Tag: CBA

Financial Advice Conflicts Still Exists In Vertically Integrated Firms

An Australian Securities and Investments Commission (ASIC) review of financial advice provided by the five biggest vertically integrated financial institutions has identified areas where improvements are needed to the management of conflicts of interest. 68% of clients’ funds were invested in in-house products.

This highlights the problems in vertically integrated firms, something which the Productivity Commission is also looking at.

The review looked at the products that ANZ, CBA, NAB, Westpac and AMP financial advice licensees were recommending and at the quality of the advice provided on in-house products.

The review was part of a broader set of regulatory reviews of the wealth management and financial advice businesses of the largest banking and financial services institutions as part of ASIC’s Wealth Management Project.

The review found that, overall, 79% of the financial products on the firms’ approved products lists (APL) were external products and 21% were internal or ‘in-house’ products. However, 68% of clients’ funds were invested in in-house products.

The split between internal and external product sales varied across different licensees and across different types of financial products. For example, it was more pronounced for platforms compared to direct investments. However, in most cases there was a clear weighting in the products recommended by advisers towards in-house products.

ASIC noted that vertical integration can provide economies of scale and other benefits to both the customer and the financial institution. Consumers might choose advice from large vertically integrated firms because they seek that firm’s products due to factors such as convenience and access, and recommendations of ‘in-house’ products may be appropriate. Nonetheless, conflicts of interest are inherent in vertically integrated firms, and these firms still need to properly manage conflicts of interest in their advisory arms and ensure good quality advice.

ASIC will consult with the financial advice industry (and other relevant groups) on a proposal to introduce more transparent public reporting on approved product lists, including where client funds are invested, for advice licensees that are part of a vertically integrated business. ASIC noted that any such requirement is likely to cover vertically integrated firms beyond those included in this review. The introduction of reporting requirements would improve transparency around management of the conflicts of interests that are inherent in these businesses.

ASIC also examined a sample of files to test whether advice to switch to in-house products satisfied the ‘best interests’ requirements. ASIC found that in 75% of the advice files reviewed the advisers did not demonstrate compliance with the duty to act in the best interests of their clients. Further, 10% of the advice reviewed was likely to leave the customer in a significantly worse financial position. ASIC will ensure that appropriate customer remediation takes place.

Acting ASIC Chair Peter Kell said that ASIC is already working with the major financial institutions to address the issues that have been identified in the report on quality of advice and management of conflicts of interest.

‘There is ongoing work focusing on remediation where advice-related failures have led to poor customer outcomes, and the results of this review will feed into that work,’ said Mr Kell.

ASIC is already working with the institutions to improve compliance and advice quality through action such as:

  • improvements to monitoring and supervision processes for financial advisers; and
  • improvements to adviser recruitment processes and checks.

ASIC will continue to ban advisers with serious compliance failings.

ASIC highlighted that the findings from this review should be carefully examined by other vertically integrated firms. ‘While this review focused on five major financial services firms, the lessons should be considered by all vertically integrated firms in the financial services sector.’

Download the report

ASIC Updates Commonwealth Bank Financial Planning Licence Conditions

ASIC says under additional licence conditions imposed on Commonwealth Financial Planning Ltd and Financial Wisdom Ltd by the Australian Securities and Investments Commission, CBA will review all advice given to customers of five former representatives. CBA will pay compensation where customers have suffered loss.

As at 10 January 2018, CBA has reported to ASIC that approximately $1.9 million of compensation is due to customers of the five advisers. Compensation is likely to increase as CBA reviews further customer files. CBA recently wrote to over 3,500 customers of the five advisers informing them their advice was being reviewed. Following completed reviews CBA has issued assessment outcome letters to over 1,000 customers. CBA will continue to issue assessment outcome letters and compensation offers to affected customers between now and 31 March 2018.

