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CBA apologises and offers EU following damning report

The Commonwealth Bank of Australia has said that APRA’s concerns regarding its culture and governance are “critical and fair”, has apologised for its “mistakes” and has offered the regulator an enforceable undertaking to monitor its remedial action.

The announcement comes hot on the heels of the release of a damning report from the Australian Prudential Regulation Authority into the governance, culture and accountability within the CBA Group. 

First announced last year, the inquiry was commissioned following a number of incidents that damaged the reputation and public standing of the bank, including a range of issues that have been brought to light in the past year, such as misconduct by financial advisersmis-selling of insurance , and allegations that it rigged the bank bill swap rate and had repeatedly breached anti-money laundering and counter-terrorism laws

The report slammed the Commonwealth Bank of Australia for having “inadequate oversight”, “unclear accountabilities” and “a widespread sense of complacency”, among many other failings

It went on to suggest that the bank’s continued financial success had “dulled the senses of the institution”, which was particularly apparent in the management of operational, compliance and conduct risks.

As such, the report makes 35 recommendations for addressing these issues, including:

  • 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.

In response, the major bank has acknowledged APRA’s concerns and confirmed that it will implement all the recommendations contained in the report of the Prudential Inquiry. 

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These will particularly focus on:

  • strengthening the governance and management of non-financial risks at the board and executive level;
  • changes to remuneration policies and practices to ensure greater accountability for risk, compliance and customer outcomes;
  • strengthening capability in operational risk and compliance throughout the group supported by positive, transparent regulatory relationships;
  • renewed focus on listening to customers and improved systems and procedures for reporting and resolving customer complaints; and
  • empowering staff with the tools and processes they need to manage risk better including embedding three lines of accountability as a consistent operating model.

Further, the bank has offered an enforceable undertaking (EU) under which its remedial will be monitored.

The key terms of the EU involve:

Remedial action plan

  • Establishing an APRA-agreed remedial action plan within 60 days with clear and measurable responses to each of the report’s recommendations supported by a timeline and executive accountabilities for completing each remedial action.
  • Appointing an independent reviewer, approved by APRA, to report to APRA every three months commencing 30 September 2018 on compliance with the EU and on those items in the remedial action plan that CBA considers are nearing completion.


  • Reporting to APRA by 30 June 2018 on how the findings of the report have been reflected in remuneration outcomes for current and past executives. 
  • Ensuring accountability for completing items in the remedial action plan is given significant weight in the performance scorecards of the senior executive team and other staff as relevant.

Capital adjustment

  • APRA will apply a capital adjustment to CBA’s minimum capital requirement by adding $1 billion to the bank’s operational risk capital requirement. The effect of this adjustment equates to 29 basis points of Common Equity Tier 1 capital and reduces CBA’s 31 December 2017 CET1 ratio from 10.4 per cent to 10.1 per cent. (See appendix for details of capital impact.)
  • CBA may apply for removal of all or part of the capital adjustment when it believes it can demonstrate compliance, to APRA’s satisfaction, with the specific EU and the commitments in the remedial action plan.

The big four bank has said that, subject to finalisation with APRA, it will provide a public update on its agreed remediation plan in “early July”.

An estimate of the expected financial cost of the remediation program for the 2019 financial year will be disclosed as part of CBA’s Annual Results announcement on 8 August 2018.

CBA has added that it will report on its progress in addressing the recommendations of the Prudential Inquiry’s report, the form of which being subject to agreement with APRA on reporting mechanisms.

“Change starts with acknowledging mistakes”

Speaking following the release of the report, CBA chief executive officer Matt Comyn said: “Change starts with acknowledging mistakes. 

“I apologise to the bank’s customers and staff, our regulators, our shareholders and the Australian community for letting them down.

“We will make the necessary changes to become a better bank and we will be transparent about our progress. This includes establishing a much higher level of accountability and consequence for our actions and the impact we have on customers. This starts with me.”

Mr Comyn went on to say that the bank has “embraced the report as a critical but fair assessment of the issues facing us and we will act on its recommendations, and the requirements of the enforceable undertaking, in an open, transparent and timely way”.

He continued: “Our current change priorities are consistent with the report’s recommendations. We now have a detailed roadmap for ongoing change and we will work with APRA to ensure we implement all of the report’s 35 recommendations.”

CBA chairman Catherine Livingstone added: “Addressing the findings of the report is a key focus for the board and management to ensure that our governance, culture and accountability frameworks and practices are significantly improved and meet the high standards expected of us.

“Changes have been underway throughout 2017 at board and operational levels, and have continued this year, helping to rebuild customer and community trust. This includes the process of board renewal. Together they represent a significant change program and the APRA report provides us with a clear roadmap for the hard work still ahead of us.

“The board will now oversee a comprehensive response to APRA, using the report to assess the adequacy of steps already underway, and to address the additional improvements needed to implement all its recommendations. We will also appoint an agreed, independent reviewer to report to APRA on our progress.”

She added: “We understand the scale of change which is necessary and its seriousness in order for us to become a better, stronger bank for our customers, staff, regulators and shareholders.”

APRA has said that it will work closely with the Australian Securities and Investments Commission (ASIC) to ensure that the recommendations are addressed in full.

The regulator has also applied a $1 billion add-on to CBA’s minimum capital requirement. 

APRA chairman Wayne Byres said: “… 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.

“As a result, CBA has given to APRA an enforceable undertaking which establishes a framework by which CBA will demonstrate it is addressing the full set of recommendations made by the panel in a timely manner.

“Until such times as these recommendations are addressed to APRA’s satisfaction, an add-on to CBA’s operational risk capital requirement will continue to apply.” 

CBA will release its Third Quarter Trading Update on 9 May 2018. 

[Related: APRA censures CBA for range of failings]

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