CommSec to face probe on cash pooling
It comes as the regulator releases its final submission to a Senate inquiry into a separate scandal at the bank's financial planning arm.
The CommSec review will be conducted by an expert of the group's choosing and will investigate the mishandling of client funds between 2005 and 2013.
It follows findings by the Australian Securities and Investments Commission that the broker and another CBA subsidiary, Ausiex, was withdrawing client money for daily cash settlements and shifting the bank's own money into client trust accounts.
Under the law, banks and other financial services companies are required to keep client money separate to other accounts, as well as the bank's own money. This is to protect the institution and other investors from being exposed to problems with individual accounts.
CBA notified ASIC of potential issues in 2010 and engaged in a remediation program with the regulator in 2012. However incidents of mishandling continued until September 2013.
ASIC Commissioner Cathie Armour said the incidents reflected a series of "procedural inadequacies" over several years rather than any deliberate attempt to pool money. She said the regulator would test CBA claims of money handling through the enforceable undertaking.
CommSec has until February to appoint an external expert, which ASIC must then approve. It cannot be an expert that has dealt with CommSec or its related parties in the past two years.
Meanwhile, ASIC has released a fourth submission to a Senate inquiry that was called in the wake of a financial planning scandal exposed by Fairfax Media.
The submission detailed the findings by independent expert PricewaterhouseCoopers, appointed by CBA to review operations at the planning arm.
PwC gave the division a clean bill of health, claiming actions taken by the bank had enabled it to undergo a "significant cultural shift ... to a more balanced focus on advice quality".
ASIC would not say whether it would approve the appointment of PwC as an independent expert in the case against CommSec.
In a separate case, Macquarie Bank on Monday was fined $175,000 by the regulator for pooling client funds and depositing the bank's own money into clients accounts.
Frequently Asked Questions about this Article…
The CommSec cash pooling investigation is about the mishandling of client funds by Commonwealth Bank's online broker, CommSec. The financial regulator found that CommSec pooled clients' money and withdrew funds from client accounts without authorization between 2005 and 2013.
It's crucial for banks to keep client money separate from other accounts and the bank's own money to protect the institution and other investors from being exposed to problems with individual accounts. This separation is a legal requirement to ensure financial integrity and trust.
An independent expert, chosen by CommSec and approved by the Australian Securities and Investments Commission (ASIC), will conduct the review of CommSec's handling of client funds. The expert must not have dealt with CommSec or its related parties in the past two years.
ASIC Commissioner Cathie Armour stated that the incidents reflected a series of 'procedural inadequacies' over several years rather than any deliberate attempt to pool money. She emphasized that the regulator would test CBA's claims of money handling through the enforceable undertaking.
After notifying ASIC of potential issues in 2010, CBA engaged in a remediation program with the regulator in 2012. However, incidents of mishandling continued until September 2013, prompting further investigation.
PricewaterhouseCoopers, appointed by CBA to review operations at the financial planning arm, gave the division a clean bill of health. They claimed that actions taken by the bank had enabled it to undergo a 'significant cultural shift' towards a more balanced focus on advice quality.
As of the article's publication, ASIC has not stated whether it would approve the appointment of PricewaterhouseCoopers as an independent expert in the case against CommSec.
In a separate case, Macquarie Bank was fined $175,000 by the regulator for pooling client funds and depositing the bank's own money into clients' accounts.
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