Thinking | 15 July 2020

Case summary | ASIC v Commonwealth Bank of Australia and Colonial First State Investments Limited

By Adrian Verdnik and Jacob Uljans

It is no secret that the big four banks garnered negative attention at the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry. This case arising from the Royal Commission, brought by ASIC against the Commonwealth Bank of Australia and Colonial First State Investments Limited, addresses two contentious topics in financial services law – conflicted remuneration and the provision of general advice – and could provide useful guidance for financial services companies.

On 22 June 2020, the Australian Securities and Investments Commission (ASIC) commenced proceedings in the Federal Court of Australia against the Commonwealth Bank of Australia (CBA) and Colonial First State Investments Limited (CFSIL) in relation to alleged conflicted remuneration paid by CFSIL to CBA between 1 July 2013 and 30 June 2019. This case will be closely watched by financial firms and their legal advisers, as it was referred to ASIC by Commissioner Hayne in the Royal Commission, and could prove to be an important test case on the structuring of general advice arrangements.


CFSIL is the trustee of Colonial First State FirstChoice Superannuation Trust (FirstChoice fund), a public offer fund with over $71 billion funds under management and over 700,000 members.

In May 2012, CBA and CFSIL started developing a simple, low cost, superannuation product under CFSIL’s RSE licence that was to be MySuper compliant. The product was named Commonwealth Essential Super (Essential Super) and would primarily be distributed by CBA’s retail branch network under a general advice model.

CFSIL and CBA subsequently entered into a Distribution and Administration Services Agreement (Distribution Agreement), under which CBA would provide ‘Services’ to CFSIL which included distribution of Essential Super, the development of marketing materials and web content. In exchange, CFSIL was required to pay CBA an annual fee of 30% of the total net revenue earned by the trustee in relation to the fund in the relevant financial year.

Essential Super was launched for sale to individuals and employers through CBA’s retail distribution network on 1 July 2013. ASIC claims that Essential Super was the only superannuation product that CBA trained its staff to sell.

CBA distributed Essential Super through its Commonwealth Bank branch network and digital channels including NetBank, CommBank and the CommBank App. CBA also sold Essential Super to employers as a default fund for employees who did not make a choice of superannuation fund.

The Royal Commission findings

At the Royal Commission, Counsel Assisting submitted that the payments made pursuant to the Distribution Agreement may have contravened the conflicted remuneration provisions of the Corporations Act. The submission was that the benefit provided to CBA (an Australian financial services licensee) of 30% of the annual total net revenue earned by the trustee in relation to the fund could reasonably be expected to influence the financial product advice given by CBA to retail clients in the branches. Importantly:

  • CBA branch staff were providing ‘financial product advice’ to customers in the form of a recommendation intended to influence the client to make a decision in relation to a particular financial product (being Essential Super). ‘General advice’ is financial product advice that is not ‘personal advice’.
  • The distribution model involved general advice being provided by branch staff. This was acknowledged by Mr Chun in his evidence and by CBA in its response to ASIC’s position paper, which was why a general advice warning was necessary and why CBA staff underwent a course called ‘General Advice in Superannuation’.
  • The fee provided to CBA under the Distribution Agreement could reasonably be expected to influence the choice of the product recommended by branch staff to retail clients or the financial product advice given to retail clients. The Distribution Agreement was premised on this.

In the Royal Commission Final Report, Commissioner Hayne highlighted a number of key factors in the Distribution Agreement which suggest a contravention of the conflicted remuneration provisions and ultimately led him to refer the conduct to ASIC for its consideration, in particular:

  • the Distribution Agreement required CBA to use its branches to distribute Essential Super;
  • in return for that service, and others, CBA was to receive 30% of the revenue earned by the trustee in relation to the fund in the relevant financial year;
  • CFSIL only earned revenue from accounts that had been opened and where funds had been contributed (funded accounts);
  • it follows that the greater the volume of sales of Essential Super and insurance within Essential Super, the more revenue CBA would receive; and
  • in this way, it could reasonably be expected to influence which product branch staff were trained and told to recommend and the financial product advice given to retail clients.

In response to the allegations, CBA and CFSIL submitted that the fee arrangement in the Distribution Agreement could not reasonably be expected to influence either the choice of product recommended by CBA branch staff or the advice given because branch staff were not ‘directly’ rewarded for sales of Essential Super and their incentives were determined on the basis of a balanced scorecard. They also said that the revenue-sharing arrangement was not designed to incentivise CBA to sell Essential Super, but to approximate its share of the costs.

ASIC’s case

ASIC has alleged in its Statement of Claim that CFSIL gave, and CBA accepted, a monetary or non-monetary benefit in respect of Essential Super that breaches the prohibitions on conflicted remuneration in Part 7.7A of the Corporations Act. ASIC alleges that more than $22 million in conflicted remuneration was paid by CFSIL to CBA for the distribution of Essential Super.

ASIC has alleged that each of the benefits could reasonably be expected to influence CBA and its staff to recommend Essential Super, and not another superannuation product, to its customers. By accepting each payment, ASIC claims that CBA contravened section 963E(1) of the Corporations Act, and by giving each payment, CFSIL contravened 963K of the Corporations Act.

ASIC has also alleged in the alternative that, during the relevant period, CBA had a contractual entitlement to be paid and CFSIL had a contractual obligation under the Distribution Agreement to pay, an annual fee of 30% of the total net revenue earned by CFSIL in relation to Essential Super in each year. This indicates that ASIC will argue that the contractual entitlement is itself a ‘benefit’, and the very act of entering into the contract could be a breach of the conflicted remuneration provisions.


It is no surprise that ASIC has taken this action against CBA and CFSIL – ASIC was required, as a result of the referral from the Royal Commission, to consider and further investigate possible contraventions of the conflicted remuneration provisions by CBA and CFSIL. Having formed the view that such contraventions had occurred, in accordance with its ‘why not litigate?’ enforcement approach, ASIC was bound to take court action in response.

Nevertheless, the case highlights the inherent difficulty with the conflicted remuneration provisions in Part 7.7A of the Corporations Act applying to general advice. In particular, the application of the conflicted remuneration prohibition to general advice is problematic for two reasons:

  • the exemption from the conflicted remuneration provisions that has most common application – the exemption in section 963B(1)(d) for benefits given to the licensee or representative by the client in relation to the issue or sale of a financial product, or financial advice given to the client –will often not apply to interactions involving general advice; and
  • the blurring of the line between factual information and general advice. ASIC has long taken the view that communication that consists only of factual information may amount to financial product advice, where the information is presented in a manner that could reasonably be regarded as suggesting or implying a recommendation to buy, sell or hold a particular financial product. A prudent licensee that offers products to customers may therefore take the approach that CBA did in this case, and treat the interaction with the customer as being general advice, but doing so will engage the conflicted remuneration prohibition.

As a consequence, and because of the broad range of benefits that can be construed as conflicted remuneration – being any benefits that could reasonably be expected to influence the choice of financial product recommended, or could reasonably be expected to influence the financial product advice given, to retail clients – any cost-sharing – or remuneration arrangements between financial services licensees that relate to the giving of general advice could fall within the prohibition.

This case should provide some insight into how blunt an instrument the conflicted remuneration prohibition is going to be.


Adrian Verdnik

Adrian’s financial services law practice covers superannuation, managed funds, insurance, and financial advice.

Jacob Uljans

Jacob is a commercial dispute resolution lawyer, acting for clients in contractual disputes, corporations and equity matters.

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