Commonwealth Financial Planning Ltd has been ordered to stop charging or receiving ongoing service fees from its customers. It may not enter into any new ongoing service arrangements with customers.
The Australian Securities and Investments Commission made the order under an enforceable undertaking, after CFPL failed to deliver an acceptable final report from an independent expert concerning its ‘fee for no service’ conduct.
CFPL entered into an enforceable undertaking in April last year, after ASIC found that CFPL and BW Financial Advice Ltd, both wholly owned subsidiaries of Commonwealth bank, failed to provide evidence of annual reviews for around 31,500 ongoing service customers between 2007 and 2015.
BW Financial Advice ceased trading in October 2016.
According to ASIC, CFPL management was aware from at least 2012 that customers may not have received an annual review but the company did not notify ASIC of the issue until 2014.
Part of the enforceable undertaking was to commission an independent expert, Ernst & Young, to assess whether it had taken reasonable steps to remediate customers impacted by its conduct. EY was also asked to report on the adequacy of CFPL’s systems, processes and controls.
Last week, EY reported that there were still concerns about CFPL’s remediation program and its compliance systems and processes.
It said there remained a heavy reliance on manual controls, “which have a higher inherent risk of failure due to human error or being overridden.” EY recommended that CFPL address these issues.
Another requirement of the EU was that CFPL provide an attestation from a Commonwealth Bank ‘accountable person’ as to CFPL’s remediation program and the adequacy of its systems, processes and controls.
ASIC said the accountable person’s report did not meet its requirements for an acceptable attestation.
Under the terms of the enforceable undertaking, if ASIC was not satisfied that the fees for no service conduct would not be repeated CFPL would have to stop charging ongoing service fees.
The order to stop charging ongoing fees will continue until CFPL is able to satisfy ASIC that all the outstanding issues have been fixed.
In addition to the enforceable undertaking CFPL agreed to compensate customers. So far, it has paid $119 million to customers affected by its conduct.