CFSIL AIL (CFS) Customer Remediation Framework

CONFIDENTIAL

CFSIL AIL

(CFS) Customer Remediation Framework

Date: 27 October 2016

Version 3.0

APPROVAL 1

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CBA.0517.0194.0009

Remediation Framework

Version I Date I Approving body or person

1.0 1 O March 2015 CFSIL and AIL Board

Approved on: 1 O March 2015

2.0 27 October 2015 Periodic review of the framework

Approved on: 27 October 2015

3.0 27 October 2016 Periodic review of the framework

Approved on: 27 October 2016

OWNERS AND APPROVERS

Name J Title J Review Criteria

Peter Chun Executive General Manager Colonial First State Owner

(Acting)

Chris Stevens General Manager Colonial First State Reviewer

Custom Solutions (CFSCS)

Scott Henricks General Manager Cl ient Operations Reviewer

Brad Massey General Manager Fund Services Reviewer

Lisa Butler Head of Wealth Management Office of the Trustee Reviewer Beatty and Special Counsel

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TABLE OF CONTENTS 1 Introduction 4 1.1 Key Terms 4 1.2 Context 7 1.3 Purpose 7 1.4 Scope 7 1.5 Remediation 8

2 Remediation Framework 9

3 Governance 10 3.1 Board responsibilities and delegations 10 3.2 Responsibilities of the Wealth Management Office of the Trustee 10 3.3 Monitoring and annual review 10

4 Remediation Principles 11

5 Remediation Process 12

6 Identify and Record 13 6.1 Identify Event 13 6.2 Record the Event 15

7 Assess 18 7.1 Assess the nature, scope and impact of the Event 18 7.2 Advantaged Customers 19 7.3 Determine Materiality 20 7.4 Report Internally 20 7.5 Roles and responsibilities 21

8 Rectify and Resolve 23 8.1 Develop the Remediation Plan 23 8.2 Calculate and approve the Remediation payment 23 8.3 Remediate the Customer for lost investment performance 25 8.4 Tax implications 26 8.5 Remediation funding 26 8.6 Roles and responsibilities 27

9 Implement and Communicate 30 9.1 Implement Remediation Plan 30 9.2 Communicate with Customer 30 9.3 Contact with Exited Customers 31 9.4 Complaints and dispute resolution of Remediation 31 9.5 Litigation 32 9.6 Roles and responsibilities 32

10 Close 33 10.1 Close case 33 10.2 Validate 33 10.3 Roles and responsibilities 33

Appendix 1 - Overview of key obligations 34

Appendix 2 – Key policies supporting the Framework 36

Appendix 3 – Overview of responsibilities 37

Appendix 4 – Materiality 39

Appendix 5 – Systems 41

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1 Introduction

1.1 Key Terms

Key Term I Definition

Adviser Retail wrap promoters, dealer groups and financial advisers authorised by CFSIL or AIL to use the CFSIL or A IL wealth management platform

Agent Any entity acting on behalf of CFSIL or AIL. This includes entities within the CBA Group.

AIL Avanteos Investments Limited, ABN 20 096 259 979, a wholly owned subsidiary of CBA.

Board Either the Board of Directors of CFSIL or the Board of Directors of AIL (as relevant)

Cash Cash refers to payment made in the form of a cheque or Electronic Funds Transfer (EFT)

CBA Commonwealth Bank of Austral ia

CBA Group Commonwealth Bank Australia and its subsidiaries

CFS CFSIL and AIL

CFSCS Colonial First State Custom Solutions, a registered business name of Avanteos Investments Limited

CFSIL Colonial First State Investments Limited, ABN 98 002 348 352, a wholly owned subsidiary of CBA.

CIMP Group Compl iance Incident Management Pol icy

Compensation Money or assets given as reparation for a service failure or loss. It includes any interest paid in order to put the Customer in the position that they would have been had the Error not occurred .

Complaint An expression of dissatisfaction relating to the CBA Group's products, services, activities or the complaints handling process itself where a response or resolution is expl icitly or implicitly expected.

Current A Customer who, at the time of the Remediation, has an open Customer account in a Fund, Scheme or IDPS.

Customer A collective term to include Members, Investors and Unit Holders who may be current or exited. This generally excludes advisers, except where they are treated as Customers for example on AIL intermediated platforms.

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Error An action or failure to perform an action on the part of CFS resulting in non-compliance with legal obligations or internal policies having an adverse impact on a Customer, Fund or Scheme.

Event The collective term used to describe Errors, complaints, risk issues and incidents and any other occurrence that requires Remediation.

Exited Customer A Customer who, at the time of the Remediation, has closed, commenced closure or requested closure of their account in a Fund, Scheme or IDPS.

Fund(s) A superannuation fund and a pooled superannuation trust for which CFSIL or AIL is the RSE Trustee.

Goodwill A compensatory benefit provided to a Customer other than because of a CFS Error or the benefit is in excess of the loss CFS considers the Customer has suffered as result of the Error or Event. This may also be referred to as an ‘ex gratia’ payment.

IDPS AIL as the operator of the Investor Directed Portfolio Services

Impact Analysis The output of the investigation which outlines the circumstances of the event and how Customers have been impacted. This may be captured as part for the workflow in RiS, First Point, or any other applicable system.

Income A periodical payment received from an investment. Generally this is one of the following: • A distribution payment or return of capital from a managed

investment scheme • A dividend payment or return of capital from a listed security • Interest from a term deposit • Interest from the cash account of an AIL account.

Investor(s) An investor who invests in an IDPS where AIL is Operator, Administrator and/or Custodian.

Member(s) A member of a superannuation fund where CFSIL or AIL is the trustee, custodian, administrator or IDPS.

Operational Risk The risk of loss resulting from inadequate or failed internal processes, people and systems or from external events. This definition includes legal risk but excludes strategic and reputational risk

Operational Risk Financial Requirement

Trustee capital held in accordance with the AIL and CFSIL ORFR Strategy to meet the requirements of Superannuation Prudential Standard SPS 114 - Operational Risk Financial Requirement.

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Balance or ORFR

ORMF Group Operational Risk Management Framework

Responsible Entity (RE)

CFSIL as registered by ASIC as the Responsible Entity of the managed investment schemes.

