The financial planning industry suffered substantial collateral damage as a result of the collapse of Storm Financial but, as Mike Taylor reports, last week’s Senate Committee report on the performance of ASIC and events within Commonwealth Financial Planning have the potential to inflict a great deal more pain.
The inquiry by the Senate Economic References Committee into the performance of the Australian Securities and Investments Commission (ASIC) was never going to end particularly well for either the regulator or the Commonwealth Bank.
In the event, the outcome has proved to be much worse than was originally envisaged with the committee recommending the initiation of a royal commission or judicial inquiry into the actions of the Commonwealth Bank and that the compensation arrangements be removed from its control.
Almost from the outset, the Commonwealth Bank needed to accept that the factors which led to it entering into its enforceable undertaking with ASIC would be ventilated and re-ventilated over the course of the Senate inquiry. At the same time, ASIC needed to accept that the inquiry would represent a lightning rod for a large number of its critics. Both these things came true. The events which led to the enforceable undertaking being entered into by Commonwealth Financial Planning (CommFP) and the subsequent compensation arrangements have been scrutinised in clinical detail. The reputational damage suffered by the Commonwealth Bank has been substantial.
The Commonwealth Bank may have hoped that the issue would end with the tabling last week of the Senate Committee report but the Committee’s recommendations with respect to a Royal Commission or judicial inquiry probably mean that the issue will be ongoing.
The news from the committee’s report is equally damaging for ASIC, with the committee’s chairman, Senator Mark Bishop, scathing in his assessment of the regulator’s conduct with respect to the CommFP enforceable undertaking and other matters.
Handing down the committee report, Bishop described ASIC as having been “lulled into complacency” and as having paid too little attention to whistle-blowers within CommFP.
He said the committee is of the view that the CBA played down the seriousness of the problems within CommFP in an effort to limit compensation payments.
“This highlights how trusting the regulator is of big business,” he said.
The financial planning industry will not thank those who worked within CommFP for the substantial fall-out which must now settle on the industry as a result of the Senate Committee’s report – the consequences have the capacity to have an impact on the financial planning industry equal to or greater than that encountered in the aftermath of the collapse of Storm Financial.
Members of the Senate committee made their views clear when, in speaking to the tabling of the report some suggested that ASIC should be capable of closing down rogue financial planners with just one phone call.
The bottom line for the financial planning industry is that its long-entrenched critics will use the 61 recommendations contained in the report to lobby the Government for further and harsher change and to argue that its changes to the Future of Financial Advice legislation were unwise.
For its part, ASIC can be expected to be much more forceful in the way in which it deals with problems in the financial services industry in circumstances where it is seeking to restore its reputation.
It remains to be seen how the Government actually moves with respect to the committee report, but it will not have been lost on the Minister for Finance and Acting Assistant Treasurer, Senator Mathias Cormann, that there was a large measure of bipartisanship in the findings of the committee.
