CBA's bad month gets even worse

Australia’s banking regulator will establish an independent prudential inquiry into the Commonwealth Bank.

APRA said the inquiry’s goal would be to identify any shortcomings in the governance, culture and accountability frameworks and practices within CBA.

The inquiry would also make recommendations as to how these shortcomings are promptly and adequately addressed, according to APRA.

“It would include, at a minimum, considering whether the group’s organisational structure, governance, financial objectives, remuneration and accountability frameworks are conflicting with sound risk management and compliance outcomes,” the regulator said.

“The independent panel would not be tasked with making specific determinations regarding matters that are currently the subject of legal proceedings, regulatory actions by other regulators, or customers’ individual cases.”

The inquiry will be conducted by an independent panel, to be appointed by APRA.

APRA expects the inquiry will take six months to produce its report, and that this report will be made public.

Commonwealth Bank will pay for the costs of the inquiry.

Confidence needs to be restored

APRA chairman Wayne Byres said the inquiry followed a series of issues that had raised concerns about governance, culture and accountability within CBA.

“The overarching goal of the prudential inquiry is to identify any core organisational and cultural drivers at the heart of these issues and to provide the community with confidence that any shortcomings identified are promptly and adequately addressed,” he said.

“CBA is a well-capitalised and financially sound institution. However, beyond financial measures, it is also critical to the long-run health of the financial system that the Australian community has a high degree of confidence that banks and other financial institutions are well governed and prudently managed.”

A month of bad headlines

This has been a bad month for CBA, which was accused of more than 53,000 financial violations by Australia’s financial intelligence and regulatory agency.

That was followed by news that Maurice Blackburn had launched a class action lawsuit against CBA and that the bank would have to refund about $10 million after selling unsuitable consumer credit insurance to tens of thousands of Australians. The retirement of chief executive Ian Narev was also announced.

But Commonwealth Bank did have one piece of good news in August – a $9.9 billion annual profit.

CBA promises to cooperate

Commonwealth Bank said it supported the inquiry and that it would have the bank’s full cooperation.

“We are confident that our 50,000 people come to work each day to give their best, for the benefit of our customers. At the same time, we know that our mistakes have hurt our reputation,” Mr Narev said.

“An independent and transparent view on the work we have done, and the work we still have to do, is an important element of strengthening trust. So this inquiry has our full support, to ensure it is as effective as possible.”

Government backs inquiry

Treasurer Scott Morrison said he supported an inquiry to identify the core organisational and cultural drivers at the heart of recent issues relating to the CBA.

“Australia’s banks are well capitalised, well regulated and financially sound. However, there have been too many cases and events that have damaged their reputation and standing in the eyes of many Australians, that warrants our regulators taking action now. In the case of CBA, more than a dozen compliance issues have arisen since 2008,” he said.

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