Senate Submission

My submission to the Senate earlier this year can be read by clicking here.

Banking Bad: Ordinary Australians taking on Australia's biggest bank

My Four-Corners interview discussing the Commonwealth Bank fraud:

View the video by clicking here

Royal Commission into the Commonwealth Bank?

The 7.30 Report (2.7.2014)

The 7.30 Report had a discussion last night about the growing calls for a Royal Commission into the Commonwealth Bank fraud.

The video can be viewed here

The man who blew the whistle on the CBA

Clancy Yeates and James Eyers

 

Jeff Morris first blew the whistle on misconduct in the Commonwealth Bank of Australia’s financial planning arm in 2008, but the wounds from the experience are still raw. After spending “a couple of thousand hours” and six years building a case against his former employer, Morris was vindicated by a Senate inquiry this week, which delivered a scathing verdict on the bank’s and corporate regulator’s handling of the systemic ­misselling of financial products to clients who lost millions.

But it is clear the process has taken a big toll. As he describes the impact that taking on CBA has had on his family life, Morris pauses to wipe away tears welling in his eyes.

“My family paid a price as a result of my decision, and in many ways, I had no right to expect my family to pay that price,” he told AFR Weekend on Friday. “But just for myself, I didn’t feel I had any choice. I couldn’t have lived with myself if I hadn’t done what I did.”

In October 2008, Morris and other bank employees sent an anonymous fax to the Australian Securities and Investments Commission citing fraud at Commonwealth Financial Planning and alleging a “high level” cover-up within CBA.

The culmination of that action was a damning report from the Senate economics committee. It sensationally found that the bank repeatedly sought to keep the regulator and the public in the dark, and its credibility was so tarnished that only a royal commission or judicial inquiry could get to the bottom of what really went on.

Morris was a crucial source of information for the Senate committee, which repeatedly cites his evidence in its 519-page report, and ultimately found his explanations more convincing than the bank’s.

Still bruised from the battle over Labor’s Future of Financial Advice laws and commissions in financial planning, the Abbott government has a fresh headache to deal with. Was CBA’s obfuscation so egregious, and ASIC’s performance so limp, that it must now order a royal commission? 

The CBA scandal is but part of a regular pattern of investors being lured into risky investment schemes; Storm Financial, Timbercorp, Westpoint . . . the list goes on.

For Morris, who has spent 30 years in financial services, the image of everyday people falling victim to bad financial advice is all too common.

“It’s almost like there’s this elephant in the room that nobody wants to talk about, which is that these ordinary people keep turning up on the TV, and they’ve had their lives ruined by financial planning,” he says.

Morris told the committee that the financial planner at the centre of the scandal, Don Nguyen, and other non-compliant advisers benefited from an “incredibly loose, non-compliant culture” at CFP. He described an “aggressive sales-based culture wherein advisers pushed clients into inappropriately high-risk products both to earn bonuses and ‘avoid getting the sack’,” the report said.

Nguyen suspended, then promoted

In September 2008, as the global financial crisis revealed the extent of Nguyen’s bad advice, he was suspended. But the following month, he returned to work and was promoted to the position of senior planner.

Two weeks later, on October 30, 2008, Morris and the other whistleblowers alleged in an anonymous fax to ASIC that Nguyen’s promotion was part of a management conspiracy to avoid paying client compensation.

“Nguyen just gave everybody more or less the same risk profile,” Morris told the committee in April. “He got to the point where he just photocopied them. [CBA] found this in 2008, and he should have been dismissed at that point. But they brought him back for two reasons: one was to hose down the client complaints, the other was to sanitise his files. They gave him a second assistant to help sanitise the files. I saw him there, day after day, with ‘liquid paper’ going through changing things in the fact files.” 

Morris and the other whistleblowers alleged that while the compliance team at CFP had recommended that Nguyen be sacked for his misconduct, “the team had evidently been warned to ‘back off’ by CFP/CBA management ‘on a sufficiently senior level’,” the Senate report stated. It is evidence like this, the majority report suggested, that pointed to signs of a cover up.

The Senate was particularly scathing of CBA’s characterisation of the misconduct by Nguyen and a small group of other planners at CFP as being “inappropriate advice”. This phrase, the report said, “deliberately and grossly understates the extent of the wrongdoing” and “comprehensively fails to capture the deceptive and misleading conduct of CFP financial advisers”.