ASIC appointed KordaMentha Forensic (KordaMentha) to complete a compliance review under the additional licence conditions. KordaMentha determined that CBA should review advice given by 16 potentially high-risk advisers, and has now reviewed and is satisfied with the processes that CBA used to:

  • select samples of advice given by the 16 advisers for review
  • review the appropriateness of advice given by the 16 advisers
  • calculate whether any inappropriate advice given by the 16 advisers resulted in customers losing money of suffering loss, and
  • conclude that all of the customers of five of the advisers should be reviewed in the compensation program and that no further review is required for 11 advisers.

The current round of compensation is in addition to $4.97 million including interest already offered to customers of different advisers under the additional licence conditions compensation scheme, as reported on in KordaMentha’s December 2016 compliance report.

For more information see the KordaMentha Compliance Report Part 3.

Background

In August 2014, ASIC imposed additional conditions on the Australian Financial Services licences of Commonwealth Financial Planning Ltd and Financial Wisdom Ltd, with the licensees’ consent. Under the additional licence conditions, ASIC appointed KordaMentha Forensic to assess the adequacy of CBA’s 2012 review of potentially high-risk advisers.

KordaMentha’s Identification Report (December 2015, available from the ASIC website) reported that the two licensees had taken reasonable steps to identify potentially high-risk advisers in 2012, but after identifying them, did not adequately review 17 of them to determine whether their clients should be included in a review and compensation program.

KordaMentha later determined that one of the 17 advisers did not need to be reviewed because the adviser had not, as CBA had previously informed KordaMentha, advise a high number of clients to invest 25% or more of their portfolios in property investments.

To address CBA’s failure to adequately review the remaining 16 advisers, KordaMentha’s Identification Report and subsequent work set out the ‘Additional Processes’ that the Licensees were required to take for the advisers:

  1. A review of a sample of six client files for each of the advisers to determine any instances of inappropriate advice that led to loss. For advisers where CBA identified no inappropriate advice with loss, KordaMentha did not require any further review. For advisers where CBA identified inappropriate advice with loss, step (ii) was required.
  2. A review of a further 25 files of the adviser. If no further instances of inappropriate advice with loss were identified, KordaMentha did not require the Licensees to take any further action or review for that adviser. If, after step (i) and (ii) (31 files reviewed), CBA identified that an adviser had provided between two and five instances of instances of inappropriate advice that led to loss, KordaMentha’s default position was that step (iii) was required – that CBA should review a further 25 files of that adviser. If six or more instances on inappropriate advice with loss were identified, CBA was required to implement the full compensation program for all of the adviser’s clients.
  3. A review of a further 25 files.
  4. If, after step (i) or (ii) or (iii) (between six and 56 files reviewed per adviser), CBA identified a total of six or more instances of inappropriate advice with loss, CBA was required to implement the full compensation program for the all of the adviser’s clients.

As a result of these steps:

  • KordaMentha does not require CBA to conduct any further review of 11 of the 16 advisers. KordaMentha concluded that those 11 advisers have been adequately reviewed by CBA and should have no further review under the additional licence conditions.
  • KordaMentha requires CBA to apply the full review and compensation program to all customers of the remaining five advisers, which includes reviewing their advice, issuing review outcome letters including compensation offers if applicable, and offering customers up to $5000 for an independent assessment of their advice.
  • Any customers who CBA identifiedin steps (i), (ii) or (iii) as having lost money through inappropriate advice, from any of the 16 advisers, will be compensated.

Previous KordaMentha reports on the additional licence conditions

The report released today is KordaMentha’s fourth report under the additional licence conditions. Previous reports are published on ASIC’s website at the following links:

  • Comparison Report (April 2015): REP 431
  • Identification Report (December 2015): REP 462
  • Compliance Report Part 1 & 2 (December 2016): REP 504

Next steps

ASIC will continue to report publicly on compensation under the additional licence conditions. ASIC will publish Compliance Report Part 4 when KordaMentha completes its assessment of CBA’s compliance with the additional licence conditions.