Remediate/ Remediation

The correction of something defective or deficient. It may result in the payment of Compensation and / or Goodwill to a Customer.

Remediation Plan An outline of how CFS will remediate the Customer. This may be captured as part for the workflow in RiskInSite, First Point, or any other applicable system.

RiS RiskInSite

RSE Licensee / RSE Trustee

CFSIL in its capacity as trustee of a Fund and holder of RSE Licence No L0002196 AIL in its capacity as trustee of a Fund and holder of RSE Licence No L0002691

Scheme(s) Managed investment scheme(s)

Systemic Issue A problem in the systems, controls or processes which has the potential to affect multiple Customers, or a Fund investment option/Scheme or Fund. The re-occurrence (the number and frequency) of similar Issues or Incidents will be considered in determining whether a Systemic Issue exists.

Third Party Any entity which is not CFSIL or AIL. This includes other subsidiaries of the Commonwealth Bank and members of the CBA Group.

Unit Holder(s) A unit holder in a managed investment scheme where CFSIL is the Responsible Entity.

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1.2 Context

Colonial First State Investments Limited (CFSIL) and Avanteos Investments Limited (AIL) are wholly owned subsidiaries of the Commonwealth Bank of Australia (CBA) operating as part of the Colonial First State division with in the Wealth Management business unit of CBA. This Framework is intended to apply to these entities which, for the purpose of th is document, are collectively referred to as "CFS".

CFSIL and AIL are regulated by a number of regulators including the Austral ian Securities and Investments Commission (AS IC) and the Austral ian Prudential Regulation Authority (APRA), CFSIL and AIL act in various capacities as outlined in the table below:

ASIC Responsible Entity

APRA Registrable Superannuation Entity ASIC (RSE) Licensee

1.3 Purpose

Investor Directed Portfolio Service Operator

Custodian

Administrator

Registrable Superannuation Entity (RSE) Licensee

The Framework sets out the principles that support the equitable treatment of actual or potential Customers where Remediation is required. It identifies the phases involved in the remediation process including the:

• circumstances which may warrant Remediation;

• reference to relevant supporting pol icies and procedures;

• roles, responsibilities and delegations in determining Remediation ; and

• governance, monitoring, reviewing and reporting requirements to ensure that th is Framework is operating effectively.

1.4 Scope

This Framework appl ies to the Remediation of 'Members' of the superannuation funds, 'Unit Holders' in managed investment schemes as well as 'Investors' of the

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Investor Directed Portfolio Service (IDPS) who, for the purposes of this document, are collectively referred to as ‘Customers’.

1.5 Remediation

Remediation is the correction of something defective or deficient. It may result in the payment by CFSIL and AIL of Compensation and / or Goodwill to a Customer. Remediation includes instances where a Customer has suffered a loss as a result of an Error.

Relevantly, an Error is an action or failure to perform an action on the part of CFS or its Agent leading to non-compliance with legal obligations or internal policies with an adverse impact to a Customer. An Agent is any entity acting on behalf of CFSIL or AIL. Remediation also includes Goodwill payments made to preserve the reputation of CFS and the relationship with the Customer. A Goodwill payment is a benefit provided to a Customer where CFS is not at Error or the benefit is beyond the loss CFS has deemed that the Customer has incurred as result of the Error or Event. This may also be referred to as an ‘ex gratia’ payment. Events resulting in Customer advantage are addressed in section 7.2 of this Framework.

This Framework is Customer centric and does not apply to Errors impacting employees (except where they are Customers), other CBA Group entities (where CFS may be the service provider) or external third parties such as advisors. It does not consider payment of fines or penalties.

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2 Remediation Framework

This Remediation Framework describes the totality of systems, structures, policies, processes, and people involved in the CFS Remediation process. It provides the Board and other stakeholders with oversight of the end to end process of Customer Remediation at CFS.

This Framework has been developed in line with CFS’ legal, compliance and regulatory obligations (set out in Appendix 1), as well as relevant CBA Group and CFS policies.

The Framework is principles based and includes guidance on the various phases of remediation. It relies on a number of policies and procedure documents (set out in Appendix 2) that contain the detail required to give effect to each phase of the remediation process.

The components of the CFS Remediation Framework are represented below.

Whilst the phases in the remediation process are consistent between CFSIL and AIL there are some differences between the two in their application. Where there are differences these are identified in this Framework.

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3 Governance

3.1 Board responsibilities and delegations

The CFSIL and AIL Boards have ultimate responsibility for this Framework. The Executive General Manager Colonial First State (EGM CFS) is responsible for internal management of the CFS business.

As subsidiaries of CBA, CFSIL and AIL may use Group policies or functions to manage their business and fulfil their responsibilities provided that those policies and functions have been approved by the Boards as giving appropriate regard to CFSIL’s and AIL’s business operations. The EGM CFS, Wealth Management Office of the Trustee (WMOT) or Wealth Risk Management (WRM) will escalate any significant matters to the Board and/or Board Audit and Risk Committee (BARC) in accordance with Group policies, the Board and BARC Charters.

The key policies supporting the Framework are outlined in Appendix 2. The key management roles and responsibilities supporting the Remediation Framework are outlined in Appendix 3.

3.2 Responsibilities of the Wealth Management Office of the Trustee

The WMOT supports the Board by providing independent oversight and assurance on RSE Licensee governance and fiduciary obligations of CFSIL and AIL Boards and the Directors in matters relating to RSE Licensee obligations, including the obligation to act in the best interests of the Members of their Funds.

The WMOT supports the EGM CFS and CFS management to guide and assist them in making decisions that support the fiduciary obligations of the RSE Licensee and the Directors.

3.3 Monitoring and annual review

WRM is responsible for establishing a monitoring framework that assists CFS to comply with the prudential standards, that adherence to the Remediation Framework is included in their monitoring and supervision program and that the process of resolving and remediating Errors and Events are operating effectively.

This Framework document will be reviewed by WMOT and other key stakeholders on an annual basis, or more frequently as required or considered appropriate to maintain ongoing relevance to ensure it continues to reflect current practices and incorporates any changes to the legal and regulatory environment.

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4 Remediation Principles

CFS has adopted a set of overarching principles that govern the CFS Customer remediation process. These principles have been informed by:

• the CBA Customer Service Commitment;

• the CBA Group and CFS vision and values; and

• CFS’ obligations.

