A declaration over fees for no service (FFNS) conduct from Commonwealth Financial Planning Limited (CFPL) has been deemed insufficient by Australia's corporate watchdog, leading to fresh restrictions on the financial advice arm of the country's largest bank.
As a result CFPL must stop charging ongoing service fees from its customers; and is also not allowed to enter any new service arrangements with them.
The decision stems from a Court Enforceable Undertaking (EU) entered into between CFPL and the Australian Securities and Investments Commission (ASIC) in April last year, following the bank's failure to provide annual reviews to around 31,500 customers.
Nine months on, while the company has paid $119 million to customers impacted by FFNS behaviour it has still fallen short of ASIC's expectations
As part of the EU the group needed to provide a final report from independent expert Ernst & Young (E&Y), which on 31 January identified further concerns regarding CFPL's remediation program and its compliance systems and processes.
This included a "heavy reliance" on manual controls which "have a higher inherent risk of failure due to human error or being overridden", according to E&Y's latest report. CFPL has been given a further 120 days to address the problems raised.
On the same day's a written update was given to ASIC by a Commonwealth Bank (ASX: CBA) representative informing the regulator about 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 considered that the notification did not meet ASIC's requirements under the EU for an acceptable attestation," ASIC stated in an announcement today.
"As a result, ASIC's 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 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."
CFPL has confirmed it is complying with these requirements, which are expected to continue until ASIC believes all of the outstanding issues have been remedied.
"ASIC will be monitoring CFPL's compliance with this obligation," the watchdog said.
"ASIC has also 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. ASIC will monitor CFPL's transition to the new model."Never miss a news update, subscribe here. Follow us on Facebook, LinkedIn, Instagram and Twitter.
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