Reference no: EM132066165

Financial Institutions Management and Regulation

Short Report Topics on Mis-selling and ASIC Enforcement

Commonwealth Financial Planning (CFP) was a company within the Commonwealth Bank of Australia (CBA) Group. CFP employs financial planners who provide investment advice to retail customers.

CFP employed some very unethical financial planners. The financial planners earned higher commission if they persuaded customers to invest in high risk products - so they did so, even when it was not at all suitable for the client.

In some cases, it seems that the customer's money was moved into a high-risk strategy without their permission (the planners apparently forged their signature on documents giving such permission). When the share market crashed in 2008, many of these people suffered large losses.

A Parlimentary inquiry later found that

"the conduct of some financial advisers was unethical, dishonest, well below professional standards and a grievous breach of their duty of care to their clients. The way in which they targeted vulnerable trusting people and placed conservative investors in high-risk products showed a callous disregard for their clients' interests.

Three people who worked at CFP had become concerned about the unethical behaviour of some of their colleagues (in particular, Mr Don Nguyen).

They warned ASIC in 2008, and again in 2009, and again in 2010 - but ASIC did not take effective action. The whistle-blowers also notified senior management at CFP - but again, without any satisfactory results. Eventually they gave information to journalists - including both the Sydney Morning Herald and Four Corners - and this ultimately led to a Parliamentary enquiry.

The Parliamentary report was quite critical of the CFP management - the CFP management dismally failed to ensure that its employees behaved ethically; and dismally failed to deal with the situation, even after the warnings of the whistleblowers.

The Parliamentary report was also quite critical of ASIC, which failed to take effective action in response to the whistleblowers warnings.

You can choose to do a short report on either (or both)

(i) CFP Management: To what extent should the CFP be blamed for the unethical behaviour of their employees? What did they do wrong? After the Parliamentary inquiry, they promised to improve. What did they do?

(ii) ASIC Enforcement. How well did ASIC respond to the unsatisfactory behaviour of the financial planners at CFP?? What did they do wrong? After the Parliamentary inquiry, they promised to improve their enforcement. What did they decide to do?

The Parliamentary report, and other useful information, is available on iLearn in a folder labelled Commonwealth Financial Planning.