These overarching principles are:

• CFS acts with honesty and integrity in all matters.

• In the case of an Error, CFS will return Customers to the position they would have been in had the Error not occurred.

• Appropriate measures will be implemented to prevent Errors from re-occurring.

• Errors are corrected in a timely and efficient manner to limit the consequences of the Error and to minimise any potential or actual adverse effect on the Customer.

• Communication with Customers is timely, transparent and courteous.

• Adequately manage any conflicts of interest

• Recovery from other parties will not delay Remediation to impacted Customers.

• Compensation should not normally extend to liabilities which would have arisen even if the Error had not taken place.

• In the case of a Goodwill payment consideration is given to a number of factors including:

- the impact on CFS and CBA’s reputation;

- the nature of the Customer relationship; and

- whether the payment will materially or disproportionately impact other Customers.

In addition to these principles, each phase of the remediation process is supported by principles that are relevant to the specific activities.

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5 Remediation Process

The table below outlines the steps involved in the remediation process. Whilst the remediation approach needs to be tailored to the circumstances of each Event or Error, the remediation process will generally be structured as shown in the following table.

Upstream

Customer complaint

;rparty identified

Identify and Record Implement and Couuuunicate

• Identify event • Assess the nature, • Develop the • Implement • Close case • Record the event scope and impact of the remediation plan remediation plan • Validate

event • Calculate and • Communicate with • Determine materiality approve the customer • Report internally remediation pa}~nent • Contact with exited

• Remediate the Customers Customer for lost • Complaints and performance dispute resolution

• Tax implications • Litigation • Remediationfunding • Third party recourse

1. Identify and Record - Events are identified via various channels and are recorded and escalated in accordance with the relevant pol icies.

2. Assess - The nature, scope and impact of the Error or Event is assessed to determine materiality, whether there is a systemic issue and the extent (if any) to which other Customers are impacted.

3. Rectify and Resolve - Remedial actions are developed. This may include payment calculations, payment instructions, funding approach and developing preventative measures.

4. Implement and Communicate - The remedial actions are implemented based on the nature of the Event and, if appl icable a remediation payment, or account adjustment is made. The Customer is informed of the Error and the outcome of the remediation process.

5. Close - The case is closed when all steps have been completed in line with any relevant policies. Val idation and assurance activities will then take place.

Important Note: __ ... At any tJUl ll l 11 1 u 111~ uuring the Remediation process where it is indicated that CFS has or is likely to breach its obligations, this aspect will be managed in accordance with the Group Compliance Incident Management Policy and Group Contact with Regulators Policy.

The breach reporting process will not be delayed by the Remediation process and vice versa.

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6 Identify and Record

Identify audRecord

Upstrearn

Internal identification

Customer complaint

3"'party identified

• Identifyevent

• Record the event

6.1 Ident ify Event

Rectify and Resolve

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Events may be identified through the course of usual business activity or from structured monitoring, assurance and review activities.

The table set out below in this section outlines the type of Events that are like ly to occur given the inherent nature of CFS' business and operations. It also includes the relevant supporting policies or procedures in managing these Events.

In the case that Events arise which do not fall into these categories, the same remediation principles and process will apply.

I I Relevant policy

Event Description document

Unit Errors

pricing An Error in the pricing of units that is caused by:

• The price not being calculated in accordance with the applicable unit pricing policies or procedures

• The price being calculated in accordance with the unit pricing policies and procedures but inputs used to calculate the price are erroneous. For e.g. Custodian and fund manager Errors, overdrafts on bank accounts

• The price being calculated in accordance with the applicable unit pricing pol icies and procedures, in circumstances where the pol icy is unreasonable

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CFSIL Backdating Pol icy


• Malfunction of IT systems

Non-unit pricing Errors

Errors arising from the administration of CFS products and third party Errors resulting in incorrect:

• Applications, redemptions or switches e.g. delays in processing,

• Investment transactions i.e. purchase or sale of investments available in the IDPS

• Pension payments • Income payments, including distribution

from managed investment schemes, dividend payments from listed securities and interest from a term deposit or cash account.

• Insurance arrangements e.g. incorrect cover, premium calculations or payment of benefits

• Fees charged • Tax paid • Provision of information • Data integrity issues resulting in a loss to

the Customer

Customer Complaints Handling Group Policy & Standard CFS Complaint Handling Procedures CFSIL Backdating Policy

Non-compliance with the law or internal policies

• Non-compliance with relevant legislation and regulations including the Superannuation Industry (Supervision) Act 1993 and the Corporations Act 2001

• Failure to adhere materially to disclosure in offer documents or other disclosures or contractual arrangements

• Failure to comply with the constitution or trust deed

• Failure to comply with internal policies and procedures

Group Operational Risk Management Framework Group Compliance Risk Management Framework Group Compliance Incident Management Policy

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Complaints raised by Customers

Any expression of dissatisfaction relating to CFS products, services activities or the complaints handling process itself where a response or resolution is explicitly or implicitly expected.

Group Customer Complaints Handling Group Policy & Standard CFS Complaint Handling Procedures

Fraud • Internal fraud • External fraud

Group Fraud Policy

6.2 Record the Event

The nature of the Event will determine who is responsible for recording it in the appropriate system.

The record must be updated to reflect subsequent remedial actions on an ongoing basis until the Error or Event has been resolved.

The following table provides an overview of how these Events are typically identified, the systems on which they should be recorded and the roles responsible for recording and / or notifying WRM for issues or incidents to be recorded in RiS.

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Source of I I I Identification Description System Roles Responsible

SelfIdentified (CBA/CFS

Line 1 business unit: day to day Insight activities

CFS Cl ient Operations

Employees) Line 2 risk: supervision and ST Synergy monitoring activities

CFSCS Information Services and

Customer

Operations Line 3: via the internal audit 1------------------1 program

Received via the Customer Service teams or through Group Customer Relations (GCR)

GCR will refer matters to the business and I or WRM if a possible systemic issue is identified .

Where relevant the issue I incident management process is to be followed .