CommInsure pays $300,000 following ASIC concerns over misleading life insurance advertising

ASIC says CommInsure will pay $300,000 towards a consumer advice service and have its advertising sign-off processes independently reviewed after ASIC raised concerns about certain instances of its life insurance advertising.

ASIC commenced investigating CommInsure in April 2016, which included a review of CommInsure’s advertising of two life insurance policies:

  • Total Care Plan, sold through financial advisers
  • Simple Life Insurance, sold directly to consumers

The review looked at advertising from mid-2013 to March 2016 and found that misleading and deceptive statements are likely to have been made on some of CommInsure’s websites about the extent to which customers would be entitled to cover for trauma if they suffered a heart attack.

The statements may have led a policyholder to believe they would be entitled to a lump sum payment if they suffered a heart attack in general, when in fact only certain types of heart attacks, which met certain medical criteria as defined in the policy, were covered.

In response to ASIC’s concerns, CommInsure will commission an external firm to conduct a compliance review of its advertising sign-off processes and procedures. The review will look at whether CommInsure’s processes and procedures ensure compliance with the ASIC Act, and make recommendations to improve compliance if required.

CommInsure will report to ASIC by 30 June 2018 on the results of the review and the changes implemented.

As previously announced, CommInsure updated the definition of heart attack in its trauma life insurance products in March 2016 and is reassessing past claims under the updated definition back to October 2012. To date, CommInsure has paid additional benefits for 32 claims, totalling approximately $4 million as a result of the reassessed claims.

ASIC has now concluded its investigation into the life insurance business of CommInsure.

Background

CommInsure will make a $300,000 payment to the Financial Rights Legal Centre which will be used for the Insurance Law Service, a national specialist consumer insurance advice service operated for the benefit of vulnerable, low income and disadvantaged consumers.

ASIC released a public report on its investigation in March 2017 [17-076MR]

Following concerns raised by ASIC, CommInsure applied its updated heart attack definition back to October 2012, which was the date at which international cardiology bodies published an updated consensus on the appropriate clinical marker for heart attack.

CBA to Change Mortgage Broker Commission Structure

From The Adviser.

The Commonwealth Bank of Australia expects to have the CIF-recommended changes to broker commissions instated “ahead of 30 June” next year, according to its general manager for distribution strategy and execution.

Speaking to The Adviser following CBA’s announcement that it would no longer accept accreditations from new mortgage brokers with less than two years of experience (or from those that only hold a Cert IV in Finance & Mortgage Broking), CBA’s general manager for third-party banking, Sam Boer, and Matthew Dawson, general manager for distribution strategy and execution, revealed that they expect to change broker commissions next winter.

Mr Boer and Mr Dawson both welcomed the Combined Industry Forum’s reform package, which was released last week (and to which Commonwealth Bank was a contributor) and included recommendations that lenders pay brokers commission on a utilisation basis (i.e., based on facility limit drawn down by the customer and, in cases where the loan has an offset account, on the amount drawn down net of offset account balances).

General manager Boer said: “The whole industry got behind that one and we thought it addresses the concern raised around the potential conflict of interest and we’re very much supportive of that and working through our solution with our business partners on how we might go about implementing that in the new year.”

Mr Dawson added: “We are still working through the how of the commission changes, but we expect that we will still have it implemented ahead of 30 June.”

The CIF reform package states that it expects the commission changes to be implemented by lenders by “end 2018”.

Changes to CBA accreditation for new brokers

Last week, the major bank revealed that it would be making major changes to the way it accredits new brokers.

From “the first quarter of 2018”, new mortgage brokers will be required to meet new minimum education standards to be able to write Commonwealth Bank loans and demonstrate a commitment to professional development and on-the-job experience.

