Commonwealth Bank of Australia’s (ASX: CBA) retail stockbroking unit is facing its eighth inquiry in less than a decade by the Australian Securities and Investments Commission (ASIC), this time for overcharging customers more than $4.35 million in brokerage fees and breaching market integrity rules.
ASIC announced this week it would commence civil penalty proceedings against Commonwealth Securities Limited (CommSec) and its former wholesale business Australian Investment Exchange (AUSIEX) for the alleged conduct, which occurred from August 2010 to February 2020 and involved excessive fees and failures across multiple systems and business areas.
AUSIEX (trading under the brand name CommSec Adviser Services) was sold in April to Japan’s Nomura Research Institute for $85 million, with the deal expected to settle before mid-year.
Systemic compliance failures
In documents filed with the federal court, ASIC said it had decided to sue the subsidiaries of the Commonwealth Bank given “systemic compliance failures in the delivery of its financial services”.
It alleges CommSec overcharged brokerage fees to customers on more than 120,000 occasions during the decade in question to the tune of more than $4.35 million.
It also claims inadequate systems and processes led CommSec and AUSIEX to breach the Corporations Act, ASIC Act and market integrity rules, resulting in “over 60 notifications” of bad behaviour to the regulator.
CommSec and AUSIEX have admitted to a slew of compliance shortcomings, accepting they “failed to do all things necessary” to ensure their financial services were provided efficiently, honestly and fairly, in spite of internal issues with information technology systems and data entry processes.
The failures included: not providing accurate confirmation to customers for certain market transactions; failing to comply with best execution policies and procedures; failing to provide client money reconciliation requirements; and failing to include the required intermediary identification in regulatory data submitted to relevant market operators.
According to ASIC, there were 1,237 occasions between 2015 and 2020 when CommSec’s reconciliations were out while for AUSIEX, the number of botched reconciliations between 2015 and 2019 totalled 1,175.
Overseas, the bank was also alleged to have not followed best execution policy published on the website of ASB Securities, its share trading platform for New Zealand investors.
Engaging with ASIC
In a statement released yesterday, Commonwealth Bank confirmed its subsidiaries would engage “extensively and co-operatively” with ASIC and did not intend to defend the proceedings.
It said the issues arose from errors such as information technology system coding or systems issues, human error and data entry errors.
The only issue where there was any direct financial loss to some customers was in relation to instances of brokerage overcharging.
“We apologise to our customers who were impacted by our mistakes … these errors never should have happened,” CommSec managing director Richard Burns said in the statement.
“We acknowledge the importance of meeting our compliance obligations and we are committed to continuing to invest in strengthening our systems and procedures.”
CommSec told ASIC it had already repaid $6.5 million to 34,000 affected customers, comprising refunds, compensation and interest payments.
CommSec and AUSIEX have agreed with ASIC to enter into a court-ordered compliance program including a review by an independent expert, with a view to ensuring all remedial work undertaken is adequately completed and ongoing systems and controls are effective.
Markets Disciplinary Panel
ASIC said it would usually pursue such matters through the Markets Disciplinary Panel (comprising senior industry peers) but had this time opted for civil penalty proceedings given the severity and duration of the breaches.
CommSec has appeared before the Markets Disciplinary Panel seven times since 2012 and racked up more than $1 million in fines.
It was also subject to a court enforceable undertaking in 2013 for client money and trust account failings.