With “compelling evidence” of client signatures being forged, the committee said: “The phrase ‘inappropriate advice’ does not capture the systemic failures in the CFP’s business operations, including the ineffective compliance regime and toxic sales-based culture fostered by flawed remuneration arrangements.”

CBA acknowledged the decision to promote Nguyen was wrong, but explained it had been made on the basis that in his new role, he would be subject to higher levels of supervision. The Senate described this explanation as “nonsense”.

“The committee believes Morris’s explan­ation for Nguyen’s promotion is far more convincing [than the bank’s]: that is, CFP management decided it would be easier to ‘hose down’ client complaints, and generally minimise the CBA’s exposure to compensation claims, if Nguyen remained a CFP adviser.” 

For all of CBA’s failures, it is an extraordinary move by a group of Labor, National Party and independent senators to call for the type of inquiry normally reserved for the likes of corrupt politicians.

Despite poring over more than 500 submissions and conducting five public hearings this year, five of the six senators on the committee believe there are still too many questions that have been left unanswered.

Retiring WA Labor senator and committee chair Mark Bishop said there was no doubt the situation was serious enough to warrant a royal commission.

He denied it was politically motivated – Labor could be seen to be seeking to deflect attention from current royals commission into unions and pink batts. But, on the eve of his retirement from the Senate, he admits the report was a “good way to go out”.

On Friday, ASIC chairman Greg Medcraft hosed down the likely effectiveness of a royal commission, pointing to the dissenting report by Liberal senator David Bushby, who argued that the issues proposed to be examined had been extensively reviewed by ASIC, the CBA, the police and the Senate committee. “Although a royal com­mission might recommend improved practices, existing institutions have already been at work exploring and driving wide-scale reform in the financial sector,” Bushby said.

Royal commission up to the government

Medcraft said the decision on any royal commission was a matter for the government, but pointed to various inquiries into the financial services sector, including Senator Bernie Ripoll’s 2009 inquiry into financial products and services, the Senate’s 2010 inquiry into the banking sector and the current financial system inquiry – being chaired by former CBA chief executive David Murray. He said ASIC had spent $1 million on complying with the current inquiry.

Bushby, arguing against a royal commission, also said another review of individual cases “could protract the emotional strains on victims of malpractice over a longer time period, without the advantage of offering additional remedies beyond those that are already being worked through”.

John Berrill, the head of Maurice Blackburn’s financial advice disputes practice, who has been acting for various CFP victims, backed this view, saying while a royal commission was welcome, “it would inevitably take many months or years before a report was handed down. In the meantime, retirees are having to survive without the nest eggs they spent their lives building up.” 

CBA has paid about $52 million in compensation to more than 1000 clients of its planners but could be forced to pay more as new licence conditions are negotiated with ASIC. ASIC deputy chairman Peter Kell said on Friday one condition being reviewed as part of licence conditions is “to ensure the scope of the remediation is appropriate” and an independent expert would be appointed by ASIC to assess this.

Another legacy of the inquiry might be sweeping recommendations to catch future misconduct earlier, after it made calls for greater protections for corporate whistleblowers like Morris. The report recommended whistleblower protections be extended to cover anonymous disclosures, an “Office of the Whistleblower” be established within ASIC, and for consideration of payments to people who come forward.

These calls come as the regulator is placing a larger reliance on information provided by whistleblowers to do its job. With ASIC facing budget cuts of $120 million over the next four years, Medcraft has said it won’t be able to afford to do as much “proactive surveillance” and “the intelligence we get from complainants like whistleblowers becomes more important”. 

But after his experience, Morris is not urging more whistleblowers to come forward.

“I think for most people, under the current system it would be too hard,” he says, recalling the response from ASIC staff in his first meeting with them over the scandal.

“In that first meeting, they said to me ‘Well, you’ve got whistleblower protection as from today’ and then he sort of held up his hands and said ‘I’ve got to tell you that doesn’t mean very much’,” Morris says. “The system for whistleblowers needs to change, and whistleblowers need to be protected.”

http://www.afr.com/p/business/financial_services/the_man_who_blew_the_whistle_on_gXRai1FAdK3vNJAKv22z0N