For CBA accreditation, all new brokers will soon be required to meet the following standards:

– Hold at least a Diploma of Finance and Mortgage Broking Management

– Have at least two years’ experience writing regulated residential loans

– Be a current member of either the Mortgage and Finance Association of Australia (MFAA) or the Finance Brokers Association of Australia (FBAA)

– Be a Direct Credit Representative or employee of an approved Aggregator/Head Group or Australian Credit License (ACL) holder

Mr Dawson told The Adviser: “We will absolutely be building a training framework and ongoing professional development framework as part of the rollout of the new strategy coming in to ensure that the brokers we’re partnering with feel assured and comfortable when they are sitting down in front of a customer to have really deep conversations around appropriate products for them.

“We will be providing that and equally working with the head group programs to ensure that the head groups that have their own professional development programs… that we support each other…. We provide content for their platforms and, where appropriate, we will rely on their platforms as a means of us getting comfort over the professional development of brokers.”

Mr Dawson continued: “I think, for us, this has been about working with the [Combined] Industry Forum and we have played a key lead role in that.

“It has been really important for us, and we are really supportive of the industry forum and the consultation process that we ran in terms of the engagement with brokers.”

He revealed that the bank surveyed 12,000 brokers in July and got nearly 2,000 respondents.

“We’ve had focus groups with many brokers right throughout the country over the last couple of month. We’ve met with every head group. This has been, for us, all about residential and making sure we support a robust industry and support the longevity of the industry.”

CBA admissions will make class action easier but shareholders still have a lot to prove

From The Conversation.

The Commonwealth Bank of Australia recently admitted it breached Australia’s anti-money laundering and counter-terrorism financing laws. The admissions in its response to allegations from the Australian Transaction Reports and Analysis Centre (AUSTRAC) will make it easier for shareholders to prove their claims of misleading and deceptive conduct in a class action launched against the bank in October.

CBA’s willingness to admit what it has done also signals a possibility the bank might resolve the class action through a settlement. In the meantime shareholders still need to prove their claims, even if some are on stronger footing thanks to the CBA.

AUSTRAC’s first lot of allegations noted CBA failed to comply with its obligations under the Anti-Money Laundering and Counter-Terrorism Financing Act 2006 with respect to more than 778,000 accounts. The bank is obliged to assess the risk of, monitor and report suspicious deposit activity that was being conducted through intelligent deposit machines (IDMs). These machines are ATMs that accept cash deposits that are immediately available in the depositor’s account.

AUSTRAC then amended its complaint on December 14, 2017, to add a further 100 alleged contraventions.

CBA’s response to the original allegations admits that it did fail to comply with the Act in certain respects and accepts that these contraventions do subject it to a civil penalty. But the bank denies other alleged contraventions.

Law firm Maurice Blackburn filed a class action on behalf of shareholders with CBA shares between July 1, 2015 and August 3, 2017. The shareholders allege that CBA – and over a dozen of its officers and directors – knew or should have known about the non-compliance. They argue this failure to disclose or rectify the situation caused loss once the share price fell after AUSTRAC made CBA’s non-compliance public.

None of this is proved solely by the fact that CBA admitted committing some breaches of the Act. The additional claims brought by AUSTRAC this week do not alter the existing shareholder claims, but they may see the scope of the class action increased.

What CBA admits and what shareholders need to prove

CBA’s admissions may impact the efficiency and conduct of the class action, but they are unlikely to affect what shareholders need to prove. CBA’s response admits much of the conduct that contravenes the Act, but that’s not the same as an admission of liability in relation to the quite different legal claims made by the shareholders.

CBA admits that it did not conduct a proper risk assessment of its IDMs until more than three years after the machines had been put into operation. The bank also admits that it did not conduct adequate monitoring of IDM deposits, for example by introducing daily deposit limits. This is despite having assessed the risk of IDMs being used for money laundering or terrorism financing as high.

CBA further admits that in over 53,500 separate instances, it did not file reports whenever a deposit of more than A$10,000 was made, as required by the Act. It also failed to file either complete or timely reports of suspicious account activity in nearly 100 instances.

