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The Federal Court has dismissed ASIC’s conflicted remuneration proceedings against the Commonwealth Bank and Colonial First.
The Australian Securities and Investments Commission (ASIC) had alleged breaches of conflicted remuneration laws but the Federal Court found Colonial did not breach the law when it agreed to pay the Commonwealth Bank (CBA) to distribute Essential Super.
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CBA staff signed up over 390,000 individuals to the Essential Super product between July 2013 and June 2019.
However, on Thursday (29 September) Justice Anderson found the payments made by Colonial to CBA did not constitute benefits within the definition of “conflicted remuneration” and that the statutory context of the definition focused on situations such as where a financial adviser had a financial incentive.
The arrangements between Colonial and CBA regarding the distribution of Essential Super were the subject of a case study by the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry.
ASIC deputy chair Sarah Court said: “ASIC pursued this case because we were concerned that the arrangements between Colonial and CBA had the potential to influence the choice of financial product recommended to retail clients or the advice given to retail clients. ASIC will carefully consider the judgment.”
ASIC commenced civil penalty proceedings against CBA and Colonial on 22 June 2020 and had recently updated its guidance to provide clearer guidance on how it administers its compliance.
It comes almost one year after the big four bank was subject to criminal proceedings filed by the Australian Securities and Investments Commission (ASIC) in relation to its sale of consumer credit insurance (CCI) products between 2011 and 2015. These products are no longer offered by the bank.
Consumer credit insurance is usually sold by lenders to borrowers when they take out a mortgage, personal loan or credit card and provides cover for consumers if they are unable to meet their minimum loan repayments due to unemployment, sickness or injury or to pay the outstanding loan balance upon death.
According to the case brought by the ASIC, the charges allege that between 2011 and 2015, CBA made false or misleading representations to 165 customers by suggesting that the insurance policies had uses or benefits to those customers when part or all the benefits were not available.
This alleged behaviour focuses on whether the bank did not adequately disclose to those customers at the point of sale that they were not eligible for certain benefits under the CCI policies because of their employment status. If found guilty, this would contravene the ASIC Act.
[Related: Major bank apologises for ‘unacceptable’ CCI conduct]
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