The Full Federal Court has dismissed ASIC’s appeal against an earlier Federal Court decision to dismiss ASIC’s case against the Commonwealth Bank of Australia (CBA) and Colonial First State Investments Limited (Colonial) for allegedly breaching conflicted remuneration laws.

ASIC alleged in the proceeding that CBA and its wholly owned subsidiary, Colonial, breached conflicted remuneration laws when they reached an agreement in which Colonial paid CBA to distribute its Essential Super product to retail clients through CBA’s branch and digital channels. Essential Super was distributed to over 390,000 individuals.

ASIC Deputy Chair Sarah Court said, ‘ASIC pursued this matter because conflicted remuneration has the potential to cause consumers to be given financial product advice that may not suit their needs.

‘While the Full Court dismissed the appeal it accepted a number of ASIC’s submissions and, importantly, clarified the meaning and reach of the conflicted remuneration provisions for future matters.’

ASIC will consider the judgment carefully. ASIC has 28 days to lodge any application for special leave to appeal to the High Court, should it decide to do so.

Background

The arrangements between CBA and Colonial regarding the distribution of Essential Super was the subject of a case study by the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry. The conduct was referred to ASIC in the Final Report (Volume 2 - Part 2, p.99).

On 22 June 2020, ASIC commenced civil penalty proceedings against CBA and Colonial (20-143MR). The proceedings were dismissed on 29 September 2022 (22-264MR).

In the proceedings, ASIC alleged that the arrangements between CBA and Colonial breached the ban on conflicted remuneration under ss963E and 963K of the Corporations Act 2001 (Cth).

Conflicted remuneration is defined in the Corporations Act as any benefit, whether monetary or non-monetary, given to an Australian financial services licensee who provides financial product advice to persons as retail clients that, because of the nature of the benefit or the circumstances in which it is given could reasonably be expected to influence:

• the choice of financial product recommended by the licensee or representative to retail clients, or
• the financial product advice given to retail clients by the licensee or representative.

On 26 October 2022, ASIC appealed the Federal Court’s decision to dismiss the proceedings (22-293MR).

The conflicted and other banned remuneration provisions were introduced in June 2012 as part of the Future of Financial Advice reforms, representing the Australian Government’s response to the 2009 inquiry into financial products and services in Australia by the Parliamentary Joint Committee on Corporations and Financial Services.

ASIC updated its guidance on conflicted and other banned remuneration (RG 246) in December 2017 (17-421MR).