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RiS: Errors or adjustments with an actual or potential loss <:: $20k and all compliance incidents

lnsighUFirstPoint - expressions of dissatisfaction and adjustments Log

All staff I WRM

CFS Cl ient Operations

1------------------1 FirstPoint GCR, CFS Cl ient

Operations, CFSCS Information Services and Operations

ST Synergy - CFSCS of Information expressions

dissatisfaction and adjustments

Services and Operations


Third party (external to CFS)

Third parties including advisers, employers, external service providers or other members of the Commonwealth Bank Group may notify CFS of Errors or Events that may lead to remediation.

RiS

Client Operations, Distribution Relationship Managers, Operational Risk

Insight CFS Client Operations

ST Synergy CFSCS Information Services & Operations

Custody / investment manager Errors

RiS Fund Services, Relationship Manager, Investment Review Services

Advisers and employers may notify Distribution Relationship Managers or Business Development Managers.

RiS Insight

CFS Client Operations, Distribution

CBA Retail Bank Services may notify CFS Relationship Manager of Errors relating to the Essential Super fund.

RiS Insight

Product & Investment Services

External audits Regulatory supervision and monitoring activities

RiS WRM

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7 Assess

Upstrearn


Customer complaint

3"'party identified


. i Ideutif) audRecord

Rectify and Resolve

• Assess the nature, scope and impact of the event

• Determine materiality

• Reportintemally

Principles All Events identified must be objectively assessed to determine the impact (if any) on the Customer.

The circumstances of each Event must be considered carefully to assist with determining whether Remediation is required.

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7 .1 Assess the nature, scope and impact of the Event

The assessment is conducted to determine the extent and impact of the Event and whether Remediation will be required .

As a matter of priority:

• the consequences of the Error or Event needs to be contained to prevent perpetuation as far as possible; and

• urgent consideration needs to be given as to whether the Event constitutes a breach which is reportable to ASIC and/or APRA in which case the requirements of the Group Compliance Incident Management Policy and Group Contact with Regulators Policy will also apply to the extent that not covered by this Framework.

Depending on the nature of the Event that has occurred, consideration should be given to consulting internal and external subject matter experts for additional analysis and advice or as required, for example, where the Remediation :

• involves complex issues;

• forms part of an enforceable undertaking or other regu latory intervention; or

• is likely to be subject to public or media scrutiny.

The following table provides a non-exhaustive guide of quantitative and qualitative factors to be considered in the assessment. Findings from the assessment, including

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the approach to identifying affected Customers for Systemic Issues, must be documented.

Quantitative I Qualitative

• Number of Customers impacted

• Materiality

• Financial impact to the Customer -whether advantaged or disadvantaged

• Root cause

• The product/Fund/Schemes impacted

• The period over which the Error or event occurred

• Whether the Error or Event is a result of a widespread and/or systemic issue

• Whether disclosures were incorrect and whether the Customer or adviser rel ied upon the disclosures

• Impact on CFS's compl iance, consider relevant governing documents e.g. trust deed, constitutions and disclosures

• Whether a similar or related Error is required to be considered

• Reputational impacts

• Complaints - Customer Service and Experience

• Whether the Event constitutes a breach which is reportable to ASIC and/or APRA

7 .2 Advantaged Customers

Current and exited Customers who have benefitted from an Event will , unless the EGM CFS determines otherwise, retain the gain, with the exception of the following:

• payment of monies to an incorrect external bank account;

• duplicate and incorrect payments made to Customers;

• missed premiums or other amounts which the Customer is required to pay;

• monies transferred from a CFS account to another CFS account in error, where the destination account remains open; and

• current Customers who have transacted (applied or redeemed units) and have benefited from a unit pricing Error at the expense of other Customers in the Fund or Scheme. CFSIL will credit the Fund or Scheme with any excess payments made to Customers who have exited.

The EGM CFS may determine other circumstances where we will recover the value of certain Events where a Customer has been advantaged.

In these circumstances CFS will correct the Event to include recovery of the value of the Error, or reversing the transaction.

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7.3 Determine Materiality

Customers are Compensated for all Errors except where materiality limits apply. Materiality limits are applied to determine if an Error is significant enough to warrant Compensation .

These limits are outlined in Appendix 4.

Where Compensation is payable to Exited Customers, only amounts over $20 will be paid. This is inclusive of interest/loss of earnings applied .

Where there is an Error at the Fund or Scheme level (either due to a CFS or Third Party Error), that Error will be Compensated except where a materiality limit of $300 applies. This materiality limit will only apply in certain circumstances as outlined in Appendix 4.

7.4 Report Internally

The Group Escalation and Reporting requirements of the Group Operational Risk Management Framework (ORMF) must be appl ied to ensure that the appropriate persons are informed and have visibility of the issue. These reporting lines are included below:

Reporting Parameters Reporting line

Events resulting in a loss greater Incidents and issues recorded in RiS and escalated in than $20,000 line with the ORMF.

Board Audit & Risk Committee

Events resulting in a loss greater Business unit General Manager and Chief Risk Officer. than $100,000

Complaints received by CFS Cl ient Operations and CFSCS Information Services and Operations where a customer remains dissatisfied or there is no imminent resolution on the 5 th business day

GCR manage complaints in accordance with the Customer Complaints Handling Group Policy and Standard.


Breach of any regulatory Wealth Risk Management requirement which is reportable to ASIC and/or APRA

Compliance incidents medium or above

rated Recorded in RiS and escalation in line with the Compliance Risk Management Framework


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Product and strategic issues CFS Control Forum impacting reputational risk/brand

Instances of fraud Business Unit General Manager, Group Security, Chief Risk Officer, Head of CFS Legal

External dispute resolution matters CFS Legal, GCR for external dispute resolution and litigated matters matters, WMOT for RSE Licensee matters

7 .5 Roles and responsibilities

Role I Event Category I Responsibilities

Fund Services

Issue I Incident Owner:

CFS Client

Unit pricing Errors Identify impacted Funds, Schemes and Customers

Determine materiality for unit pricing Errors and exited Customers

Unit pricing Errors Lead the investigation and assessment

Non-unit pricing Errors process and consult with relevant stakeholders

Non-compliance with Operations, the law or internal Identify impacted Funds, Schemes and