But the shareholders’ claims are based on something different: CBA’s non-compliance with securities disclosure rules and on misleading and deceptive conduct by CBA.

In order to win in the class action, the shareholders will have to prove the elements of the claims they allege, including that the lack of AUSTRAC compliance was the cause of the drop in CBA share price and that the plaintiffs suffered loss as a result of that drop.

The test for the link between non-disclosure and loss, and the way to calculate the amount of that loss, has not been determined in the class action cases so far. However, courts have heard similar shareholder arguments to those raised by the CBA shareholders in other cases, so the issues raised aren’t new.

For example, in the case surrounding the liquidation of HIH Insurance Limited, Justice Brereton of the Supreme Court of New South Wales held that shareholders rely on the share price as an accurate reflection of share value. Accordingly, when corporate misconduct inflates the share price, the corporation indirectly causes shareholders to suffer loss.

A key issue the CBA class action will be whether CBA’s non-compliance with the Anti-Money Laundering and Counter-Terrorism Financing Act, and the subsequent AUSTRAC civil penalty proceedings, impacted the share price and to what extent.

Authors: Michael Legg, Professor of Law, UNSW; James D Metzger, Scholarly Teaching Fellow in Civil Procedure, University of Sydney

eChoice Sold To CBA Subsidiary

The Voluntary Administrators have announced that they have accepted an offer and executed an unconditional sale agreement with, Finconnect (Australia) Pty Limited (as subsidiary of Commonwealth Bank of Australia) to sell the assets of the eChoice Administration Group companies.

This does not include the assets of the eChoice companies which have existing contracts with brokers or lenders that have not been placed into administration. The assets consist principally of the eChoice concierge platform, IT, intellectual property and staff.

The sale to Finconnect will allow eChoice’s employees, suppliers, brokers, lenders and leadership team to continue to operate and deliver for customers as they always have, but benefitting from the support of a larger financial institution, with minimal impact to current roles and leadership structure.

The Administrators will continue with their review of the affairs of the Administration Group with a view to the preparation of a report to creditors next year. This report will provide details of the Group’s financial affairs, including its background and historical trading. At this stage, the Administrators are not in a position to advise in respect to these matters or provide any further details pertaining to the sale agreement. These are issues properly considered in the report to creditors.

In accordance with the orders of the Federal Court of Australia made on 14 December 2017, this report will be forwarded to creditors to convene a meeting of creditors to be held by 29 March 2017.

Commonwealth Bank receives an amended statement of claim from AUSTRAC

Commonwealth Bank (CBA) says it has today been served with an amended statement of claim from AUSTRAC, alleging further contraventions of Australia’s anti-money laundering and counter-terrorism financing legislation. The new allegations, among other things, increase the total number of alleged contraventions from approximately 53,700 to approximately 53,800.

In our ASX Announcement of 13 December 2017 we noted that AUSTRAC had indicated that it proposed to file an amended claim and we are updating the market as this has now occurred.

CBA will review the amended statement of claim and update the market as appropriate. We will file an amended defence in due course.

CBA re-states its position that we take our anti-money laundering and counter-terrorism financing (AML/CTF) obligations extremely seriously, and deeply regret any failure on our part to comply with these obligations.

CBA commenced a Program of Action in 2015 to significantly upgrade and expand its operations to ensure compliance with the AML/CTF Act. During 2017 we have stepped up the rigour and intensity of the program and extended it across all aspects of financial crime obligations and all business units to further strengthen regulatory compliance.

Through its Program of Action, CBA has made significant progress in strengthening its policies, systems and processes relating to its obligations under the AML/CTF Act, and recognises that having increased the scope of work and resources being deployed we may come across additional matters. As CBA continues to strengthen our financial crimes compliance we will continue to work closely with regulators across those jurisdictions in which it operates to fight financial crime.

CBA to introduce major accreditation changes next year

From The Adviser.

