The prudential inquiry will be conducted by an independent panel, to be appointed by APRA.
While the final terms of reference has not yet been set, it is anticipated that the panel will provide a final report to APRA around six months from the formal commencement of the inquiry, and that this report will be made public.
Broadly, the goal of the inquiry is to identify any shortcomings in the governance, culture and accountability frameworks and practices within CBA, and make recommendations as to how they are promptly and adequately addressed. 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.
APRA chairman Wayne Byres said that the decision to initiate a prudential inquiry followed "a number of issues" that have "raised concerns regarding the frameworks and practices in relation to the governance, culture and accountability within the CBA group, and have damaged the bank’s reputation and public standing".
The bank has made several headlines in the last month alone, including for allegations that it breached anti-terror and anti-money laundering regulations and could face a class action from shareholders, as well as for the news that it had to refund more than $10 million to 65,000 customers after selling them "unsuitable" insurance on home loans and credit cards.
However, APRA has emphasised that 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.
Mr Byres said: “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.
“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."
Trust in banks 'has been damaged'
“The Australian community’s trust in the banking system has been damaged in recent years, and CBA in particular has been negatively impacted by a number of issues that have affected the reputation of the bank. Given its position in the Australian financial system, it is critical that community trust is strengthened. A key objective of the inquiry will be to provide CBA with a set of recommendations for organisation and cultural change, where that is identified as being necessary.
“The chairman and CEO of the CBA have assured me that the bank will fully cooperate with the inquiry, and APRA welcomes that cooperation,” Mr Byres said.
The costs of the inquiry will be met by CBA.
In an ASX announcement made today (28 August), CBA chairman Catherine Livingstone said that the bank "acknowledges and supports" APRA's inquiry and noted that recent events had weakened the public's trust in the bank.
She said: "We have been working hard to strengthen trust, and will continue to do so. We welcome this opportunity for independent parties to review the work we have already undertaken and advise on what more we can do.
"APRA's oversight of this inquiry will ensure the independence and transparency needed to reassure all our stakeholders."
Ian Narev, CBA's CEO, admitted that the bank's mistakes had "hurt our reputation". However, he noted that providing an "independent and transparent view on the work we have done, and the work we still have to do" would strengthen trust.
"This inquiry has our full support, to ensure it is as effective as possible," Mr Narev concluded.
[Related: CBA could face $966bn in penalties]
Annie Kane is the editor of The Adviser and Mortgage Business.
As well as writing about the Australian broking industry, the mortgage market, financial regulation, fintechs and the wider lending landscape – Annie is also the host of the Elite Broker and In Focus podcasts and The Adviser Live webcasts.