Senator Mark Bishop struggled to describe the wrongdoings of the CBA, one of the country’s most trusted financial institutions. Photo: Alex Ellinghausen
“Systemic fraud”, “systemic theft”, doctoring of customer files and “lying to clients”. These were some of the words used by Senator Mark Bishop, the chairman of a powerful Senate inquiry into the Commonwealth Bank, as he struggled to describe the wrongdoings of one of the country’s most trusted financial institutions.
This, along with bombshell revelations last month by the corporate regulator ASIC that the bank’s compensation process for its customers was a mess, made the recommendation of a judicial inquiry or royal commission necessary.
The scandal inside the bank’s financial planning division has become a lightning rod for what has gone on, and continues to go on, in some other financial institutions. It also laid bare the limitations of the corporate regulator in dealing with the big end of town.
The 61 recommendations in the Senate inquiry are an attempt to help the bank, the financial planning industry and the corporate regulator get back on track. It has a strong emphasis on consumers and more checks and balances on the job ASIC is doing.
Whether the Coalition has the resolve to proceed with a separate royal commission into CBA and launch a separate special investigation into other tainted financial institutions will be a test of how serious it is about cleaning up the financial planning industry.
If it refuses to mount an inquiry, it will be a big blow to customers, many of whom feel they were let down by the bank and the corporate regulator.
With more than $ 1.8 trillion of retirement savings, the government needs to show that it wants to right the wrongs of the past. It should use the recommendations in this Senate inquiry as a call to arms to clean up the financial planning industry and re-engineer the corporate regulator so that it can do an effective job.
Over the past few years Australia has had its fair share of rogue financial planners, collapses and customers who have been like lambs to the slaughter when it comes to their money. The fall of Storm Financial and others resulted in several parliamentary inquiries.
Despite this, little has changed.
It is now time for change. It is clear that conflicted remuneration structures, in terms of commissions and other inducements, influences the behaviour of financial advisers. It is also clear that the regulator needs to be tougher when it identifies wrongdoings and be quicker to act.
In the CBA scandal, a whistleblower, Jeff Morris, warned ASIC in October 2008 about a rogue planner called Don Nguyen and a cover-up going on inside the bank. He warned customers stood to lose tens of millions of dollars. It took ASIC 16 months to launch an official investigation.
While ASIC sat on its hands, it gave some people inside the bank time to cover up what had occurred and dud the innocent victims of the compensation to which they were rightfully entitled.
The CBA financial planning scandal painted a clear picture how an aggressive sales culture, managers who turned a blind eye to misconduct to protect their bonuses, left many clients suffering far worse losses to their retirement savings than the losses brought by the global financial crisis.
To think this is the culture inside the biggest bank in the country is truly concerning. Just as concerning is the bank’s description of what has gone on in the past six or seven years as merely “inappropriate”.
The brutal reality is there are still so many unresolved issues that need investigating, including the role of former and some current management, and a more thorough review of consumers that fell victim to culture driven by sales and that saw customers as walking piggy banks.
The seriousness of what came out during the Senate inquiry including the need by the corporate regulator to impose new licence conditions on the bank after finding out its original compensation process was not what it had thought needs further investigation.
ASIC no longer trusts the bank. Some of its customers no longer trust the bank. Merilyn Swan, who fought the bank on behalf of her parents, said recently: “It’s the can bank; I’ve found that they can be deceptive; they can be misleading; they can certainly ruin your financial future; they can cover up and they can go out of their way to make life extremely difficult for you.”
Banks are built on trust. It is an extraordinary state of affairs when the chairman of the corporate regulator, Greg Medcraft, cannot believe what he was told by a 102-year-old institution that used to be owned by the people.
Even more potent is the fact that what has gone on in CBA’s financial planning division has also gone on in other institutions. Indeed the Senate inquiry specifically mentioned Macquarie Group’s private wealth division for further investigation.
Let’s hope the government heeds the warning words of the whistleblower Jeff Morris, who said Don Nguyen was not a “rogue planner”, not an aberration as that term implies, but a symptom of a system that is fundamentally broken. “A system that is destined to get far worse in future if current trends are allowed to play out.”