cba.1004.0040 - royal commission · 2019. 11. 24. · cba.1004.0040.6284 confidential colonial...

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CBA.1004.0040.6282

CBA. 1004.0040.6284

CONFIDENTIAL

COLONIAL FIRST STATE INVESTMENTS LIMITED

DATE

TIME

VENUE

BOARD

ATTENDEES

DECLARATION OF INTERESTS

MINUTES

BUSINESS ARISING

MINUTES

BOARD MEETING NO 4

Friday 10 June 2016

12.30 pm

Level 1, Commonwealth Bank Place South, 11 Harbour Street, Sydney

Ms Anne Ward Ms Linda Elkins Mr Peter Hodgett Ms Penni James Ms Liz Lewin Mr Andrew Morgan

Ms Bernadette Watts Ms Lisa Butler Beatty Mr Anvij Saxena Ms Linda Fox Mr Chris Stevens Mr Scott Tully Mr Peter Labrie Ms Kylie Turner Mr James White

Ms Magda Misiarek Mr Renato Stupar Mr Fernando Ambursley Mr Dave Yeates Mr Harvey Russell Mr Joe Sorby Mr Scott Henricks Mr Neeraj Thukral

Chairman

Senior Company Secretary HOWMOT CROCFS CFO CFS General Manager Custom Solutions Head of Investments Head of Retail Platforms Head of Superannuation Senior Analyst Economic and Market Research Senior Legal Counsel Executive Manager Substantial Shareholding Senior Analyst Substantial Shareholding Executive Manager, Superannuation Head of Advocacy Executive Manager, Advocacy General Manager Client Operations Head of Insurance Services

The Chairman enquired whether any Director had a conflict of interest, relevant duties or relevant interests with regard to any matters to be considered by the Board at the meeting or generally, other than those previously disclosed.

Ms James advised that during the recent Group Securities Trading Window she acquired additional shares in Commonwealth Bank of Australia, the ultimate parent company of the Company and that her shareholding now exceeds the materiality threshold.

All remaining Directors present declared that they did not have any conflicts of interest, relevant duties or relevant interests that could arise during the meeting or generally other than those previously disclosed.

Minutes of the following meetings having been circulated, were adopted as a true and correct record and signed by the Chairman:

• Meeting No 3 held on 19 April 2016.

The Board requested that management provide a presentation on the Board's responsibilities and procedures associated with the Group Whistleblowing Policy together with on-boarding, performance management and dismissal procedures.

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TABLED

BOARD WORKSHOPS

AGENDA

CFSIL 01 L Elkins

CFSIL 02 L Butler Beatty

Business matters arising were dealt with as per the Action Items List.

The Secretary tabled and the Board noted the emails from the Company Secretary dated:

• 28 April 2016 in relation to Commlnsure's submission to the SOFA Life Insurance enquiry;

• 12 May 2016 in relation to APRA's request for information on the Company's claims oversight experience;

• 22 May 2016 in relation to the appointment by Commlnsure of independent experts to the Claims Review Panel (CRP) and to conduct independent reviews; and

• 9 June 2016 in relation to a breach notice to APRA regarding MySuper fee charging rules and administration fee exemption.

The Board noted that on 9 June 2016:

• Directors toured the PwC Innovation Lab;

• Directors attended a workshop on ASB1056 (changes to superannuation fund financial statements) and the financial statements for the registered schemes; and

• Independent directors and WM Executives participated in a workshop on succession planning for the role of EGM CFS.

Executive General Manager's Report Ms Elkins presented the paper, highlighting that:

• on balance, the superannuation changes included in the Federal Budget are positive for the Company as they significantly increase the need for members to be advised. Tier 1 advisers will be most impacted;

• flows from Commonwealth Financial Planning remain weak and management is working at understanding the trends behind this weakness;

• the result of the recent People and Culture survey was a 4% decrease in engagement compared to 2015. This decrease is in line with results across Wealth Management and CBA. Management is treating the feedback seriously and is developing action plans to address the feedback;

• the amount of preparatory work for the recent APRA Operational review was enormous and strong support was provided by WRM CFS; and

• the retirement strategy project is coming to an end and the benefits are being realised.