Customers CFSCS Information policies Services and Operations

Fund Services

Customer Experience, GCR

CFS Client Operations,

CFSCS Information Services and Operations

Wealth Risk Management

Complaints raised by Customers

Unit pricing Errors

Obtain approvals as per the delegated authority limits in section 8.2

Engage with WRM and CFS Legal to assess the Event where necessary

Lead the investigation of the complaint and assess the Customer impact

Consult with re levant stakeholders based on the nature of the complaint e.g. insurance matters are referred to Head of Insurance Services

Escalate significant matters (including potentially Systemic Issues) to WRM and WM Legal to assess where necessary

For AIL, record incidents and issues in RiS

Non-unit pricing Errors Assess all incidents and issues recorded in RiS

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Non-compliance with regulatory requirements or internal policies

Escalated complaints raised by Customers

Oversight and challenge of the remediation process

Monitoring actions to ensure data relating to operational losses is accurate and complete

Assess compliance with regulatory requirements including prudential standards and report to ASIC and/or APRA if required

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8 Rectify and Resolve

Upsh'emn

Inrernal identification

Cu3tomer complaint

) 3"1party ) identijie~

Idennfy and Record


• Develop the remediation plan

• Calculate and approve the remediation payment

• Remediate the Customer for any loss

• Tax implications

• Remediation funding

• Third party recourse

Irnplement and Communicate

Principles The Customer will, to the extent reasonably practicable, be restored to the position they would have been in had the Error not occurred .

The resolution of Errors will be conducted in a timely and efficient manner to minimise the impact to Customers.

8.1 Develop the Remediation Plan

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A Remediation Plan may be required in accordance with the Group Compliance Incident Management Policy (CIMP) which sets out all the required steps involved in the development of remedial actions to resolve the Error or Event for both the Customer and CFS internal controls to prevent recurrence.

If required, this Remediation Plan should be formally documented and retained in accordance with the CIMP.

Actions taken to remediate an individual Customer Error are to be recorded in the CFS workflow systems.

8.2 Calculate and approve the Remediation payment

When determining and applying Compensation to Customers (not including Goodwill payments), regard will be had to a number of factors including:

• consideration of the best information available at the time;

• the timeframe over which the Error existed, including time elapsed before any Remediation action is taken;

• the number of Customers affected, the size and materiality of the Error;

• the time at which the Customer was affected by the Error;

• the performance of the Customer's investments;

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• any fees charged to the Customers;

• any rebates paid to Customers;

• any Income distributions owing or paid;

• any opportunity cost i.e. the appropriate rate for lost investment performance for exited Customers;

• the appropriateness of, and any costs associated with, any external review;

• any brand impact;

• the tax treatment of the compensation amount; and

• any other financial or non-financial loss suffered.

CFS may offer a Goodwill payment or benefit to a Customer in order to resolve an Error or Event, including circumstance unrelated to the actions of CFS or its Agents. When determining whether to apply a Goodwill payment or benefit to Customers, regard will be had to a number of factors including:

• the individual Customer’s circumstances;

• the relationship with the Commonwealth Bank Group;

• the impact on CFS’ reputation;

• Goodwill gestures such as fee waivers, discount on products or services;

• the payment does not materially or disproportionately impact other Customers and is commercially sensible;

• considerations of ongoing costs of not resolving the matter;

• whether a deed of release is required; and

• delegations.

The calculations and/or rationale for any Compensation or Goodwill amounts must be documented. The payment must be authorised by the person specified in the table below.

The following table sets out the delegation limits for approving the total Compensation and Goodwill payments made to Customers for each Event.

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Total Monetary Impact ol Authorised Person Event Limits CFSIL AIL

Up to $10,000 As delegated by Genera As delegated by Executive Manager Manager Cl ient Operations, CFSCS General Manager Distribution or Genera Manager Fund Services

General Manager Distribution 01

Up to $150,000 CFSIL General Managers

General Manager Product anc Investments as appropriate.

Up to $500,000 Executive General Manager CFS

Up to $5,000,000 Group Executive Wealth Management and Board

More than $5,000,000 Chief Executive Officer CBA and Board

ORFR Payment Management approval according to the limits above (acting in its capacity of RSE Trustee)

*Group Customer Relations consults with the CFS business on most significant matters including Compensation and Goodwill payments over $10,000.

8.3 Remediate the Customer for lost investment performance

and Beare

The form of the Remediation (and its payment method) will depend on the nature of the Event and the entity responsible for it. Some scenarios are outlined below.

(a) Current Customers

• By paying amounts (cash) into investment options, cash accounts or by issuing extra units as appropriate to place Customers into the position they would have been in had the Error not occurred .

• Compensating current Customers with performance payments where they have switched (purchase and sold) between investment options to put them in a position that they would have been in had the Error not occurred. For "unitised" investments, where Compensation is payable for an investment option no longer held by the Customer, an adjustment will generally be made to existing investments by way of issuing extra units, purchase of investments or a credit to a cash account.

• Where CFS is required to purchase units/ investments, consideration will be given to any Income that has been missed or earned as a result of the Error. Only the net loss will be compensated.

(b) Exited Customers

• For Exited Customers, performance after exit will indicate an appropriate rate to fairly compensate for lost investment performance from the date of exit to payment date. Where an Error has been identified and remedied within a timely

25


manner, generally within 1 month of the Error occurring, lost performance may not be compensated. The rate applied to calculate performance after exit will be approved by the Executive General Manager CFS or their delegate.

• Other performance rates may be applied where a Customer is dissatisfied with the Remediation provided on the basis that the performance of their investments after exit exceeds the lost performance rates applied.

• For exited Members, if the Member has not satisfied a condition of release or cashing restrictions apply, Compensation will be paid to an eligible rollover fund or another superannuation product or RSA product.

8.4 Tax implications

Remediation amounts are calculated on a before tax basis. If tax is payable on the additional amount, CFS will adhere to its obligation to deduct any applicable tax amounts prior to payment. Where a Remediation amount is offered, the communications to Customers will advise Customers to consider any tax implications and to seek taxation advice if they are unsure of the likely tax treatment of the payments offered.

Compensation should not normally extend to liabilities which would have arisen even if the Error had not taken place. For example, the Customer incurs an income tax debt following the corrected tax information being reported to the ATO.

Where Customers incur tax-related fees or penalties as a result of the Error, CFS may consider compensating these amounts on a case by case basis.

