Announced just hours before the final report from the financial services royal commission was released, ASIC revealed that it has required Commonwealth Financial Planning Limited (CFPL) to immediately take all necessary steps to stop charging or receiving ongoing service fees from its customers, and to not enter into any new ongoing service arrangements with customers.
The steps were made after the CBA licensee failed to fulfil some of the requirements of its enforceable undertaking (EU) that came about after an ASIC investigation found that clients of the CBA subsidiary were being charged for annual reviews in ongoing service packages that were not then provided.
The EU, which commenced on 9 April 2018 and was varied on 20 December 2018, required CFPL to provide to ASIC by 31 January 2019:
- a final report by the independent expert, Ernst & Young, on whether CFPL had taken reasonable steps to remediate customers impacted by CFPL’s fees-for-no-service conduct and on the adequacy of CFPL’s systems, processes and controls; and
- to provide an attestation from a Commonwealth Bank “accountable person” under the Banking Executive Accountability Regime as to CFPL’s remediation program, and the adequacy of CFPL’s systems, processes and controls.
As CFPL failed to provide the corporate regulator with an attestation and with “an acceptable final report” from the independent expert (according to the financial services regulator) within the given time frame, both of which were required under a court enforceable undertaking (EU), it has now been ordered to stop entering into any new arrangements or charging or receiving ongoing service fees from its customers.
On 31 January 2019, ASIC revealed that Ernst & Young issued its second report under the EU, identifying further concerns regarding CFPL’s remediation program and its compliance systems and processes – including that there remains “a heavy reliance” on manual controls, which “have a higher inherent risk of failure due to human error or being overridden”.
On the same day, ASIC noted that CBA’s accountable person provided a written update to ASIC on the remediation program and work being done in relation to CFPL’s systems, processes and controls.
Having regard to the concerns raised by the independent expert and the contents of CBA’s written update, ASIC then considered that the notification did not meet ASIC’s requirements under the EU for an acceptable attestation.
As a result, ASIC said its requirement under the EU that CFPL stop charging or receiving ongoing service fees and not enter into any new ongoing service arrangements has been triggered.
ASIC said that it had originally included this requirement in the EU to ensure that if CFPL were not able to satisfy ASIC that the fees-for-no-service conduct would not be repeated, CFPL would have to stop charging ongoing service fees “so as to significantly reduce any further risk to clients”.
“Existing clients will continue to receive services under their ongoing service agreements but will not be charged by CFPL,” the regulator said in an update.
ASIC noted that it has received CFPL’s confirmation that it is complying with this requirement to stop entering into new ongoing service agreements and to cease charging existing clients fees under these agreements.
It added that the requirement will continue until CFPL is able to satisfy ASIC that all of the outstanding issues have been remedied. ASIC will be monitoring CFPL’s compliance with this obligation.
Finally, ASIC said it has been informed by CFPL that it is now in the process of transitioning its ongoing service model to one whereby customers are only charged fees after the relevant services have been provided, and will be monitoring CFPL’s transition to the new model.