The Board in its corporate, RSE Trustee and Responsible Entity capacities, considered discussed and noted the paper.

WMOT Report

Ms Butler Beatty presented the paper.

The Board, in its capacity as RSE Trustee, considered, discussed and noted the paper.

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CFSIL 03 P James

Update from BARC

Ms James provided a verbal updated from the BARC meeting held on 10 June 2016, highlighting that the BARC:

• approved a change in the risk ratings to note that the Company is out of appetite for technology risk. In approving this change, the BARC considered not only end of life systems but also the outcomes of internal audit reviews. The Company is now out of risk appetite for execution error, regulatory change and IT Risk. The BARC requested a paper from management outlining how and when the Company will be returned to risk appetite for technology risk.

• received a report from the CRO noting that:

o APRA has been advised of a breach regarding MySuper fee charging rules and administration fee exemption; and

o the Operational Risk Review by APRA went well. It is anticipated that ARRA will make supported recommendations but no requirements. APRA's areas of focus were: use of the Operational Risk Management Framework, use of dynamic risk ratings and the timing of remediation as an indication of business complexity;

• noted the changes to material risk ratings following the annual review of RAS metrics and the Enterprise Risk Profile;

• received a presentation on the roles of Line 1 and Line 2 Risk within Enterprise Services;

• reviewed PwC's report on the triennial review of the Risk Management Framework, noting that greater understanding of line 1 risk is required;

• reviewed PwC's report on the interim audit of the Compliance Plans;

• recommends that the following Compliance Plans are in order for approval by the Board:

o Colonial First State Cash Fund;

o Commonwealth Private Bank Managed Accounts;

o BWA Cash Management Trust;

o Commonwealth Australian Share Fund;

o Commonwealth Balanced Fund;

o Commonwealth Bond Fund;

o Commonwealth Growth Fund; o Commonwealth Income Fund;

o Commonwealth International Share Fund;

o Commonwealth Property Securities Fund; and

o Commonwealth Share Income Fund.

• received reports from the Trustee Claims Committee, Group Customer Relations and Internal Audit;

• noted the Internal Audit workplan for FY17; and

• in a private Members' session received the Litigation Report.

The Board, in its in its corporate, RSE Trustee and Responsible Entity capacities considered and discussed the paper, and noted the:

• verbal update; and

• minutes of the BARC meeting held on Thursday, 3 March 2016.


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CFSIL 04 L Lewin

Update from BIC

Ms Lewin provided a verbal update from the BIC meeting held on 9 June 2016, highlighting that the BIC:

• received a report on platform performance and requested modifications to show performance at a mandate level and identification of related parties;

• received a presentation from Mercer on the services it provides to the Company, AIL, and CMLA;

• received an investment monitoring report for MySuper products. There is approximately 2% difference between performance for FirstChoice Employer Super (FCE) and Commonwealth Essential Super (CES) primarily due to the use of Realindex in FCE Once the ADA transfers have been completed, and data and cohorts are understood, the development of a pension product will be considered;

• approved a new CES Lifestage 2000 cohort and investment strategy;

• approved for the CES Lifestages 1950s cohort revised investment objectives, standard risk measures and a reduced timeframe of three years;

• received an update on a review of managed volatility allocation for MySuper Lifestages;

• approved a change in investment manager for the FirstChoice Australian Small Companies Fund replacing RARE Infrastructure Limited with Maple-Brown Abbott Limited, and revised strategic manager allocations;

• approved a change in investment manager for the FirstChoice Global Infrastructure Securities Fund by replacing Schroders Investment Management Australia Limited with Spheria Asset Management Australia and revised strategic manager allocations;

• approved H20 Asset Management as an investment manager for the FirstChoice Alternatives and FirstChoice Multi-Sector Alternatives portfolio, and revised strategic manager allocations;

