The Commonwealth Bank of Australia (ASX: CBA) share price has defied the odds on Monday and climbed higher despite the impending release of the Royal Commission final report and news that ASIC has penalised its financial planning business.
At the time of writing the Commonwealth Bank share price is up 1% to $70.43.
What happened?
This morning ASIC announced that the bank's subsidiary, Commonwealth Financial Planning Limited (CFPL), has been banned from charging fees for ongoing services and from entering into any new ongoing service arrangements with customers.
In April CFPL entered into a court enforceable undertaking (EU) with ASIC. The EU required CFPL to provide ASIC the following by the end of January 2019:
- A final report by the independent expert, Ernst & Young, on whether CFPL had taken reasonable steps to remediate customers impacted by CFPL's fees for no service conduct and on the adequacy of CFPL's systems, processes and controls.
- An attestation from a Commonwealth Bank accountable person under the Banking Executive Accountability Regime as to CFPL's remediation program, and the adequacy of its systems, processes and controls.
According to today's release, CFPL failed to provide ASIC with an acceptable final report and attestation.
In respect to the final report, the release advises that on January 31 Ernst & Young issued its second report under the EU, which identified further concerns regarding CFPL's remediation program and its compliance systems and processes. It noted that there continues to be a heavy reliance on manual controls, which "have a higher inherent risk of failure due to human error or being overridden".
As such, Ernst & Young recommended CFPL address these issues within a further 120 days.
And while CBA's accountable person did provide a written update to ASIC on the remediation program and work being done in relation to CFPL's systems, processes and controls, ASIC did not believe that it met its requirements under the EU for an acceptable attestation.
What now?
These actions have triggered the ban on charging or receiving ongoing service fees and the ability to enter into any new ongoing service arrangements. This has been done to ensure that if CFPL were not able to satisfy ASIC, that the fees for no service conduct would not be repeated.
This will continue until CFPL is able to satisfy ASIC that all of the outstanding issues have been remedied.
In the meantime, ASIC revealed that CFPL 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 intends to monitor CFPL's transition to the new model.
Overall, I feel this is another reason why I would choose rivals Australia and New Zealand Banking Group (ASX: ANZ) and National Australia Bank Ltd (ASX: NAB) ahead of CBA at this point.