Commonwealth Bank has announced that, from next year, it will no longer accept accreditations from new mortgage brokers with less than two years of experience or from those that only hold a Cert IV in Finance & Mortgage Broking.

Speaking to The Adviser on Thursday (14 December), CBA’s general manager for third party banking, Sam Boer, and executive general manager home buying, Dan Huggins, explained that the bank would be bringing new benchmarks for mortgage brokers “designed to lift standards and ensure the bank is working with high-quality brokers who are meeting customers’ home lending needs”.
As part of the reforms, from “the first quarter of 2018”, new mortgage brokers will be required to meet new minimum education standards to be able to write Commonwealth Bank loans and demonstrate a commitment to professional development and on-the-job experience.

For CBA accreditation, all new brokers will soon be required to meet the following standards:

– Hold at least a Diploma of Finance and Mortgage Broking Management

– Have at least two years’ experience writing regulated residential loans

– Be a current member of either the Mortgage & Finance Association of Australia (MFAA) or the Finance Brokers Association of Australia (FBAA)

– Be a Direct Credit Representative or employee of an approved Aggregator/Head Group or Australian Credit License (ACL) holder

Cert IV has ‘served its purpose’

Speaking of the changes, Mr Boer told The Adviser: “I actually sat down and reviewed a Cert IV for a friend of mine and looked at the process, and I think that while the Cert IV has served its purpose, with the new standards and expectations that are on us (which have been highlighted through the [ASIC and Sedgwick] reviews and through the Combined Industry Forum reform package), it’s time that we need to look at and set new benchmarks.

“So, that is what we feel is appropriate for the brokers that we want to partner with, to ensure that we are delivering those great customer outcomes.”

Mr Huggins added: “We want to ensure that customers feel confident that mortgage brokers have achieved that minimum standard of education and they can be confident in the advice or the guidance that they are seeing — because home loans are complex products and we want to make sure that customers get good outcomes.”

The executive general manager for home buying continued: “Brokers have done a fantastic job of supporting the industry and supporting great customer outcomes and we want to make sure that that continues for new entrants to the market.”

Two-year requirement

When asked why the decision has been made to only accredit new brokers with more than two years of residential loan writing experience, Mr Huggins said that the decision came down to the quality of loans written.

He told The Adviser: “The data that we have seen on the back book shows that there is a clear correlation that those that are more experienced (and those that are writing more loans) provide better customer outcomes, be they either the ongoing performance of the loan, the ongoing performance of the customer, and adherence to responsible lending as well.”

Mr Boer highlighted that there is a “huge amount of turnover” with new brokers, which he said was a “clear indication that these people need support”.

The general manager for third party banking continued: “They need more training, they need more investment to ensure that they are successful and, of course, with the increased complexity now and expectations on meeting responsible lending, we need to make sure that our brokers are meeting those standards and doing it right.

“So, it is very difficult for somebody without any financial experience, we believe, to be able to meet those standards. And therefore, we need to support, embed and ensure that they have that minimum level of capability.”

When asked whether new brokers coming from financial backgrounds (such as ex-bankers) would also be subject to the two-year requirement, Mr Boer said: “This is really about experience in sitting in front of customers and actually discussing mortgage products. But it’s not the only requirement that we have focused on. There is the education standard as well, which is also a very important part of the requirement.”

Aussie brokers to be held to same standards

Mr Boer emphasised that the new accreditation process holds “the same rules for everyone”, and that CBA-owned brokerage Aussie would also be subject to the same accreditation changes.

He told The Adviser: “It’s the same rules for everyone. We are investing with all our strategic business partners to ensure they meet the new standards.”

“We believe that [the changes] are in the best interest of consumers and the industry alike.”

Accreditation changes form aim to support Combined Industry Forum reform package

The accreditation changes for new brokers come off the back of the Combined Industry Forum’s reform package, which was released this week (and to which Commonwealth Bank was a contributor).

