A Senate committee has called for a royal commission to investigate Commonwealth Bank financial advisers who lost the savings of clients through dishonest activities.
The committee has also criticised the Australian Securities and Investments Commission (ASIC) over its handling of the scandal, saying the regulator was timid and too willing to accept the bank's assurances that there were no problems.
ASIC has conceded that its trust in the bank was misplaced.
The Senate Economics References Committee report on the performance of ASIC, released on Thursday, concludes a year-long investigation into the actions of Australia's corporate watchdog.
The report has called for significant strengthening in ASIC powers.
Retiring Labor senator Mark Bishop chaired the committee and was damning in his assessment of both ASIC and the Commonwealth Bank over an investigation of Commonwealth Financial Planning Limited (CFPL) advisers between 2006 and 2010.
The bank failed to open its books and fully identify the number of clients affected and those entitled to compensation, he said.
And ASIC was too slow to act.
"It has been unresponsive, it hasn't taken reports seriously, it hasn't pursued investigations properly, agreements that have been reached haven't been enforced, it's tale is a tale of woe," Senator Bishop told ABC TV.
The committee investigated ASIC's slow response to bank whistleblowers who alerted the regulator to suspect conduct by financial advisers that included forging client signatures to facilitate profit-producing product switches.
While some of the advisers have been banned from the financial services sector, Senator Bishop said others continue to work for the bank and some have been promoted.
The committee said it remained deeply concerned about the integrity and fairness of a compensation process put in place by the Commonwealth Bank and ASIC after the misconduct was revealed.
So far, $52 million in compensation has been paid to more than 1100 customers but the committee said it had little confidence in ASIC's ability to monitor the compensation process and that the Commonwealth's credibility was "so compromised that responsibility for the compensation process should be taken away from the bank".
In recommending a royal commission, the committee concluded that the seriousness of the misconduct and the need for a broad review of all client files required a powerful inquiry.
It also said that "the CFPL scandal needs to stand as a lesson for the entire financial services sector".
"Firms should understand that they cannot turn a blind eye to unprincipled employees who do whatever it takes to make profits at the expense of vulnerable investors," it said.
The 550-page report also investigated predatory lending practices by advisers and brokers between 2002 and 2010.
In a dissenting report, deputy chairman and Liberal senator David Bushby said he did not support a royal commission as it would be at taxpayer cost without improving understanding of current problems or increasing compensation to victims.
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