• received an update on the ESG Risk Management and Voting Policy (the Policy). A requirement of the Policy is that investment managers are required to provide their voting policies to the Company. Management is to consider if negative exclusions should form part of the Policy;

• noted that the Company has applied to be a signatory to the UN Principles of Responsible Investing;

• reviewed the watch list for the Company;

• approved the termination of the Colonial Frist State Equity Income -Super Fund and four unused trusts;

• approved the launch of the Realindex Dividend Plus Fund Class A, the Colonial First State Global Opportunities Fund and the Acadian Diversified Alpha Fund Class A; and

• received reports on the Geared Funds, Liquidity, Control Forum and Fund Services Investment and Operational Risk Report.

The Board, in its corporate, RSE Trustee and Responsible Entity capacities considered and discussed the paper; and noted the:

• verbal update; and

• minutes of the BIC meeting held on Thursday, 3 March 2016.


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CFSIL 06 L Fox

CFSIL 07 K Turner L Butler Beatty

Financial Report and Dividend Recommendation

Ms Fox presented the paper, highlighting that:

• the recommended dividend is $97 million and the total dividends paid for the year will be $289 million; and

• financial results for May were strong with NPAT slightly ahead of plan.

The Board requested that management advise whether RG166 requires the Board to "note" or "approve" the cash flow, and provide the requested supporting information in future papers.

The Board, in its corporate, Responsible Entity and RSE Trustee capacities, considered and discussed the paper, and:

• noted the financial report, liquidity position and compliance with regulatory and solvency requirements for the Company for the period ended 30 April 2016, and compliance with AFSL conditions, ORFR and RG166 capital requirements ;

• approved the cashflow projections based on the assumptions contained in Attachment Bas satisfying the requirements of s912AA (4) of the Corporations Act;

• noted the updated methodology for calculating the ORFR target amount;

• approved the revised ORFR target amount and tolerance limit detailed in Attachment A to the paper, effective from 1 July 2016;

• authorised the Chief Risk Officer GAM & WRM GM Balance Sheet Reporting and CFO CFS to update the ORFR Strategy to reflect the changes to the ORFR target amount and methodology;

• noted confirmation from management that the Company's:

o excess of assets over liabilities is sufficient to pay the dividend; o proposed dividend is fair and reasonable to the Company's

shareholders as a whole; o proposed dividend does not materially prejudice the Company's

ability to pay its creditors; and o net asset, solvency and liquidity positions are adequate and there

are reasonable grounds to believe that the Company is able to meet its debts as and when they fall due and payable both now and following payment of the proposed dividend; and

• determined that a dividend of $97.0 million be paid to its sole shareholder, Capital 121 Pty Limited on 10 June 2016.

Annual Review of Insurer The Company Secretary tabled the draft response to APRA's request for information on the Company's insurance claims management experience.

Ms Turner and Ms Butler Beatty presented the paper, highlighting:

• that substantial progress has been made with phase 2 of the review of CMLA (the Insurer) including completion of the trend analysis of decline rates and completion of an independent benchmarking report of product features by Rice Warner; and

• the review of declined claims has identified a marginal increase in declined TPD claims in the last two years with mental illness and muscoskeletal being the most difficult claims to analyse.


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CFSIL 08 K Turner D Yeates

In response to questions from the Board, management advised that:

• where Rice Warner has identified differences with terms and conditions compared to market, management will discuss with CMLA proposed changes to the terms and conditions. Consideration will also be given to any pricing differences; and

• negotiations are ongoing with CMLA regarding the ability of the RSE Trustee to escalate claims to the complex claims committee (CCC) and/or the CRP.

The Board requested that management amend the response to APRA as discussed in order to more clearly set out the actions taken in reviewing the Insurer, particularly in relation to decl ined claims and benchmarking policy terms and conditions ..

