The Federal Court has ruled in favour of Commonwealth Bank and dismissed claims made by ASIC over “conflicted remuneration”.

In a case that turned in part on matters examined by the banking royal commission, ASIC alleged that from July 2013 to June 2019 “Colonial First State gave, and CBA accepted, monetary and/or non-monetary benefits which could reasonably be expected to influence financial product advice provided by CBA to its retail clients in relation to Essential Super”.

This was CFS’s and the bank’s variant of the mandated MySuper product.

“The central issue in dispute in these proceedings is whether the nature of the alleged impugned benefits, and the circumstances in which they arose, were indeed benefits; and whether these benefits could reasonably have been expected to influence either the choice of financial product recommended by CBA to its customers or the financial product advice that CBA gave to its customers,” Justice Stewart Anderson wrote in his judgment.

“In construing whether a benefit exists, the Court should take a substance over form approach and ask whether a real commercial advantage exists after an assessment of any net benefits that may arise. This approach also aligns with the statutory purpose of the Conflicted Remuneration Provisions as outlined in the explanatory memoranda to the Future of Financial Advice reforms.

“I find that ASIC has failed to establish that there was a relevant monetary or non-monetary benefit; and the impugned benefits are not benefits that fall within the definition of “conflicted remuneration”.

“ASIC has misconceived the purpose and application of the Conflicted Remuneration Provisions, as it relates to the context of a corporate group such as the CBA Group. 

“The Conflicted Remuneration Provisions were never intended to operate between business units in the same group of companies or entities within a consolidated group of companies. 

“Rather, the Conflicted Remuneration Provisions are directed to benefits that exist between arms-length entities that are not part of a single consolidated group, as well as legal entities which have separate and distinct ownership. Further, the legal form of the distribution agreements do not alter these circumstances. 

“Nor do they alter the substance and commercial reality that Essential Super was a CBA-branded product that was jointly initiated, and thereafter jointly supported, by two business units within the CBA Group. This pivotal circumstance is terminal to ASIC’s case.”