Asic deputy chair expects compensation proceedings against Australia’s banks to start in near future

Australia’s banks could be hit with a $1bn compensation bill over the fees-for-no-service scandal after the corporate regulator said it expected court action to begin soon.

After the latest two-week hearing of the banking royal commission exposed more scandalous treatment of customers, the deputy chair of the Australian Securities and Investments Commission, Peter Kell, said on Friday there was a very high likelihood of proceedings starting in the near future.

So far $260m has been paid back to consumers charged fees for advice services they did not receive.

Asic recently predicted compensation across the industry may exceed $850m, but Kell told the royal commission hearing in Melbourne that it could be even higher.

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“It doesn’t give me any pleasure to say this, but I wouldn’t at all be surprised if it ends up being in excess of a billion dollars,” he said.

The fees-for-no-service issues date back to 2008.

Kell also criticised the federal government over the grandfathering of commissions paid to financial advisers, under an exemption to reforms introduced five years ago.

He said grandfathering of commissions is not in the interests of consumers.

“The parliament has, in effect, put in place a provision that enables the continuing payment of commissions that generate conflicts of interest and unnecessary costs widely across the financial system,” Kell said.

He said it was depicted as a transition issue of relatively modest or limited nature, but was actually an extremely expensive provision.

“I think for the interests of consumers in the financial system as a whole, it would be highly desirable to have this dealt with at a policy level,” Kell said.

At the inquiry on Friday, the Australian Prudential Regulation Authority defended its decision not to take enforcement action against the Commonwealth Bank over 15,000 potentially criminal offences under superannuation laws.

The prudential regulator was satisfied CBA’s wealth management arm, Colonial First State, rectified the issue “in the short term”, despite it taking three and a half years.

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The royal commission heard Colonial failed to move 15,000 customers making default superannuation contributions over to low-fee MySuper products when new laws came into effect in January 2014.

The Apra deputy chair, Helen Rowell, said there was no explicit agreement that the regulator would not take any enforcement action.

“I think what Apra agreed with CFS was an appropriate way to deal with the issue in a manner that achieved an appropriate outcome for the members that were impacted,” she said.