SYDNEY A Senate committee report has recommended an independent inquiry into a financial planning scandal at the Commonwealth Bank of Australia (CBA) (CBA.AX), with the bank accused of covering up misconduct that left thousands of its customers without their savings.
The inquiry, which may take the form of a royal commission or independent judicial inquiry, is likely to pave the way for regulatory and legislative reforms in the sector.
Australia's financial advisory sector has been criticised for high fees, and the Financial Planning Association of Australia has acknowledged that low entry requirements for advisers has led to poor advice for customers.
Thousands of CBA customers lost savings during the global financial crisis after advisers misled them into buying risky products, fabricated documents and forged signatures. The misconduct occurred between 2006 and 2010.
CBA, Australia's top lender by market value, apologised for the misconduct. "We deeply regret that some of our financial advisers did not provide quality advice to customers," CBA said in a statement on Friday, responding to the Senate report.
But CBA also said in the statement that it strongly refuted accusations by Senator Mark Bishop, who chaired the committee. The accusations include allegations of a cover-up and that the bank's ability to address compensation issues was compromised.
The report, released late on Thursday, was part of a broader probe into the performance of the Australian Securities and Investments Commission (ASIC) which failed to provide satisfactory answers to the allegations.
"The committee's confidence in ASIC's ability to monitor the CBA's ... compensation process is severely undermined. The CBA's credibility in the matter is so compromised that responsibility for the compensation process should be taken away from the bank," the Senate committee said in its 519-page report.
It recommended tightening corporate governance standards at ASIC and suggested the government to urgently consider expanding the regulator's toolkit to prevent the marketing of "unsafe products" to mom and pop investors.
The committee also urged ASIC to conduct "intensive surveillance" of other financial advisory businesses to ensure there are no other compliance deficiencies, and recommended higher penalties for financial services licensees that fail to lodge reports of significant breaches to ASIC within the required time.
Australia's financial industry accounts for more than 8 percent of the country's economic output and is among the biggest globally.
(This story was corrected to remove number of customers in fourth paragraph and also clarifies that customers lost savings, not life savings)
(Reporting by Swati Pandey; Editing by Edwina Gibbs)