The banking royal commission has heard that ANZ was worried it could lose its financial services licence because it was mis-selling a superannuation product over the counter to customers in breach of financial advice laws.

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The head of superannuation at ANZ, Mark Pankhurst, was grilled over concerns by the regulator about the selling of superannuation product Smart Choice Super and Pension by ANZ after an in-branch assessment of a customer's finances known as an A to Z review.

The Australian Securities and Investments Commission (ASIC) was concerned that bank staff were giving personal financial advice in breach of the law if they were helping customers transfer their superannuation into ANZ super funds.

The selling of Smart Choice Super by bank tellers to customers reaped $3.6 billion for ANZ before ASIC stepped in and forced ANZ to change the way it sold the product.

Last month, ANZ agreed to pay $1.25 million as part of an enforceable undertaking with ASIC, and its staff will no longer discuss ANZ Smart Choice Super as part of a general conversation with customers.

Bank staff are only allowed to offer general advice, not personal advice, unless they are licensed financial advisers.

Switched to worse performing funds

One ANZ internal document warned that the key risk of bank tellers mis-selling Smart Choice Super in branches was that customers could switch their superannuation and end up in a worse-performing super fund.

"The key risk that the sale of Smart Choice Super presents is that customers switch their superannuation without understanding the potential consequences and end up with a less suitable product than their existing funds," the document said.

"Do you agree or disagree with that statement," senior counsel assisting the commission Michael Hodge QC asked Mr Pankhurst.

"I would agree with that statement," Mr Pankhurst said.

Another ANZ document from late September 2011 discussed the use of bank branches for selling investment products.

The document described the risk as "extreme" and noted it was possible that "regular breaches … would be seen by the regulator as systemic, putting ANZ's licence at risk".

"Staff do not follow the correct sales process including the proper utilisation of the A to Z review and not handing over required documents such as the PDS (product disclosure statement)."

Best interests of customer?

It also said that ANZ had limited procedures in place at the time to decrease the risks including mystery shoppers, compliance spot checks and customer surveys.

Mr Pankhurst said he did not know if future controls were put in place.

He rejected a suggestion from Mr Hodge that he was indifferent to whether the product was "in the best interest of customers", as required by law.

Mr Hodge: "You're selling it, you're indifferent whether it's in their best interests?" Mr Pankhurst: "Indifferent is not a word I'm comfortable with. This is simply saying this is what we have and this is what it does."

Mr Pankhurst told the commission that ANZ was not entirely happy with the performance of Smart Choice Super so far.

"It was designed as a long-term super savings vehicle with a long-term perspective. It's probably on its way to achieving its target but it's not there yet," he said.