CBA brings regulator into frame on Storm Financial collapse
The Commonwealth Bank of Australia (CBA) has named the corporate regulator, along with itself and Storm Financial, as one of the key stakeholders involved in the circumstances leading to the hardship suffered by some clients of the collapsed financial planning group.
In its submission to the Parliamentary Joint Committee inquiry into financial products and services, the bank said the financial hardship suffered by some Storm Financial clients came about largely as a result of the advice offered by that group before its collapse.
But the bank said it could be argued that the Australian Securities and Investments Commission (ASIC) and product providers, including CBA, were also involved in the circumstances leading to the financial and emotional trauma now facing many former Storm clients.
The bank’s submission points to the fact that ASIC had responsibility for providing Storm with an Australian Financial Services Licence, which allowed it to give the advice that led many of the group’s clients into trouble.
CBA now suggests it may be appropriate for ASIC to consider “enhancing” the initial licensing process it employs.
ASIC is also responsible for monitoring financial services licensees once they are in operation. While CBA does not believe the existing financial advice regulatory framework administered by ASIC requires wholesale change, it did point to ways it believes ASIC could identify failing financial advice businesses at an earlier stage.
This contrasts with statements from ASIC chairman Tony D’Aloisio in recent weeks that the regulator will "inevitably" only step into play after a company collapse has occurred.
In relation to the bank’s role in the situation, CBA chief executive Ralph Norris has already acknowledged that lending standards were not upheld in relation to some Storm clients.
But the bank’s submission went further, acknowledging that its property valuation assessment system, known as VAS, was “misused on occasion”. The overly generous home loans granted to some Storm clients later allowed for the magnification of their losses.
Furthermore, the bank said some of its former staff, who had inside knowledge of CBA’s systems, policies and processes, had been recruited by Storm and later “exerted pressure on their former colleagues” to gain outcomes desired by Storm. These individuals “used their pre-existing relationships with staff in our Townsville area office to encourage loan approvals”, the bank said.
The bank also claims Storm suggested it would move its business to a CBA competitor if its requirements were not met, pressure the bank succumbed to in the form of relaxed lending standards.
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