Following lengthy consideration and discussion, the Board in its capacity as RSE Trustee noted:

• the insurance arrangements with CMLA, a related party of the Company, are reviewed on an arm's length basis;

• the paper; and

• its expectation that the RSE Trustee would be able to escalate claims to the CCC and CRP as it understood that the CCC and CRP are to be independent.

FCES ADA Transition Ms Turner presented the paper, highlighting that:

• the two members who would be most negatively impacted by the proposal have been successfully contacted;

• the Lifestage option is suitable for the accrued default amounts (ADA) as insurance is maintained by members; and

• a small number of members will have increased insurance premiums.

In response to questions from the Board, management advised that the ADAs can be moved back to the Employer Division of the Colonial First State FirstChoice Superannuation Trust.

The Board requested that management consider what additional information can be provided to support the cash flow and projections for the ADA transfer.

The Board, in its capacity as RSE Trustee, considered and discussed the paper, and:

• noted that an ADA transfer to the MySuper product within FCE:

o promotes the financial interests of FCE members with ADAs;

o is to a suitable MySuper product; and

o is consistent with the best interests of Colonial First State FirstChoice Superannuation Trust members;

• approved the transfer of ADAs in FCE to the MySuper product in FCE; and

• approved the updated MySuper Transition Plan in the form of Attachment 3 to the paper.


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CFSIL 09 STully

M ySuper Products Portfolio Construction and Rationale

The Chairman noted that the BIC requested that the Board receive a comparison of two MySuper Lifestage cohorts prior to the ADA transition.

Mr Tully presented the paper, highlighting that:

• the MySuper product in FCE was developed based on the Multi-Index funds;

• the offerings for the MySuper products are: o FCE: fees 1 %, members are generally advised and more active, five

year cohorts ; and

o CES: fees 80 bps, members generally are not advised and are passive; lower risk glide paths starting at age 45, and ten year cohorts .


• the five and ten year cohorts have proven to be appropriate; and

• following the ADA transfer in November there will be a significant increase in FUA and it may be appropriate to change the portfolio construction. This will be considered in detail by the BIC.

The Board requested that management report annually to it on the portfolio construction for two cohorts in each MySuper product, tracking performance for three years.

The Board, in its capacity as RSE Trustee, considered, discussed and noted the paper.

All permanent attendees left the meeting

CFSIL 14 P Labrie M Misiarek

Update on MIF (Directors' Private Session)

Mr Labrie and Ms Misiarek presented the paper. In response to questions from the Board, management advised that the media team is well briefed on this matter in the event of adverse publicity. The Board requested that management advise when the matter is settled.

The Board, in its capacity as Responsible Entity and RSE Trustee considered, discussed and noted the paper.

All permanent attendees returned to the meeting.

CFSIL 15 P Labrie

CFSIL 10

Proposed Changes to CMLA Trust Deeds Mr Labrie presented the paper, highlighting that it is proposed to consolidate the CMLA Investment Trusts and the Statutory Investment Trusts, and that the CFCL Wholesale Investment Trusts has been earmarked for termination.

The Board, in its corporate capacity, considered, discussed and noted the paper.

Triennial Review of Risk Management Framework In response to questions from the Board, management advised that the most pressing item to be addressed is the identified deficiencies in the representation of Line 1 risk personnel across key business functions. Line 1 risk representation is currently applied inconsistently across the Company.


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CFSIL 11

CFSIL 12

CFSIL 19

CFSIL 18

CFSIL 13 R Stupar F Ambursley

The Board, in its capacity as RSE Trustee, considered and discussed the report, and noted:

• the BAR C's review of PwC's report on the triennial review of the risk management framework; and

• the paper.

Compliance Plan Interim Audit

The Board, in its capacity as RSE Trustee, considered and discussed the report, and noted:

• the BARC's review of PwC's interim audit opinion on the Compliance Plans; and

• the paper.