8.5 Remediation funding

Remediation payments may be funded by the corporate account or the Operational Risk Financial Requirement (ORFR) balance depending on the nature of the Event as outlined below.

Corporate Account Funding

In the case of day to day operational Errors and where the Remediation payments do not satisfy the requirements to be funded by the ORFR, will be funded by the company’s operating or retained profits.

Operational Risk Financial Requirement (ORFR)

CFSIL and AIL each have an ORFR balance which is maintained as part of APRA’s prudential requirements for the purpose of compensating specific operational risk loss events related to the RSE Licensee business operations of each company.

Only Operational Risk losses as outlined in the respective AIL and CFSIL ORFR Strategy documents may be remediated by way of payments that are funded by the ORFR balance. It is anticipated that operational losses that are greater than $1,000,000 will be drawn from this ORFR balance. Such an event will require Board approval.

26

CBA.0517.0194.0033

CBA.0517.0194.0034


Recourse against Agents

CFS will consider whether to recover amounts (including loss experienced by a Member, Fund or Scheme) from an Agent of CFS responsible for an Error or Event. CFS may not make such recoveries where the cost of recovery is excessive, the recovery is not practical or where the recovery may be inappropriate or result in reputational damage.

If the Error is created as a result of an Agent, CFS will make good the Customer first and then consider seeking recourse from the Agent.

8.6 Roles and responsibilities

Role !Event Category I Responsibilities

Fund Services Unit pricing Errors Recalculate unit prices and unit adjustments

Determine if recalculated unit prices are to be published (on an exceptions basis and subject to EGM or General Manager Fund Services approval)

Determine compensation amounts

Liaise with CFS Finance to pay/receive fee adjustments or compensation to the impacted Fund/Scheme

Reconcile and include any compensation in the net assets of the Fund/Scheme

Prepare a compensation memo and obtain approvals

Process compensation amounts to Customers including issuing units, cheque or external cash transfer

Arrange communication to Customers

CFS Client Non-unit pricing Errors Determine compensation amounts Operations, Non-compliance with Prepare compensation memo (for CFSCS Information he law or internal Systemic Issues) Services and policies Apply amounts to investor accounts Operations

Issues/incidents Communicate to Customers

CFSCS Fund Non-compliance with Determine Compensation amounts for Services AIL Tax Policy Super fund tax Errors/mistakes

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Liaise with Information Services & Operations to apply the amounts to Customer accounts.

GCR, CFS Client Operations,


Complaints impacting Customers

Determine Compensation and Goodwill payments Consult with the CFS business on significant matters and seek CFS business delegate approval for compensation and Goodwill payments as appropriate.

28

CBA.0517.0194.0035


Operational Risk, CFS Client Operations

Unit pricing Errors



Where an Error or Event is captured in RiS, manage the Remediation process and track to closure in a timely manner Prepare compensation memo for Systemic issues / incidents

CFS Finance Unit pricing Errors



Review approval for compensation to ensure approvals are in line with delegations and process payment Ensure Board approval is obtained prior to processing amounts out of the ORFR Balance For Systemic Issues relating to fees, independently recalculate Fund/Scheme fees Refund overcharged fees to impacted Fund/Scheme


Unit pricing Errors


Non-compliance with regulatory requirements or internal policies

Oversight and challenge of the Remediation process Monitor actions to ensure Remediation processes adequately resolve the root cause of the event and sustainably prevent recurrence Conduct periodic monitoring to identify potential Systemic Issues.

Wealth Management Office of the Trustee

Unit pricing Errors


Oversight and challenge of the Remediation process for a significant Error or Event Ensure Remediation proposal is consistent with fiduciary obligations Review reporting to management and BARC

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CBA.0517.0194.0036


9 Implement and Communicate

Upstrea1n

Internal idenrijication

Customer complaint

• Identify and Record Kectifyand

Resolve

• Implement Remediation Plan

• Communicate with customer

• Contact with exited Customers

• Complaints and dispute resolution

• Litigation

CBA.0517.0194.0037

Principles CFS will communicate to Customers in a timely and transparent manner

9.1 Implement Remediation Plan

The internal activities, including the processing of any Remediation payments to the Customer, will be carried out in accordance with the Remediation Plan (if any).

Supporting evidence should be documented and retained on file including where relevant:

• calculations that substantiate the Remediation payment, including underlying assumptions and methodologies;

• evidence that the key process steps/actions were completed;

• any differences between the Remediation Plan and the implementation;

• key reconcil iations to support the completeness of Customer payments and communications; and

• review process and stakeholder signoffs for the Remediation Plan, including communications.

9.2 Communicate with Customer

(a) Timing of communications

It is recognised that appropriate and transparent communication with Customers is an important aspect of business.

Communications to Customers in connection with a Remediation will be issued as soon as reasonably practicable or as required by law. Communications to Customers may be via advisers. Timeframes for communications to Customers may be agreed

30


between CFS and the advisers. Any communications provided by CFS to advisers for the purpose of communicating to Customers must be provided in a timely manner.

Consideration will be given to timing the communication to coincide with any scheduled or regular communication.

(b) Content of communications

The communication will comply with the requirements prescribed by the law and, at a minimum, contain the following:

• the nature and description of the Error;

• why it occurred;

• how it may, or has, impacted the Customer;

• how it has been remediated;

• any amount(s) payable to the Customer (and unless already explained, how it was calculated); and

• the contact details for CFS, including how to contact CFS if the Customer is dissatisfied with the outcome.

As far as reasonably practicable, periodic and tax statements should be reissued or, if not, corrections to disclosures should be advised.

Periodic statements should include adjustments and may include a description of the nature of the adjustment.

CFS may decide to communicate with Customers who were not impacted by the Error or Event. Depending on the circumstances, the communication may be through channels such as the CFS website, call centre or direct written correspondence.

Any exceptions to the timing and content of communications will be determined at the discretion of the General Manager Client Operations or the General Manager CFSCS.

9.3 Contact with Exited Customers

To ensure compliance with the principle of equitable treatment of Customers, CFS will make reasonable efforts to contact exited Customers who were affected by the Event and are eligible for Remediation.

9.4 Complaints and dispute resolution of Remediation

If a Customer is dissatisfied with the Remediation provided, they may lodge a complaint. The complaint will be handled in accordance with the Group Customer Complaint Handling Group Policy and Customer Complaint Handling Standard.

