The Full Federal Court has clarified the scope of the conflicted remuneration provisions in the Corporations Act in an appeal brought by ASIC.

The Key Takeaways:

  • A revenue sharing arrangement in the distribution of a financial product was a relevant "benefit" within the meaning of the conflicted remuneration provisions.
  • Conflicted remuneration is not limited to payments between "arms-length" entities, and may potentially apply to payments from one entity to another entity within a group of companies.

ASIC appealed the Federal Court judgement in favour of CBA and Colonial First State Investments Limited (Colonial) in a case ASIC brought alleging breaches of the conflicted remuneration provisions.

In the first instance judgment, Justice Anderson, dismissing ASIC's case, made a number of findings which significantly restricted the meaning and application of the conflicted remuneration provisions. The Full Federal Court reversed some of these findings on appeal.

Despite ostensibly losing the appeal, ASIC may nonetheless be satisfied with the result and the Full Court's clarification.

The Appeal

The conflicted remuneration provisions prohibit Australian Financial Services Licensees from receiving remuneration from third parties which could reasonably be expected to influence the advice it gives to clients or the choice of financial products it recommends.

Subject of this case, CBA entered into a revenue sharing agreement with Colonial, its wholly owned subsidiary, where it would be entitled to 30 per cent of total revenue earned from a superannuation product named Essential Super, when it distributed the same to retail clients.

The ruling ultimately hinged on whether the revenue sharing agreement could influence CBA's recommendation of a financial product. The Full Federal Court upheld Justice Anderson's finding on this issue, concluding that it could not.

Some findings reversed

However, the Full Federal Court accepted ASIC's appeal arguments on a number of issues (but which ultimately did not affect the outcome of the appeal), in particular:

  • Justice Anderson held that Colonial's payment to CBA was not a "benefit" in the context of conflicted remuneration provisions, because, amongst other reasons, Essential Super was the sole superannuation product developed and distributed by CBA Group, and it was necessary to allocate or attribute costs and/or revenues between the CBA business units which developed the product. The Full Federal Court disagreed, and found that the Trial Judge's conclusion conflated the "benefit" itself with the prescribed effects of the benefit set out in the legislation. Instead, the word "benefit" means "any advantage, monetary or non-monetary", and would include the revenue sharing arrangements between CBA and Colonial.?
  • Justice Anderson found that the conflicted remuneration provisions were not intended to apply to entities within a corporate group, and only to payments between "arms-length" entities. On appeal, the Full Court disagreed, finding the fact that the paying and receiving entity were in the same corporate group does not automatically mean the remuneration was not conflicted, but was a relevant factor for the Court to decide on whether it was conflicted "because of the nature of the benefit or the circumstances in which it is given".?
  • Justice Anderson did not find that CBA had given any financial product advice when it provided scripts for its staff to read out to its customers, which in essence, stated that Essential Super was a straightforward, competitively priced product, could be managed conveniently online, and that clients could choose their own superfund, investment mix and level of insurance. While the majority of the Full Federal Court agreed with Justice Anderson on this, Justice Moshinsky dissented, finding that some of these statements were "an expression of opinion about the practical advantages of Essential Super", and hence financial product advice.


Conflicted remuneration, relatively speaking, is recent legislation with comparatively few instances of judicial consideration, let alone appellate court consideration. The judgment is significant in this respect.

ASIC's media release is below.

The Full Federal Court Judgment can be accessed below.?

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