According to Mr Huggins, the new changes form part of CBA’s new mortgage broking model and “long-term commitment” to the industry.

“As a leading home lender we recognise mortgage brokers as a key channel for customers who are looking to purchase a home, and we have been working with the industry forum to find the right balance to ensure the best customer outcomes,” Mr Huggins said.

“Our new standards follow extensive consultation with the brokers, and are another example of our commitment to delivering the recommendations of the Sedgwick Report and ASIC review well before the 2020 deadline.”

Mr Boer added: “We’re committed to the process around the industry reform package – it is significant amount of change with quite a bit of challenge and a lot of investment required by industry. At CBA, we are making a huge investment to support the industry and ensure we are delivering on those standards.”

All new accreditations on hold

CBA said it would work closely with brokers who meet these requirements during the accreditation process, including conducting interviews and providing support with professional development plans.

The bank expects to launch the new process in the first quarter of 2018, with all new accreditations on hold until then to ensure the new process is implemented effectively.

In addition to the updated accreditation standards, CBA is also reviewing non-monetary benefits provided to brokers to ensure they support good customer outcomes; improving the value proposition for accredited brokers; and rolling out the industry’s proposed changes to commissions and KPIs. These changes will be in line with the principles announced in the CIF package, and further details will be released in the new year.

Commonwealth Bank files response to AUSTRAC claims

Commonwealth Bank (CBA) today filed a response to the civil proceedings commenced by AUSTRAC on 3 August 2017.

CBA contests a number of allegations but admit others, including the allegations relating to the late submission of 53,506 threshold transaction reports (TTRs), which were all caused by the same single systems-related error.

The Defence focuses on key factual and legal matters in the claim. CBA confirms that in our Defence we:

  • agree that we were late in filing 53,506 TTRs, which all resulted from the same systems-related error, representing 2.3% of TTRs reported by CBA to AUSTRAC between 2012 and 2015;
  • agree that we did not adequately adhere to risk assessment requirements for Intelligent Deposit Machines (IDMs) – but do not accept that this amounted to eight separate contraventions – and agree we did not adhere to all our transaction monitoring requirements in relation to certain affected accounts;
  • admit 91 (in whole or in part) but deny a further 83 of the allegations concerning suspicious matter reports (SMRs);
  • admit 52 (in whole or in part) but deny a further 19 allegations concerning ongoing customer due diligence requirements.

Further detail can be found in CBA’s Concise Statement in Response.

We continue to fully cooperate with AUSTRAC in relation to our obligations under the Anti-Money Laundering and Counter-Terrorism Financing Act 2006 (Cth) (AML/CTF Act) and respect its role as a regulator.  The nature of the regime involves continuous liaison and collaboration with the regulator as risks are identified.  As such we are in an ongoing process of sharing information with the regulator.

AUSTRAC has indicated that it proposes to file an amended statement of claim containing additional alleged contraventions.  If an amended claim is served on us, we expect the court would set a timetable for CBA to file an amended defence. We will provide market updates as appropriate.

We take our anti-money laundering and counter-terrorism financing (AML/CTF) obligations extremely seriously. We deeply regret any failure to comply with these obligations. CBA is accountable for those deficiencies.

We understand that as a bank we play a key role in law enforcement. AUSTRAC’s former CEO has publicly acknowledged our contribution in this regard. We have invested heavily in seeking to fulfil the crucial role we play. CBA has spent more than $400 million on AML/CTF compliance over the past eight years. We will continue to invest heavily in our systems relating to financial crimes thereby supporting law enforcement in detecting and disrupting financial crime.

During the period of the claim, CBA submitted more than 36,000 SMRs, including 140 in relation to the syndicates and individuals referred to in AUSTRAC’s claim.

In the same period we submitted more than 17 million reports in aggregate, including SMRs, TTRs and in respect of international funds transfer instructions. CBA will submit over 4 million reports to AUSTRAC in this year alone.

