The corporate regulator has conceded it knew the Commonwealth Bank had ”sanitised” its client files during an investigation but failed to take any action.
In a tumultuous afternoon before the Senate inquiry into the performance of the Australian Securities and Investments Commission, ASIC chairman Greg Medcraft and his commissioners offered a ”mea culpa” for failing to take prompt action to investigate fraud in the bank’s wealth division, Commonwealth Financial Services.
Commissioner Peter Kell also admitted to losing a breach report from the bank. However, it was new evidence of client files being ”sanitised” by the CBA which was of particular interest to the Senate.
ASIC suggested the bank had not been asked to reconstruct these ”sanitised” files because it may have entailed too high a cost to the bank.
Earlier in the day, CBA’s top lawyer, David Cohen, was rebuked before the Senate inquiry for downplaying systematic fraud within the bank’s financial services arm as ”inappropriate”.
The word ”inappropriate” was suitable to describe an error of judgment in clothing choice, said Mark Bishop, chairman of the inquiry, but not the fraud and failure within the bank’s wealth management division which culminated in clients losing millions of dollars in savings. It was a gruelling day for the bank’s three top lawyers who fronted the Senate panel following the testimony of Commonwealth Financial Planning (CFP) victims.
A group of whistleblowers – known as the ferrets – tipped off the regulator about a scandal inside the bank’s wealth division in October 2008. It then took ASIC three-½ years to act on the information provided by CBA in June 2009 about the serious allegations of forgery and fraud by a planner, who was allowed to continue to work in the industry during the regulator’s inaction. The scandal was exposed in a series of articles by Fairfax Media journalists Adele Ferguson and Chris Vedelago. The articles highlighted a flawed compliance structure inside CFP
that covered up serious infractions, including instances of forgery, overcharging and the use of high-risk investment products without clients’ permission.
The expose prompted all sides of politics to support a Senate inquiry into the performance of ASIC.
The inquiry heard on Wednesday how CBA’s rogue financial adviser Don Nguyen – who was a star within the financial planner business – was actually promoted despite the serious complaints of misconduct by customers.
In a statement to the inquiry, CBA whistleblower Jeff Morris said the failures were not the work of one ”rogue financial planner”. Neither was the problem confined to the Commonwealth Bank.
There was a ”staggering” failure of regulation by ASIC and the structure of the entire wealth management industry ran counter to the interests of its customers.
”[Mr Nguyen] is a case study into everything that is wrong with the system in Australia and everything that is wrong with ASIC,” Mr Morris said.
The vertical integration of the big four banks – who with AMP control 80 per cent of financial planners in the country – did not serve customers well, he said.