Cormann says inquiry 'might not be the best way forward' after daming Senate report on financial planner misconduct

The government has called on the Commonwealth Bank to provide a "proper response" to allegations of misconduct by financial planners, but played down the prospects of a royal commission.



"I do think that the bank needs to provide a proper response to the allegations that have been raised," Mathias Cormann said, after a parliamentary report on Thursday called for a commission to investigate the bank's handling of misconduct by financial planners.



But Cormann also pointed out that the committee's call was not unanimous, with Liberal senator David Bushby dissenting.

"He did make a very persuasive argument that yet another inquiry might not be the best way forward," Cormann said.

Tony Abbott described the misconduct as “terrible” but said the government already had an inquiry into financial governance continuing.

“Obviously some terrible things happened and its good that the parliamentary committee inquiry into this has been able to expose some of the problems,” the prime minister said on Friday.

“We do have a inquiry into financial governance going on now and we want to ensure that investors are as safe as they can be in a market economy.”

The Senate report came as the government pursues controversial changes to Labor's Future of Financial Advice laws that the opposition argues will water down consumer protections.

Cormann said he had received the committee's report and was carefully considering its 61 recommendations.



"When I work through it, we'll make a full response," he told ABC radio on Friday.

The committee's final report accused the Commonwealth Bank of deliberately playing down the seriousness and extent of problems within its financial planning section in an attempt to avoid Asic scrutiny, contain adverse publicity and minimise compensation payments.

The report also contained scathing criticism of the Australian Securities and Investments Commission (Asic), accusing the corporate regulator of missing or ignoring persistent signs of wrongdoing.

The economic references committee described Asic as a "timid, hesitant regulator" that was too ready to uncritically accept assurances of a large institution that there were no grounds for intervention.

As part of its work, the committee examined misconduct that occurred between 2006 and 2010 by financial planners and other staff at Commonwealth Financial Planning Limited (CFPL), part of the Commonwealth Bank.

The report, tabled in the Senate, said advisers "deliberately neglected their duties and placed their personal interests far above the interests of their clients".

"The assets of clients with conservative risk positions, such as retirees, were allocated into high-risk products without their knowledge to the financial benefit of the adviser, who received significant bonuses and recognition within CFPL as a 'high performer'," the report said.

"There was forgery and dishonest concealment of material facts. Clients lost substantial amounts of their savings when the global financial crisis hit; the crisis was also used to explain away the poor performance of portfolios. Meanwhile, it is alleged that within CFPL there was a management conspiracy that, perversely, resulted in one of the most serious offenders, Mr Don Nguyen, being promoted."

The committee, headed by the retiring Labor senator Mark Bishop, said both Asic and the bank seemed to place reports of fraud in the "too-hard basket"; the bank's compliance regime failed; and the regulator had been too slow in realising the seriousness of the problems and had not paid sufficient attention to whistleblowers.

It outlined serious concerns about the Asic-backed compensation process for CFPL clients who had lost money because of adviser misconduct, and concluded that the bank's credibility was "so compromised" that it should lose responsibility for compensation payments.

The committee said the situation was so serious that it warranted the establishment of an independent judicial inquiry or royal commission with the power to compel witnesses to give evidence and produce documents.

It would examine the bank's actions "and the allegations of a cover-up", review compensation payments, and recommend any improvements to Asic and other regulation.

The committee comprised three Labor senators – Bishop, Sam Dastyari and Louise Pratt – along with two Coalition senators, David Bushby and John Williams, and the independent senator Nick Xenophon.

Bushby wrote a dissenting report in which he said he did not believe the majority report had "got this balance right" and noting that the Commonwealth Bank had already made compensation payments totalling $51m to 1,127 customers. Bushby said a royal commission was a "fact-finding mission" yet the issues to be examined had already been extensively reviewed.

Williams, a Nationals MP, expressed his support for a further inquiry, saying he had received evidence of fraud, wrongdoing and forgery.

"A judicial inquiry or a royal commission would, I believe, clarify and even discover more evidence of wrongdoing," Williams told Sky News.

"I've said for three years we should have a royal commission into white-collar crime in Australia, right across the board … Even if only 10% of [allegations] I receive is correct there's a problem out there."

The government had indicated changes to the Future of Financial Advice measures would be implemented through regulations, rather than legislation, to take effect on 1 July.

The status of those measures remains unclear, with the Senate having risen on Thursday and being not due to return until next month. The government is not required to table the regulations until six parliamentary sitting days after they are registered.



In a broader critique of Asic's performance, the committee said the regulator had limited powers and resources "but even so appears to miss or ignore clear and persistent early warning signs of corporate wrongdoing or troubling trends that pose a risk to consumers".

Asic responded to the report by vowing to "continue to do the best job we can with the resources we have".

The regulator said it had previously acknowledged it could have improved its actions in relation to CFPL, including communicating more effectively with whistleblowers. Asic said it was also taking steps to remedy the inconsistent treatment of customers in the compensation process.

"We also note some recommendations – such as registration of financial advisers, raising adviser standards, higher penalties and a user pays funding model – are issues Asic has suggested in its submission to the Financial System Inquiry,” said the Asic chairman, Greg Medcraft.

Other suggestions among the committee's 61 recommendations were the establishment by Asic of a pool of approved independent experts to provide advice when concerns emerge about a poor compliance culture in a particular company.

The government should also expand whistleblower protections and consider increasing penalties for financial services licensees that failed to lodge reports of significant breaches to Asic within the required time, the committee said.

It also called for Asic surveillance "of other financial advice businesses that have recently been a source of concern, such as Macquarie Private Wealth", and a shift towards a "user pays" model for Asic funding.