SYDNEY, Aug 14 (Reuters) - Commonwealth Bank of Australia (CBA) “breached a legislative provision” when it failed to transfer 15,000 pension customers to a low-cost product, an inquiry into financial sector conduct heard on Tuesday.
Documents read at the Royal Commission showed the bank failed to comply with a law introduced in 2014 to provide low-cost retirement funds - dubbed superannuation funds - to some clients who did not choose a specific retirement savings product.
Michael Hodge, the barrister assisting the commission, said that as such, the pension unit of the country’s largest bank had breached section 29WA of the Superannuation Act.
Linda Elkins, executive general manager of CBA’s Colonial First State unit, said some pension fund clients were not transferred to low-fee products because the company’s computer systems could not support the move.
She said the Sydney-based company “didn’t want to risk errors or problems” with such large transfers.
“These are very big complex transitions and the board had concern that the transition would only occur when we were confident that there wasn’t going to be that kind of error with it,” Elkins told the quasi-judicial inquiry.
CBA this month reported its first profit fall in almost a decade due to mounting regulatory costs, including provisions to cover costs related to the year-long inquiry. The Royal Commission has already exposed how CBA overcharged and misappropriated funds from customers, including extracting fees from deceased clients.
The inquiry, which has roiled the banking and funds management industries, is now questioning managers of some of the largest retirement funds about possible misconduct and poor performance.
Elkins said the company should have had more regard for the interests of its pension clients, some of whom are still paying advisory commissions even though they do not have an adviser.
Pension funds in Australia operate as trusts, which means they must adhere to various laws such as ensuring that investments are prudent and members are cared for.
“The issue hasn’t been resolved but the issue is under review,” Elkins said.
Further documents presented at the inquiry showed the corporate regulator had written to the bank in 2015 saying, “based on the information available, it does not appear that the licensees (CBA’s subsidiaries) were making reasonable efforts to comply with the law by 1 July 2015.”
Colonial First State provides retirement products to workers and CBA said in July it would sell the unit in 2019 to focus on traditional lending and rebuild the bank’s reputation.
CBA this year admitted its traders had attempted to rig a key benchmark rate and that it had breached money laundering and terror financing laws more than 53,000 times.
The bank is now defending two shareholder class actions over its alleged failure to disclose the problems, and the banking regulator has imposed an extra A$1 billion capital charge while CBA fixes its extensive governance and risk management issues.
Reporting by Paulina Duran; Editing by Darren Schuettler and Christopher Cushing