The Federal Court has dismissed an attempt to appeal last year’s decision that Commonwealth Bank and Colonial First State breached conflicted remuneration laws.
ASIC commenced civil penalty proceedings against CBA and CFS last June which was later dismissed near the end of September.
The court found CFS did not breach the law when it agreed to pay the bank (its majority owner at the time) to distribute MySuper product Essential Super which “did not satisfy the definition” of conflicted remuneration.
Despite the loss, ASIC said the judgement provides precedent for the definition of conflicted remuneration.
“ASIC pursued this matter because conflicted remuneration has the potential to cause consumers to be given financial product advice that may not suit their needs,” ASIC deputy chair Sarah Court said in a media release on Thursday.
“While the Full Court dismissed the appeal it accepted a number of ASIC’s submissions and, importantly, clarified the meaning and reach of the conflicted remuneration provisions for future matters.”
A ban on conflicted remuneration was introduced in 2012 as part of the Future of Financial Advice reforms and was a key topic during the Hayne royal commission.
The Essential Super product was launched roughly a decade ago and became a case study in the commission’s final report.
The report stated CBA branch staff would seek to create consumer interesting in having an Essential Super account after either a transaction, financial ‘health check’ or a request or referral involving that customer.
Peter Chun – then CFS general manager of distribution and now UniSuper CEO – told the commission that CBA branch staff never attempted to make any assessment over whether Essential Super is appropriate for the member and wasn’t attempting to give financial advice.
“[We] were not recommending other products to the customer,” Chun said during the commission hearings as recorded in the final report. “We were making them aware of this particular superannuation offering.”
However, Chun told the Commission the proposed distribution model was shown to ASIC in 2012 and early 2013 because he recognised there was “potential risks around the general advice distribution model… potentially blurring into personal [advice]”.
According to the judgement, the evidence established that CBA developed and implemented comprehensive processes and procedures for the distribution of Essential Super by branch staff across a network of more than 1000 branches.
“…CBA trained its staff with respect to the types of statements that were permitted to be made to customers or potential customers in relation to Essential Super, and staff were provided with scripts and guides for that purpose,” the judgement said.
However, the finding disputed whether this was providing personal or general advice, instead leaning towards the latter citing an example script: “Generally, customers find that Essential Super is a straightforward superannuation product with the convenience of online access through Netbank. Would you be interested in taking out Essential Super?”