The deputy chief of the big four bank has warned of a link between the recent surge in class actions and a drop in directors and officers insurance, potentially leaving executives exposed and squeezing candidate pools.
Labor MP Andrew Leigh quizzed CBA chief executive Matt Comyn and deputy CEO David Cohen on their views around class actions and litigation funding during proceedings with the House of Representative standing committee on economics on Friday.
The day before, legal firm Piper Alderman had filed a class action against former CBA-aligned advice business Count Financial around conflicts of interest, fees for no service and commissions. CBA is also being targeted in a separate but somewhat similar claim from the firm, around commissions and conflicts of interest with its advisers.
The CBA chief acknowledged the Piper Alderman claim, commenting there has been a “significant increase in the number of class actions more recently”.
But Mr Cohen also weighed in, saying while there was a place for class actions as a channel for consumer reparations, there could be consequences for companies’ recruitment across their leadership.
He pointed to the fact there had been “a reduction in capacity in the market” for directors and officers (D&O) liability insurance, which is used to provide executives personal liability and financial loss protection from alleged wrongful acts committed in their capacity as corporate officers.
“As a result, it is getting harder for directors and officers to take out insurance,” Mr Cohen said.
“That seems very much [related] to the proliferation of class actions, particularly around securities class actions and non-disclosure to the market. It certainly is a downside.
“That’s not to say class actions don’t have their place. But I think we’ve just got to be conscious of some of the impacts that are having an effect elsewhere.”
Dr Leigh fired back, saying that he wasn’t sure that many customers would be sympathetic if the cost of insurance was rising because people were receiving the money to which they were entitled.
But Mr Cohen said it was a “broader issue”.
“There is the cost of course, which ultimately is a cost that the company bears and therefore shareholders bear, but the other aspect that I think is a longer-term issue for us all, is that if D&O insurance is not available, then good talent won’t be attracted to boardrooms,” he said.
“That in the long-term can’t be a good thing.”
But the deputy CEO stated class actions shouldn’t be banned, commenting it was more a case of ensuring the cases are launched for a purpose without unintended consequences.
“Would you agree that a litigation-funded class action can often be an appropriate way of ensuring proper restitution for wronged customers?” Dr Leigh asked.
“I think we’ve seen circumstances where that has happened, I guess,” Mr Cohen stated.
“The issue with funding more broadly, is whether the amount actually received by customers who have been wronged, is the appropriate amount when you compare it to the proportion received by the funder.”
CBA is facing a range of class actions. As detailed in its 2020 annual results report, it is facing two shareholder actions regarding its anti-money laundering and counterterrorism financing breaches from 2014 to 2017, as well as defending against four claims in relation to its superannuation products.
The latest super class action was filed against subsidiaries Colonial First State Investments and the Colonial Mutual Life Assurance Society (CMLA) in January, alleging the superannuation business did not act in the best interests of members and breached its trustee duties when taking out group insurance policies from CMLA.
CBA is also one of a number of banks and brokers targeted by a class action in the US District Court, claiming a conspiracy among competitors to manipulate the BBSW (bank bill swap rate) benchmark for mutual gain.
Another action, launched in June, relates to consumer credit insurance for credit cards and personal loans that were sold between 2010 and 2018.
The bank is also facing two regulatory enforcement lawsuits from ASIC, both regarding superannuation products from Colonial First State.
Sarah Simpkins is a journalist at Momentum Media, reporting primarily on banking, financial services and wealth.
Prior to joining the team in 2018, Sarah worked in trade media and produced stories for a current affairs program on community radio.
You can contact her on [email protected].
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