APRA’s damning report on CBA’s culture and governance should be “required reading” for all boards in Australia, Treasurer Scott Morrison has said, urging them to “ask themselves the hard questions” regarding culture and values.
As reported by The Adviser’s sister title, Mortgage Business, on Tuesday (1 May), the Australian Prudential Regulation Authority (APRA) released the final report of the Prudential Inquiry into the Commonwealth Bank of Australia (CBA).
The damning report outlined concerns relating to the governance, culture and accountability within the CBA Group, after several “incidents” were brought to light that “damaged the reputation and public standing of CBA”, such as breaches of counter-terrorism and anti-money laundering laws.
According to the panel conducting the inquiry — comprising Dr John Laker AO, chairman of the Banking and Finance Oath; company director Jillian Broadbent AO; and Professor Graeme Samuel AC, Professorial Fellow in the Monash Business School — the Commonwealth Bank of Australia (CBA) has “inadequate oversight”, “unclear accountabilities” and “a widespread sense of complacency”, among many other failings.
The panel argued 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.
It put forward 35 recommendations for addressing the issues raised, which CBA has accepted, and the bank offered the regulator an Enforceable Undertaking to monitor its remedial action.
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”.
Report is “required reading” for boards across the country
Speaking after the release of the report, Treasurer Scott Morrison thanked APRA and the panel for their “excellent job at getting to the heart of what the issues are here in that institution”, noting that the report found CBA to have “a complacent culture, dismissive of regulators; an ineffective board that lacked zeal and failed to provide oversight; a lack of accountability and ownership of key risks by senior executives; a remuneration framework that had no bite; and [that the bank was] reactive, slow and had under-resourced internal systems and processes”.
He added that “while the CBA is a sound financial institution”, the “rap sheet” from APRA was “damning”.
Mr Morrison also highlighted that the prudential regulator is now requiring the major banks to provide a written assessment on their own cultures and findings once they have reviewed the recommendations of the report.
He said: “We need to be reassured. We need to have assurances provided by all of those key institutions that what has been identified here, in CBA, to the extent that it exists in other institutions, that is identified and being addressed, or has been assessed as not being present. I think that is a very important process that APRA will now undertake.”
Mr Morrison went further, though, suggesting that all boards across Australia should read the report and take into consideration company culture.
“The report, I think, is required reading not only for every financial institution in this country, but, frankly, it should be the next item on the agenda of every single board meeting in this country, regardless of whether you’re a bank or not,” the Treasurer said.
Mr Morrison added: “There are boards sitting around this country today who also need to read this closely and ask themselves the hard questions at the next meeting. And I expect them to do so. And their shareholders should expect them to do so. And their customers should expect them to do so, or they should take their business somewhere else.”
The Treasurer added that the report “goes to the heart of what responsibilities of board directors are”.
He said: “It’s not a retirement job. It’s a very serious job. I know that there are thousands of board directors around the country who take that job incredibly seriously.
“But this should be a wake-up call for every board member in the country, particularly those who are the custodians of the savings and shareholdings of millions of Australians. They expected better, those shareholders, of board members on this occasion and they have been let down, terribly.”
Mr Morrison went on to welcome the government’s recently enacted Banking Executive Accountability Regime, which strengthens APRA’s powers in assessing transparency and accountability of decision-making processes within authorised deposit-taking institutions.
The regime will require an ADI to notify APRA’s accountable persons with defined areas of responsibilities and obligations and authorises APRA to disqualify individuals who breach the required standards; importantly, each ADI must maintain accountability maps setting out who is accountable for key risks.
The new law carries fines for institutions of up to and over $200 million.
“This is serious action that the government was taking knowing full well of the issues that needed to be addressed in this sector.
“It goes to accountability, identifying the accountability and the risks that are associated with it, mapping it out and making sure that those accountabilities are lived up to within the governance structure of these organisations.”