CBA also responds to large numbers of law enforcement requests for assistance each year, including approximately 20,000 requests this year. Some of the information provided directly resulted in disrupting money laundering and terrorism financing activity and prosecuting individuals.

Any penalty imposed by the Court as a result of the mistakes we have made will be determined in accordance with established penalty principles. For example, the Court may consider whether any contraventions arise out of the same course of conduct and will assess the appropriate penalty for that conduct accordingly, as it recently did in the Tabcorp decision.

CBA’s submissions at trial will also highlight steps that we have taken since 2015 as part of our Program of Action to strengthen and improve our financial crimes compliance.

 

Program of Action

CBA has made significant progress in strengthening our policies, processes and systems relating to its obligations under the AML/CTF Act through our Program of Action.  While this is a continuing process of improvement, progress achieved since the issues concerning TTRs associated with IDMs were first identified and rectified in late 2015, includes:

  • Boosting AML/CTF capability and reporting by hiring additional financial crime operations, compliance and risk professionals. As at 30 June 2017, before the claim was filed, CBA employed over 260 professionals dedicated to financial crimes operations, compliance and risk.
  • Strengthening our Know Your Customer processes with the establishment in 2016 of a specialist hub providing consistent and high-quality on-boarding of customers, at a cost of more than $85 million.
  • Launching an upgraded financial crime technology platform used to monitor accounts and transactions for suspicious activity.
  • Adding new controls such as using enhanced digital electronic customer verification processes to supplement face-to-face identification to reduce the risk of document fraud.

The Program of Action has also addressed issues that AUSTRAC alleges were ongoing contraventions in its claim. For example, CBA recently introduced daily limits for IDMs deposits for CBA cards associated with a personal account. We understand CBA is the first major Australian bank to implement a control of this type.

CBA is committed to continuing to strengthen our financial crimes compliance and to working closely with regulators across all jurisdictions in which we operate to fight financial crime.

CBA announces major lending changes

From The Adviser.

CBA has today revealed a raft of changes including LVR caps and restrictions to rental income for serviceability that will impact mortgage brokers and their clients from next week.

On Saturday (2 December) CBA will introducing a new Home Loan Written Assessment document called the Credit Assessment Summary (CAS) for all owner occupied and investment home loan and line of credit applications solely involving personal borrowers.

“These changes further strengthen our responsible lending commitments related to the capture and documentation of customer information,” the bank said.

“The CAS will present a summary of the information you provided on behalf of your borrower(s) and / or that the Bank has verified (where relevant) and used to complete its credit assessment.”

It will include a summary of loan requirements and objectives, personal details and financial information, total monthly living expenses at a household level and information about the credit applied for.

CBA said the CAS will form part of the loan offer document packs for all owner occupied and investment home loan and line of credit applications.

“The CAS will not be issued for Short Form Top Up applications or applications involving non-person applicants (i.e. Trust or Company). The Document Checklist, which is on the last page of the Covering Letter to Borrower (Full Pack), will indicate when a CAS has been issued,” the group said.

“An application exception will be raised if the CAS is not returned or not signed by all personal borrowers. The application will not progress to funding until the exception is resolved.”

LVR and postcode restrictions

Meanwhile, CBA confirmed that it will introduce credit policy changes for certain property types in selected postcodes from Monday 4 December.

The changes include reducing the maximum LVR without LMI from 80 per cent to 70 per cent, reducing the amount of rental income and negative gearing eligible for servicing and changing eligibility for LMI waivers including all Professional Packages and LMI offers for customers financing security types in some postcodes.

“We continue to lend in all postcodes across Australia,” CBA said.

However, on Monday the bank will also introduce what it has called the Postcode Lookup Tool, which will be available under the Tools and Calculators section on CommBroker.

“This tool will provide you with detail on policies that may apply in certain areas. You should use this tool during your customer discussions to understand policies that may apply to postcodes in which they have expressed a home lending need. If policies apply, you should discuss these with your customers,” the bank said.