A powerful Senate inquiry has called for the Commonwealth Bank to face a royal commission to investigate fraud, forgery and allegations of a cover-up inside its financial planning arm.
Thousands of Australians have lost their life savings as a result of allegedly shoddy financial advice given to them by planners at the country's biggest bank.
The inquiry said the bank should reopen its existing compensation program for victims and review offers made so far.
Inquiry chairman Labor senator Mark Bishop has indicated this could increase the CBA's compensation bill from about $51 million to $250 million.
''There was forgery and dishonest concealment of material facts,'' the inquiry found in its report, tabled on Thursday. ''Clients lost substantial amounts of their savings when the global financial crisis hit; the crisis was also used to explain away the poor performance of portfolios.''
The inquiry, which was sparked by a Fairfax Media investigation, has also called for a wider investigation into the financial planning arms of other industry players, including Macquarie Group.
Other recommendations include changes to the Australian Securities and Investments Commission to strengthen whistleblower protections.
''ASIC has limited powers and resources but even so appears to miss or ignore clear and persistent early warning signs of corporate wrongdoing or troubling trends that pose a risk to consumers,'' the Senate report concluded.
It said in the case of the CBA's advice arm, Commonwealth Financial Planning Limited (CFPL), ASIC was shown to be ''a timid, hesitant regulator, too ready and willing to accept uncritically the assurances of a large institution that there were no grounds for ASIC's concerns or intervention.
''Meanwhile, it is alleged that within CFPL there was a management conspiracy that, perversely, resulted in one of the most serious offenders, Mr Don Nguyen, being promoted.''
The Senate heard that within the bank, Mr Nguyen, who had 1300 clients, was widely known as ''Dodgy Don''.
ASIC was alerted to misconduct in the CBA's financial planning arm by whistleblowers six years ago, but took almost 16 months to mount an official investigation.
''We came to the recommendation for a royal commission at the end, after a lot of consideration, because we were unable to get answers from the regulator or the bank,'' Senator Bishop told Fairfax. ''We tried and failed, and decided it is important that this is cleared up.''
The corporate regulator's performance was heavily criticised during the inquiry, with victims and whistleblowers complaining that ASIC ignored complaints and was too close to the bank.
ASIC chairman Greg Medcraft admitted to the Senate that the regulator's trust in the CBA had been ''misplaced''.
Last night, Mr Medcraft said ASIC had already acknowledged that it could have done more when whistleblowers alerted it to problems at the bank in 2008.
He said ASIC had last month imposed fresh conditions on the bank's financial services licence, forcing it to reopen the possibility of compensation with more than 4000 customers.
''ASIC has used this inquiry process to learn from the people who made submissions, take a close look at how we do things, and then act on all this to do a better job,'' he said.
The Senate committee said an independent inquiry, ''possibly in the form of a judicial inquiry or royal commission'', should be set up to ''thoroughly examine the actions of the Commonwealth Bank of Australia relating to the misconduct of advisers and planners … and the allegations of a cover-up''.
Among reforms to ASIC, a user-pays model should be introduced, its registry business sold and the government should consider increasing penalties and fines for misconduct.
In a move designed to clean up an industry that has been plagued by scandals and collapses including Storm Financial, Timbercorp, Great Southern and Westpoint, the committee said ASIC should undertake ''intense surveillance'' of other financial advice businesses that have previously drawn scrutiny, including Macquarie Private Wealth, to ensure there are no remaining problems.
One committee member, Liberal senator David Bushby, released a dissenting report which rejected the recommendation for a royal commission or any other inquiry.