At the annual general meeting on Thursday, 16 November, both the chairman and CEO of the major bank offered apologies to the shareholders and the wider public.
While chairman Catherine Livingstone AO noted that the bank’s net profit rose to $9.9 billion for the 2017 financial year, she recognised that the “progress and performance have been overshadowed by a range of reputational and regulatory matters which have impacted the bank”.
The chairman said: “Those matters have generated adverse perceptions of the Commonwealth Bank’s culture and trustworthiness, qualities which are vital for its ongoing success.”
Touching on Australia’s anti-money laundering and counter-terrorism financing regulator (AUSTRAC) commencing legal proceedings against the bank in relation to alleged breaches of the Anti-Money Laundering and Counter-Terrorism Financing Act, Ms Livingstone said: “These allegations and legal proceedings are very serious, and the board is treating them with the gravity they warrant.”
Outlining that a special board committee has been established, which has oversight of the preparation of the bank’s response to AUSTRAC’s allegations (as well as ensuring compliance with their regulations), the CBA chairman said that the response will be lodged with court by 15 December and made public. The committee will also consider whether any “further action on accountability” is required for parts of the bank or individuals.
Ms Livingstone emphasised that the bank first became aware of the “compliance deficiencies” in relation to the IDMs in 2015, but was “not aware that AUSTRAC had decided to launch legal action until the civil proceedings were filed on the 3rd August”.
Further, the chairman revealed that the statement of claim “included matters of which the bank had no prior knowledge”.
In relation to ASIC’s investigation, Ms Livingstone said that the bank was “in the process of responding to its request for information” and was “cooperating fully” with APRA’s inquiry into the bank’s accountability, governance and culture frameworks and practices — a progress report for which is due at the end of January 2018, with a final report at the end of April.
Noting the shareholder class action, Ms Livingstone said that there were “limits” to what she could say while legal proceedings were ongoing, but said that the bank “intend[s] to defend it vigorously” and would be “transparent as possible about these matters”.
Ms Livingstone told shareholders: “It is also important to stress that there is no suggestion in AUSTRAC’s statement of claim that anyone at the bank knowingly contributed to the matters that have been identified, nor that there has been misconduct on the part of bank employees.
“Nonetheless, it is clear that the bank was deficient in aspects of its compliance with AUSTRAC’s regulations, and it is equally clear that this has damaged our reputation: with customers, shareholders, regulators and government.
“As chairman, and on behalf of the board, I apologise sincerely for this deficiency and its consequence.”
The chairman continued: “Shareholders, I can assure you that these concerns command the highest priority of the board, and we are determined to ensure that our risk management systems, including regulatory compliance, are of the high standard, which is expected of us, and that we rebuild trust in the bank.”
Outgoing CEO apologises
The AGM also heard from outgoing CEO Ian Narev. Like Ms Livingstone, Mr Narev also offered an apology to shareholders.
Mr Narev said: “Our reason for being is safeguarding people’s life savings, extending loans to build or buy houses and businesses, and helping them to insure their lives and assets.
“The products and services we provide are fundamental to people’s wellbeing. So, when we get it wrong, we can cause significant distress. When we do, it is of no comfort to the affected customers that they are in a minority, that the experience of the vast majority of others has been good. What they care about, rightly and understandably, is their own experience.”
He continued: “At times, in our dealings with these customers, we have listened poorly, and been too bureaucratic. As chief executive, I take responsibility for that and I apologise for the distress we have caused.”
The CEO highlighted that the bank had reviewed more than one million customer files, resulting in the payment of nearly $35 million to financial advice customers; updated its heart attack definition in its insurance policies, paying 33 customers more than $4 million; and revised its remuneration for front-line staff, among other measures.
Touching on operational risks, Mr Narev said: “We will often be judged by our areas of weakness, not by overall performance. We need to accept that, and adapt.
“It is clear, as our chairman has said, that in the case of our management of Financial Crimes controls, we did not reach the standards we should have. We let people down.
“We have apologised, have taken accountability and are addressing the weaknesses, and, equally importantly, making sure we learn from our mistakes.”
Mr Narev concluded: “I have a bit of time to go as chief executive, and I am determined to give of my best until the last minute of my last day in the job. However, since this will be my final AGM, I wanted to take this opportunity to thank all of you, our owners, for continuing to invest your hard-earned savings in the Commonwealth Bank. It has been, and remains, a privilege to work for you. When I do leave, it will be with a combination of pride in what we have achieved for you, and sadness for where we have disappointed you.”
Ms Livingstone thanked Ian Narev for his “unwavering commitment” to the bank, adding that a “global search” for his replacement is well advanced, and candidates were being considered from inside and outside the bank, both from Australia and offshore.
An announcement on the planned succession is expected by 30 June 2018.
[Related: CBA could face $966bn in penalties]