A review into Commonwealth Bank of Australia (CBA) has found that the bank’s “continued financial success dulled the senses of the institution”.
The Australian Prudential Regulation Authority (APRA) released its findings in its report following the Prudential Inquiry announced in August 2017.
The inquiry was held to examine the frameworks and practices in relation to the governance, culture and accountability within the CBA group, following a number of incidents that damaged the reputation and public standing of the bank.
CBA has responded to the final report and has offered an Enforceable Undertaking (EU), under which the group’s remedial action will be monitored. APRA has also applied a $1billion add-on to CBA’s minimum capital requirement.
The report listed issues including a widespread sense of complacency, a reactive stance in dealing with risks, being insular and not learning from experiences and mistakes.
Other points the panel identified were unclear accountabilities, overly complex and bureaucratic decision-making processes and a remuneration framework that, until the AUSTRAC action, had little sting for senior managers and above when poor risk or customer outcomes materialized.
The recommendations from APRA focused on five key areas: more rigorous Board and Executive Committee level governance of non-financial risks; exacting accountability standards reinforced by remuneration practices; a substantial upgrading of the authority and capability of the operational risk management and compliance functions; injection into CBA’s DNA of the "should we" question in relation to all dealings with and decisions on customers; and cultural change that moves the dial from reactive and complacent to empowered, challenging and striving for best practice in risk identification and remediation.
APRA Chairman Wayne Byres said the Inquiry Panel’s findings show CBA’s governance, culture and accountability frameworks and practices are in need of considerable improvement.
He added, "As the Panel notes, CBA has itself identified and begun taking steps to address many of these issues, but there is much to do and a risk that the same issues which have led to the need for the Inquiry undermine the bank’s efforts to comprehensively and effectively respond to the recommendations of the Panel.
“The Panel notes in its report that regaining community trust will require time, hard work and an undistracted risk and customer focus and that its recommendations should assist the CBA Board and staff in translating CBA’s undoubted financial strength and good intent into better meeting the community’s needs and expectations.”
CBA CEO Matt Comyn said of the report, “It is confronting to read, and it is critical in a number of areas. I also think it's a very fair and balanced assessment of the issues that we've been facing. I think the panel have done an excellent job at getting to the heart of the issues. I think it's a very helpful road map for us for the future, and we're going to get on now with implementing the recommendations, in full, which I hope will go towards restoring the confidence and trust in the Commonwealth Bank.
“I think it will be tempting for some people in the organisation to look at the report and either think that it’s unfair or to think that it actually applies to the commonwealth bank but not to them and to their teams. I think it’s really important that everyone in the bank, the senior leaders of the commonwealth bank, realise that it is us, it’s me, it’s our leadership and things need to change.”