If the Customer is dissatisfied with the final response provided, details of the relevant external dispute resolution bodies should be provided. GCR manage and / or oversee all complaints referred to an external dispute resolution body.

31

CBA.0517.0194.0038

CBA.0517.0194.0039


9.5 Litigation

An Event which is likely to lead to litigation or reputational damage to CFS must be referred to and dealt with by CFS Legal. Where the matter involves the RSE Licensee the WM Office of the Trustee should also be notified by CFS Legal. CFS Legal may escalate the matter for further attention or advice as considered appropriate.

9.6 Roles and responsibilities

Role I Responsibilities

CFS Client Operations,

Fund Services,

GCR,


Communicate to stakeholders

Prepare and issue Customer correspondence

Operational CFS Operations

Risk, Review Customer correspondence for Errors and Events captured Client in RiS and engage with WRM and CFS Legal where necessary

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CBA.0517.0194.0040


10 Close

• Upstream


customer complaint

3"1party identified

T denttfy and Record ImplPmentand Commnnic;ite

• Closecase

• Validate

Principles Events are closed in a sustainable manner with appropriate processes implemented to prevent recurrence.

Closure procedures must confirm that Customers have been appropriately remediated .

10.1 Close case

Where relevant, the Remediation is closed out in accordance with the Group Customer Complaints Handling Policy and Standard or the ORMF or the CIMP.

Remediation amounts must be authorised in accordance with the authorisation limits in Section 8.2.

Records of the Remediation process as outl ined above must be retained in accordance with the CBA Group Record Management Policy.

10.2 Validate

As part of the supeNision and monitoring activities Wealth Risk Management conducts val idation assurance in accordance with the Group ORMF or CIMP to confirm the issue is closed . This is to give the Board comfort that the Remediation was appropriately managed and executed in line with this Framework and its supporting policies.

Ensure that appropriate pol icies for closing issues have been applied

33

CBA.0517.0194.0041


Appendix 1 - Overview of key obligations

This table provides an overview of some of the key obligations relevant to CFSIL and AIL in its various capacities. If there are any queries in relation to CFS's key obligations below, or other legal obligations, please refer to CFS Legal for advice.

CFSIL and AIL as RSE ICFSIL as RE IAIL as IDPS Operator/ Licensee Custodian/Administrator

• Act honestly in all • Act honestly and • Perform the obligations of an matters concerning exercise the degree of IDPS operator honestly and the Fund care and diligence that with reasonable care and

a reasonable person di ligence would exercise in the RE's position

• Have adequate • Have adequate • Have adequate arrangements arrangements in arrangements in place in place to manage conflicts of place to manage to manage conflicts of interest conflicts of interest interest

• Exercise the same • Treat the members • As an IDPS Operator, the degree of care, skill who hold interests of duties of a trustee under and due di ligence as the same class equally general law apply. The duty to a prudent and members who act in best interests of the superannuation hold interests in beneficiary (i.e. the investors); trustee different classes fairly duty to act in good faith; the

duty to act impartially generally to operate each IDPS honestly, efficiently and fairly.

• Perform the trustee's • Treat the members • Hold all investments within the duties and exercise who hold interests of IDPS (not including assets the trustee's powers the same class equally held by an investor) on trust in the best interests and members who for investors of the beneficiaries hold interests in

different classes fairly

• Where there is a • Not make use of • Maintain adequate conflict between the information acquired professional indemnity duties of the trustee through being the RE insurance and insurance to the beneficiaries in order to gain an against fraud and the duties of the improper advantage or • Have in place a voting policy trustee to any other cause detriment to the person, the trustee

34


must give priority to the duties and interests of the beneficiaries, and to ensure that the duties to the beneficiaries are met despite the conflict and that the interests of the beneficiaries are not adversely affected by the conflict

Unit Holders of the scheme

• Ensure that scheme property is clearly identified and held separately from property of the RE

• Ensure that scheme property is valued at regular intervals

• Facilitate dispute resolution between platform investors and financial product issuers

• Maintain adequate internal control procedures

• Act fairly in dealing with classes of beneficiaries and beneficiaries within a class

• Ensure that payments out of scheme property are made in accordance with the scheme’s constitution

• Notify Members of material changes and significant events.

• Notify Unit Holders of material changes and significant events.

• Notify Investors of material changes and significant events.

35

CBA.0517.0194.0042


Appendix 2 – Key policies supporting the Framework

The following policies support the key phases of the remediation process and are contextualised diagrammatically below. 1. Identify and Escalate Group Operational Risk Management Framework (ORMF)

(including RAS, RMS) Group Compliance Risk Management Framework Group Compliance Incident Management Policy (CIMP) Customer Complaints Handling Group Policy and Standard Group Contact with Regulators Policy Group Fraud Policy CFS Complaint Handling Procedures CFSIL Backdating Policy

2. Investigate ORMF, CIMP

3. Resolve CFSIL ORFR Strategy AIL ORFR Strategy Customer Complaints Handling Group Policy and Standard CFSIL & AIL Customer Complaints Handling procedure

4. Communicate Group Contact with Regulators Policy CFSIL and AIL Due Diligence Process

5. Close Group Records Management Policy, ORMF, CIMP

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CBA.0517.0194.0043

CBA.0517.0194.0044


Appendix 3 - Overview of responsibilities

Role I Responsibilities

Board

Fund Services

CFS Client Operations


• Consider significant matters escalated to Board I BARC

• Identify and report Errors- as per ORMF and CIMP

• Notify WRM within 5 days of identif ication

• Contribute to the development of Remediation Plan and implement

• Communicate to stakeholders

• Identify impacted Fund/Scheme

• Recalculate unit prices and calculate unit adjustments

• Determine if recalculated unit prices are to be published (on an exceptions basis and subject to EGM or General Manager Fund Services approval)

• Review unit adjustments

• Determine compensation amounts and process compensation payments

• Prepare compensation memo and obtain approvals

• Liaise with CFS Finance to pay/rece ive fee adjustments or compensation to the impacted Fund/Scheme

• Process compensation amounts to Customers including issuing units, cheque or external cash transfer

• Reconcile and include any compensation in the net assets of the Fund/Scheme

• Prepare and issue Customer correspondence in accordance with due diligence processes

• Identify and report the Error - as per ORMF and CIMP

• Simple administration Errors are dealt with according to procedure and all adjustments are recorded

• Complete RiS notification form within 5 days of identification

• Identify impacted Funds, Schemes and Customers

• Contribute to the development of Remediation Plan and implement

• Communicate to stakeholders

• Determine compensation amounts

• Prepare compensation memo

• Review unit adjustments

37


• Prepare and issue Customer correspondence in accordance with due diligence processes

CFSCS Fund Services • Determine compensation amounts for Super fund tax Errors/mistakes

• Liaise with CFSCS Information Services & Operations to apply the amounts to investor accounts.