Compliance Plan for Registered Investment Schemes

The Board, in its capacity as Responsibility Entity, considered and discussed the paper, and:

• noted the BARC's recommendation that the updated compliance plans for the managed registered schemes (Compliance Plans) are in order for Board approval ;

• noted that the updated Compliance Plans are adequate in accordance with s601JC of the Corporations Act 2001 (Cth);

• approved, effective 1 July 2016, the updated Compliance Plans, substantially in the form of Attachments A to D to the paper for:

o Colonial First State Cash Fund; o Commonwealth Private Bank Managed Accounts; o BWA Cash Management Trust; o Commonwealth Australian Share Fund; o Commonwealth Balanced Fund; o Commonwealth Bond Fund; o Commonwealth Growth Fund; o Commonwealth Income Fund; o Commonwealth International Share Fund; o Commonwealth Property Securities Fund; and o Commonwealth Share Income Fund.

• authorised each Director to sign an agent's authority substantially in the form of Attachment E to the paper; and

• authorised Ms Bernadette Watts to sign the Compliance Plans listed above.

Document Execution Register The Board considered, discussed and noted the Document Execution Register for the period 24 February 2016 to 1 June 2016.

CBA Group Insurance Review

The Board, in its corporate capacity, considered and discussed the paper and noted that adequate insurance cover is in place.

Japanese Power of Attorney Messrs Stupar and Ambursley presented the paper, highl ighting that the sole purpose of the power of attorney is to enable filing of regulatory reporting in Japan.


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CFSIL 05 H Russell J Sorby

CFSIL 16 J White

CFSIL 17 S Henricks N Thukral

GENERAL BUSINESS


• filings in Japan historically have been facil itated by First State Investment Management (UK) Limited (FSIM);

• the Company does not hold any stock in Japan where the CBA Group aggregated holding is over 5%;

• the Company holds positions in 648 stocks in Japan; and

• the substantial shareholding governance team is responsible for monitoring compliance with regulatory reporting requirements.

The Board, in its corporate capacity, considered and discussed the paper, and:

• noted that FSIM is a related party of the Company;

• approved the appointment of FSIM as its attorney in Japan to file regulatory reports ; and

• authorised any two directors or a director and a company secretary to execute the Power of Attorney in the form of Attachment A to the paper.

Federal Budget Update Messrs Russell and Sorby presented the paper, highlighting that:

• the $500,000 lifetime cap for non-concessional contributions is considered too low to provide a comfortable income and remove people from reliance on the aged pension. Implementation will be impacted by the retrospective nature of the cap and by records that do not always align; and

• the implementation of a number of measures will be dependent on the outcome of the Federal election on 2 July 2016 however Labor supports reducing the income threshold for the 30% contributions tax and has committed to tax pension earnings above $75,000 which has a similar application to the Coalition's $1.6 million retirement balance cap.

The Board, in its corporate and RSE Trustee capacities, considered, discussed and noted the paper.

Economic Update

Mr White presented the paper and facilitated a discussion with the Board on the issues.

The Board, in its corporate, Responsible Entity and RSE Trustee capacities, considered, discussed and noted the report.

Completion Report - Project Protect

Messrs Henricks and Thukral presented the paper.

The Board, in its capacity as RSE Trustee, considered and discussed the paper, and noted the successful conclusion of Project Protect with all the objectives being either fully met or governance implemented to ensure residual activities will be completed.

1. Exercise of Delegation by Chairman - Remuneration Approvals

The Board noted that the Chairman approved under delegation remuneration outcomes for Linda Fox.

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END OF MINUTES

2. Dividend Payment

Ms Fox confirmed that the dividend had been paid to the Company's sole shareholder, Capital 121 Pty Limited.

3. Risk Assessment of KPls for Responsible Persons

The Board requested that management schedule a meeting to consider the risk assessment of Responsible Persons as part of the annual remuneration process.

4. Next Scheduled Meeting

9.00 am on Friday 2 September 2016 Level 1, CBP South, 11 Harbour Street, Sydney

Signed as a true and correct record.

Chairman

I I 2016

Recorded in the minute book on I /2016


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cba.1004.0040 - royal commission · 2019. 11. 24. · cba.1004.0040.6284 confidential colonial...

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