Commonwealth Bank of Australia Fined Over Advice Scandal

Commonwealth Bank of Australia (ASX: CBA) shares have hardly budged today despite Australia’s largest company being handed down a fine from ASIC.

Commonwealth Bank Fined

Having just got over its headache from a binge of money laundering allegations, and an impending Royal Commission into the banking and financial sector, Commonwealth Bank has been handed a $1.9 million fine from the Australian Securities and Investments Commission (ASIC).

According to ASIC, up to 3,500 customers had been affected by advice given by five former representatives of CBA, which will pay compensation to the people who suffered loss.

“Compensation is likely to increase as CBA reviews further customer files,” ASIC said.

Commonwealth Bank has written to the affected clients and begun issuing assessment outcome letters. “CBA will continue to issue assessment outcome letters and compensation offers to affected customers between now and 31 March 2018,” ASIC noted.

ASIC appointed KordaMentha Forensic to investigate Commonwealth Financial Planning Ltd and Financial Wisdom Ltd. “KordaMentha determined that CBA should review advice given by 16 potentially high-risk advisers,” ASIC said.

The investigation then involved a review of six clients from each adviser. Of the five advisers who offered inappropriate advice, a full compensation program was recommended.

Royal Commission

Commonwealth Bank, Australia and New Zealand Banking Group (ASX: ANZ), Westpac Banking Corp (ASX: WBC) and National Australia Bank Ltd. (ASX: NAB) have been a focal point ahead of the Government’s Royal Commission.

The major banks, especially their financial advice arms, are far too often embroiled in scandals or allegations of misconduct. The Royal Commission will focus on the culture, misconduct and internal quality assurance systems used by financial services companies.

Given their poor track record, the big banks have been under pressure to divest their wealth management businesses. ANZ recently sold its advice business to IOOF Holdings Limited (ASX: IOF) for $1 billion, meanwhile, Westpac sold many of its shares in BT Investment Management Ltd (ASX: BTT).

Commonwealth Bank is also facing heat over claims it breached anti-money laundering rules. Commbank’s previous CEO Ian Narev was shown the door because of the money laundering saga.

Commonwealth Bank of Australia shares were trading 0.3% lower at $79 on Wednesday.