblowers led by Jeff Morris.
The articles illustrated that the culture inside the financial planning division was one where managers covered up forgery and fraud and encouraged planners to put clients into high-risk products to meet their bonuses and the bonuses of the planners.
It comes as the federal government is set to water down financial reforms, which were introduced by the previous government to reduce the risks of another Storm Financial collapse by banning commissions. Storm so far ranks as the country’s worst financial planning disaster.
Nationals senator John Williams, who is also on the Senate inquiry, told Fairfax Media the bank’s Commonwealth Financial Planning division had an ”alarming” number of planners who had been identified as being at ”critical” risk of wrongdoing.
Senator Williams was referring to a letter written by the corporate regulator in 2008 to the bank, which identified serious flaws in the way the bank rated and reprimanded planners for misconduct or breaches.
The bank in 2008 rated 38 planners as a ”critical risk”, a rating applied to the most serious misconduct, including fraud and dishonest conduct or ”deliberate or reckless failure to address known needs and objectives”.
CBA confirmed in a statement on Friday that nine of those planners identified as ”critical risk” were still with the bank.
It said the bank had ”reviewed compliance results and other relevant data for these advisers multiple times since the ASIC surveillance period” and it had no concern with seven of the planners.
”The remaining two advisers are currently being reviewed for matters unrelated to their 2006 critical rating,” the bank said.
The statement appears to contradict a submission from the bank to the Senate in November 2013, in which it said: ”CFP acknowledges that in the past a small number of its advisers, none of whom remain with CFP, provided inappropriate advice to some customers.”
However, a spokeswoman for the bank said on Friday that the submission referred to ”specific advisers” within the financial planning division.
She said: ”We deeply regret that some of our planners provided poor advice in the past. Our first priority has been making this right for our customers. The remediation process was overviewed by an independent expert and agreed with ASIC. Our second priority has been transforming the business to ensure these types of issues do not re-occur.”