In Australian Securities and Investments Commission v Commonwealth Bank of Australia [2022] FCA 1149 the Federal Court of Australia dismissed ASIC’s claim that Colonial First State Investments Limited (CFSIL) gave, and CBA accepted, monetary and/or non-monetary benefits under a distribution agreement which could reasonably be expected to influence financial product advice provided by CBA to its retail clients in relation to Essential Super.

UPDATE 27 October 2022: ASIC has announced it has appealed the decision to the Full Federal Court.

UPDATE 17 August 2023: ASIC’s appeal dismissed.

CFSIL was a wholly owned subsidiary of CBA and was an entity within the Commonwealth Bank of Australia group (CBA Group)

ASIC alleged that CBA contravened the prohibition against a financial services licensee accepting conflicted remuneration pursuant to section 963E of the Corporations Act. ASIC further alleged that CFSIL breached the prohibition on product issuers or sellers giving conflicted remuneration pursuant to section 963K of the Corporations Act.

CBA argued that the alleged “Impugned Benefits” were, in truth, no more than standard intragroup accounting allocations to support or reflect a sharing of costs and revenues between the two business units and the two associated legal entities that were responsible for the MySuper product.

CBA contended that the accounting measures did not amount to a benefit that could reasonably be expected to influence the choice of financial product or the content of financial advice for the purposes of the conflicted remuneration provisions.

Justice Anderson concluded:

The central issue in dispute in these proceedings is whether the nature of the alleged Impugned Benefits, and the circumstances in which they arose, were indeed benefits; and whether these benefits could reasonably have been expected to influence either the choice of financial product recommended by CBA to its customers or the financial product advice that CBA gave to its customers…

ASIC has misconceived the purpose and application of the Conflicted Remuneration Provisions, as it relates to the context of a corporate group such as the CBA Group. The Conflicted Remuneration Provisions were never intended to operate between business units in the same group of companies or entities within a consolidated group of companies. Rather, the Conflicted Remuneration Provisions are directed to benefits that exist between arms-length entities that are not part of a single consolidated group, as well as legal entities which have separate and distinct ownership. Further, the legal form of the Distribution Agreements do not alter these circumstances. Nor do they alter the substance and commercial reality that Essential Super was a CBA-branded product that was jointly initiated, and thereafter jointly supported, by two business units within the CBA Group. This pivotal circumstance is terminal to ASIC’s case.

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Author: David Jacobson
Principal, Bright Corporate Law
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The information contained in this article is not legal advice. It is not to be relied upon as a full statement of the law. You should seek professional advice for your specific needs and circumstances before acting or relying on any of the content.