In Australian Securities and Investments Commission v Commonwealth Bank of Australia [2023] FCAFC 135 the Full Federal Court has dismissed ASIC’s appeal against an earlier Federal Court decision to dismiss ASIC’s case against the Commonwealth Bank of Australia (CBA) and Colonial First State Investments Limited (Colonial) for allegedly breaching conflicted remuneration laws. Background.

The decision, subject to appeal by ASIC to the High Court of Australia, discussed whether the prohibition only applied when there was a choice to be made by the consumer between products or whether it also applied to a single product decision. The Full Court also discussed the application of the prohibition to companies in a group and the evidence required to prove that advice was given.

Sections 963E and 963K of the Corporations Act prohibit the giving and acceptance of conflicted remuneration in certain circumstances. The main object of Chapter 7, as stated in section 760A, is to promote (amongst other things) confident and informed decision making by consumers of financial products, the provision of suitable financial products to consumers of financial products and fairness, honesty and professionalism by those who provide financial services.

ASIC alleged in the proceeding that CBA and its wholly owned subsidiary, Colonial, breached conflicted remuneration laws when they reached an agreement in which Colonial gave CBA benefits in relation to the distribution of Essential Super which comprised conflicted remuneration as defined by section 963A of the Corporations Act.

In this case the Full Federal Court concluded that there was no evidence of specific words and statements within training manuals, standard operating procedures or scripts that were said to constitute relevant recommendations or statements of opinion which were influenced by the benefits received.

The benefits were alleged to include:

(a) the contractual promise made by Colonial to pay CBA an annual fee of 30% of the total net revenue earned by Colonial in respect of Essential Super in return for distributing Essential Super through CBA’s branch network and its digital distribution channels;

(b) payments by way of cash transfers from Colonial to CBA in purported performance of the contractual promise.

In dismissing ASIC’s appeal, while Justice O’Bryan agreed with ASIC that there was a benefit given, he concluded that ASIC had failed to prove financial advice was actually given and that the benefit could reasonably be expected to influence the financial product advice given to retail clients by the licensee or representative:

“The possibility of conflicted remuneration within the meaning of s 963A is not confined to circumstances where the financial services licensee receiving the benefit is “confronted” with a choice of financial product to recommend or a choice of financial product advice to give, but can apply in circumstances where a financial services licensee has chosen to offer only a single financial product (or a single financial product of a particular kind) to retail clients and has chosen to offer financial product advice having a singular content (for example, to invest in a particular financial product)…..

It is an express requirement of the definition in s 963A that the financial services licensee (or their representative) provides financial product advice to persons as retail clients. …

a benefit given to a financial services licensee cannot constitute conflicted remuneration in respect of a particular financial product or class of financial products if the licensee does not provide financial product advice to persons as retail clients in respect of the financial product or class of financial products. …

The burden of proving that element lies on ASIC. If the financial services licensee does not provide financial product advice, there is no potential for the benefit to influence the choice of financial product recommended (because there will be no recommendation) or the financial product advice given (because there will be no advice)….

At no point in the pleading did ASIC identify specific parts of a training manual, a standard operating procedure or a script that contained words and statements that were said to constitute the recommendation or statement of opinion relied upon by ASIC….

The statements in the relevant scripts were to the following effect:

(a) that Essential Super is a straightforward superannuation product;

(b) that Essential Super has the convenience of on-line access through NetBank, which means that superannuation and banking can be managed in the one place;

(c) that employer contributions can be accepted into Essential Super;

(d) that client can take control of their superannuation by selecting their own superannuation fund rather than using the fund their employer provides;

(e) that Essential Super is a competitively priced superannuation account; and

(f) that customers are able to choose their own investment mix and level of insurance.

None of those statements were truly a recommendation of the product within the meaning of the definition of financial product advice. …

CBA’s decision to distribute Essential Super was motivated by commercial objectives that preceded the negotiation of the fee payable under the Distribution Agreements, and the payment of the fee was immaterial to that decision.”

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