The submission details changes to Commonwealth Financial Planning Limited's (CFPL) business practices as result of compliance with its enforceable undertaking with ASIC, as well as providing an update on CFPL’s compensation scheme and the methodology used to compensate clients.
ASIC says the enforceable undertaking resulted in change in management and reshaped CFPL's risk management framework with changes including a redesign of key performance indicators and remuneration to drive appropriate adviser behaviour along with other measures to change the business culture.
It also resulted in greater monitoring of advisers through both a new technology-based risk management system, and an increase to the number of managers to 25 meaning that one manager is responsible for 12 to 15 advisers rather than 25, as was previously the case.
A provision of a minimum 80 hours training to each adviser also resulted, with a focus on risk management, supervision and monitoring.
ASIC has been under scrutiny since June, when it was accused of failing to respond appropriately to complaints made by anonymous whistleblowers in 2008 relating to the conduct of CFPL adviser Don Nguyen, as well as “a poor, sales-oriented, culture within CFPL more generally”.
ASIC deputy chairman Peter Kell says ASIC is “serious about effecting real change in the financial planning industry.”
“And, as this submission shows, using an enforceable undertaking can substantially change behaviour and deliver solid compensation for affected customers,” said Kell.
The submission outlined the findings of PriceWaterhouseCoopers (PwC), who were engaged to report on changes CFPL made under the enforceable undertaking.
“PwC reported that the funding and resource investment made by CFPL helped to ensure that the milestones under the enforceable undertaking were delivered on time,” said the submission.
“PwC observed that as a consequence of the actions taken under the enforceable undertaking, CFPL had undergone ‘a significant cultural shift … to a more balanced focus on advice quality’.”
The submission also explains the details of the compensation scheme ASIC negotiated with CFPL, which has resulted in CFPL paying out approximately $51 million in compensation to more than 1100 affected clients.
Meanwhile, ASIC has issued an $175,000 penalty to one lender for its handling of client monies, while requiring another to employ an independent expert to rectify problems.
Bank has paid a penalty of $175,000 to comply with an infringement notice given to it by the Markets Disciplinary Panel for failing to deposit a total of $23m received from a client into client accounts.
The infringements occurred on two separate occasions in amount of $14m and $9m.
Meanwhile ASIC has accepted an enforceable undertaking from Australia’s largest retail broker CommSec, and Ausiex, both of which are members of the Commonwealth Bank of Australia group.
Under the enforceable undertaking, CommSec and Ausiex must appoint an independent expert to review their handling of client money and develop a plan to rectify any deficiencies found in their client money processes.
The independent expert will report to CommSec and Ausiex by mid- 2014, following which CommSec and Ausiex must provide and implement a remediation plan if the independent expert report makes recommendations to do so.
“‘Businesses that hold client money must ensure they have the proper management, oversight and controls in this area,” said ASIC Commissioner Cathie Armour.
“Client money must be adequately protected. Where it isn’t, ASIC will take action.”
Under the law, licensees must keep client money separate from their own. This is an important safeguard to protect the interests of retail investors, said ASIC. For example, if there are failings in the handling of client money, the client’s money may be at risk if a firm becomes insolvent, and clients may suffer losses.
, CommSec and Ausiex have all cooperated fully with ASIC and have taken remedial steps to address the issues.
The Markets Disciplinary Panel also acknowledged that Macquarie
notified the breaches to ASIC, that it had a minimal history of non-compliance and that it agreed not to contest the matter, thereby saving time and costs that would otherwise have been expended, when deciding on the penalty.
ASIC has lodged a fourth submission with the Senate Inquiry into its performance, while taking action against two lenders for handling of client monies.