Since Austrac’s action against CBA was first announced earlier this month the main interest has been in what the allegations said about governance, culture, risk management, compliance reporting and accountability within the CBA. APRA will now investigate those issues.
In a swift sequence it was disclosed that:
- the Board has reduced to zero the Short-Term Variable Remuneration outcomes for the CEO and Group Executives for the financial year ended 30 June 2017 (notwithstanding the Bank’s record annual $9.9billion profit);
- the fees of non-executive directors has been reduced by 20 per cent in the current 2018 financial year;
- the CEO will retire this financial year;
- ASIC is investigating whether CBA breached its continuous disclosure obligations;
- a shareholder class action is being formed.
The Australian Prudential Regulation Authority (APRA) has announced its intention to establish an independent prudential inquiry into the Commonwealth Bank of Australia (CBA) focusing on governance, culture and accountability frameworks and practices within the group. Terms of Reference.
The prudential inquiry will be conducted by an independent panel, to be appointed by APRA. Subject to settling the final terms of reference, 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.
APRA Chairman Wayne Byres said the decision to initiate a prudential inquiry followed a number of issues which 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.
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.
“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 costs of the inquiry will be met by CBA.
The Inquiry’s goals will 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.
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.
House of Representatives Standing Committee on Economics
The House of Representatives Standing Committee on Economics has announced it is to hold a third public hearing with Australia’s four major banks in October, as part of its ongoing mandate from the government to review the banking sector.
Westpac and ANZ are to appear on 11 October, with NAB and CBA appearing on 20 October.