Mike Taylor writes that the board of the Commonwealth Bank must be wondering how it was possible for the controversy around Commonwealth Financial Planning to get worse.
When AMP Financial Planning in July 2006 entered into an enforceable undertaking with the Australian Securities and Investments Commission (ASIC), the reputational damage and fall-out lingered for around 18 months.
On the face of it, while the issues involved were vastly more serious than those uncovered at AMP Financial Planning, the enforceable undertaking entered into by Commonwealth Financial Planning in October, 2011, has proved much more devastating to the Commonwealth Bank’s reputation.
Notwithstanding a tenacious media campaign prosecuted via Fairfax Media and the ABC, those running Commonwealth Financial Planning must have breathed a sigh of relief in early April when ASIC confirmed that the company’s obligations to the original enforceable undertaking had been met.
That sigh of relief would have turned to a gasp of exasperation a few short weeks later when they, and ASIC, discovered that all was not as it seemed and that the client compensation process which sat at the core of the bank’s make-good obligations had been badly mishandled.
Thus, on Friday 16 May, ASIC announced that it was imposing license conditions on Commonwealth Financial Planning and Financial Wisdom on the basis that the Commonwealth Bank had informed it that “the original process developed to compensate customers of two former CFPL advisers was not applied consistently across all impacted customers of the two businesses”.
“This inconsistency disadvantaged some customers,” the ASIC announcement said.
But that was the least of the Commonwealth Bank’s problems. Not only had its internal handling of the issue served to deeply annoy the regulator, it had commensurately served to force the regulator to apologise for misleading the very same Senate Committee which has been reviewing the activities of ASIC and its handling of Commonwealth Financial Planning.
It forced ASIC to lodge a statement with the Senate Committee “to correct the record with the current Senate Inquiry” on the basis that “some of the information ASIC put to the Senate Inquiry about the compensation process was inaccurate because it was based on its understanding of information from CFPL, in particular CFPL’s submission to the Senate Inquiry”.
To say that the tone of comments by the ASIC chairman, Greg Medcraft, were that of a deeply annoyed regulator would be an understatement. To say that members of the Senate Committee were also peeved would also be an understatement.
The degree of their annoyance was reflected in their interim report tabled in the Senate last week which stated that until ASIC’s 16 May statement, “the committee was well advanced in preparing its report”.
“This revelation suggested that, for some time, the CBA had not kept either the committee or ASIC fully informed about the compensation process for clients affected by serious misconduct within CBA’s businesses,” the interim report aid.
“Concerned that it may still not have a correct understanding of what has happened, the committee has sought additional information and clarification from both ASIC and the bank on this matter of central importance to the committee’s inquiry and report.”
“In light of these surprise developments, the committee is of the view that it requires more time to assess the significance of the new evidence coming to light and the responses it expects to receive from ASIC and the CBA.”
In doing so, the Senate Committee said it intended to table its final report no later than 26 June.
Only those sitting at the most senior levels of Commonwealth Financial Planning will know precisely what went awry within the organisation to give rise to both an angry regulator and an equally angry Senate Committee.
However it will not have escaped the attention of the members of the Commonwealth Bank board that a damaging reputational issue which should have lost most of its public impetus has been reignited.
It will also likely not have escaped the attention of the board that while those who were at the helm of Commonwealth Financial Planning in 2011 have long since left the building, the latest events have occurred on the watch of the current leadership team.
That team can, perhaps, take solace from the fact that the latest Roy Morgan data suggests that in the 12 months to March 2014, the clients of CBA financial planning/advice had the highest satisfaction. Clearly, some things are going right.