Operational Risk, CFS Client Operations

• Confirm that the Error has been correctly recorded • Lead the investigation process and consult with relevant

stakeholders • Ensure remediation methodology is aligned to relevant

policies • Manage remediation process and track to closure in a

timely manner • Engage with WRM and CFS Legal as necessary

Finance, CFS & CFSCS

• Review approval for compensation to ensure approvals are in line with delegations and process payment

• Determine whether ORFR funding is appropriate in the circumstances, with support from Wealth Risk Management

• Ensure Board approval is obtained prior to processing amounts out of ORFR balance

• If the Error or Event relates to fees, independently recalculate fees


• For AIL, record incidents and issues in RiS • Assess all incidents and issues recorded in RiS • Monitor compliance with regulatory requirements

including prudential standards • Report Events to ASIC and/or APRA if required • Oversight and reporting • Challenge the appropriateness of Customer remediation • Track action plans to closure

Wealth Management Office of the Trustee

• Supports the EGM CFS and CFS management to guide and assist them in making decisions that support the fiduciary obligations of the RSE Licensee and the Directors

• Oversight and challenge of the remediation process of a significant Event or Error

• Ensure Remediation proposal is consistent with relevant fiduciary obligations

38

CBA.0517.0194.0045


• Review reporting to management and BARC • Escalate matters to the EGM CFS, the Board and/or the

BARC

CFS Legal • Advise the Directors, EGM CFS, CFS management and WMOT in making decisions that support their obligations.

• Manage external disputes and litigated matters.

Group Customer Relations

• Refer matters to the business and / or WRM if a possible systemic issue is identified

• Where relevant follow the issue / incident management process

• Lead the investigation of the complaint and assess the Customer impact

• Consult with relevant stakeholders based on the nature of the complaint e.g. insurance matters are referred to Head of Insurance Services

• Manage complaints in accordance with the Customer Complaints Handling Group Policy and Standard

• Escalate significant matters (including potentially Systemic Issues) to WRM and WM Legal to assess where necessary

• Manage external dispute resolution matters • Report quarterly to BARC

Appendix 4 – Materiality

Where CFS has determined that an Error has occurred, materiality limits will be used to determine if the Error requires compensation to Customers, the Fund or Scheme.

Materiality limits – unit pricing Errors

For CFSIL products materiality will be applied as a basis points test (a unit price variance from what would have been the ‘true price’ in an investment portfolio on a given day).

The following tolerance limits are applied:

• Where there are multiple Errors affecting a unit price on a given day, the combined effect of those Errors is measured to determine whether the tolerance level has been reached;

• Where an Error is above the tolerance limits, Compensation will be required where Customers of the Funds/Schemes have been disadvantaged.

• Where an Error is less than tolerance limits, consideration will still be given to whether compensation should be paid.

39

CBA.0517.0194.0046

CBA.0517.0194.0047


Investment Option I Tolerance/Unit Price Variance*

Cash based i.e. cash management trust 5 basis points I 0.05%

Other 30 basis points I 0.3%

* Materiality limits are not appropriate where there is a fee Error. If there is a fee Error, the Funds/Schemes will be compensated in all cases where CFS has benefited from the Error. Where the resulting unit price Error is below the tolerance, consideration will be given to compensating individual Customers where the impact is material given the duration and nature of the Error e.g. large applications and redemptions by individual Customers.

AIL as an IDPS operator receives prices for investments including managed investments schemes from the custodian I investment manager. Any unit price Errors advised by the custodian I investment fund manager are dealt with as a "th ird party" Error and will be corrected by AIL by making adjustments to Customer accounts. Investment fund managers are required (under the terms of agreement) to remediate AIL and advise AIL of the details of their Remediation Plan .

Materiality limit- exited Customers

Where compensation is payable to exited Customers, only amounts over $20 will be paid. This is inclusive of interest/loss of earnings applied.

Materiality limit - Fund or Scheme

Where there is an Error at the Fund or Scheme level (either due to a CFS or Third Party Error), that Error will be Compensated except where a materiality limit of $300 applies. This materiality limit will only apply where:

• there is no impact to performance (0 basis point impact) of the Fund investment option/Scheme i.e. the error is small enough so as to not impact the unit price; and

• the Error does not re late to Fees; and

• the Error does not re late to a Systemic Issue.

As the cost of recovery is expected to exceed the amount recovered, recovery of amounts less that $300 will not be pursued. In th is circumstance there is no impact to members.

40

CBA.0517.0194.0048


Appendix 5 - Systems

This section provides an oveNiew of all systems used throughout the remediation process.

Systems I Description

RisklnSite RiS is an Operational Risk and Compliance system to capture and track the (RiS) resolution of incidents and issues. All operational risk incidents with an actual

or potential impact of $20,000 or more and all compliance incidents are recorded in RiS.

FirstPoint FirstPoint is the complaints management system used by Group Customer Relations and cl ient seNicing teams to record all complaints (including expressions of dissatisfaction resolved at the first point of contact) and associated interactions.

Insight CFSIL imaging and workflow system used to administer customer accounts. All expressions of dissatisfaction are logged into CFSIL's Insight system through either My Customer (Contact Centre Operations) or Support Log (Admin or Support staff) recording whether a CFS Error has been identified.

FMS CFSIL's registry system used to administer customer accounts.

ST Synergy All's imaging and workflow system used to administer customer accounts. All expressions of dissatisfaction are logged into All's ST Synergy system.

END OF DOCUMENT

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Documents

CFSIL AIL (CFS) Customer Remediation Framework