CBA recommends ASIC perform risk-analysis on AFSL models
The Commonwealth Bank of Australia (CBA) has made recommendations to a parliamentary inquiry that Australian Financial Services Licensees be required to periodically report to the regulator on key aspects of their businesses, a move the bank believes will help identify risky planning businesses at an earlier stage.
CBA owns one of Australia’s largest financial planning dealer groups, and has also acknowledged its role in the financial damage incurred by clients of another dealer group, Storm Financial.
The bank made the recommendation in its submission to the parliamentary joint committee inquiry into financial services and products, which was established earlier this year partly in response to the actions of the bank and the now collapsed dealer group Storm Financial.
CBA has pointed to possible ways in which the Australian Securities and Investments Commission (ASIC) could identify failing financial advice businesses at an earlier stage.
In its submission, CBA proposed that Australian Financial Services Licensees be required to report periodically to ASIC on a range of issues relating to their business model. This could include the group’s list of approved investment products, the products most frequently recommended, the number of authorised representatives in the group and the number of Statements of Advice produced, among other matters.
The bank argued that this information would, among other benefits, make it simpler for ASIC to identify and investigate advice businesses considered to be risk ‘outliers’ among their peers, and those with the greatest potential for failure.
However, given that margin lending has been a popular strategy across the industry in recent years, and the fact that, at the time of its collapse, the majority of Storm’s clients were yet to be converted to the highly geared ‘Storm model’, it is unlikely the regulator would have had reason to consider the group an ‘outlier’.
The CBA submission said the bank does not believe the Storm Financial disaster represents a “systemic failure of the financial planning industry”, and, as such, it does not believe the “existing financial advice framework requires wholesale legislative change”.
The bank argued that “where there is reasonable application of the current advice framework, poor client outcomes will be rare”.
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