May 1, 2018

Commonwealth’s rotten culture exposed as bank cops huge penalty

The Commonwealth Bank, from the board down, had a poor culture that ignored risk and bad customer outcomes and rewarded poor behaviour. Now the prudential regulator has hit it with a $1 billion penalty.

Bernard Keane and Glenn Dyer

Politics editor / Crikey business and media commentator


While the primary business focus has been on the AMP debacle this week, the Australian Prudential Regulation Authority this morning revealed that, even without criminal charges, the Commonwealth Bank and its board is every bit as bad as AMP and probably worse. So bad that APRA has slapped the biggest financial penalty ever on an Australian company and damned the bank's weak culture and hopeless board oversight.

APRA appointed a three person committee to examine the CBA’s culture and processes in the wake of AUSTRAC's money laundering allegations, which have already cost CEO Ian Narev his job and seen the bank replace four directors. The report from former APRA chair John Laker, businesswoman and RBA board member Jillian Broadbent and former ACCC head Graeme Samuel is scathing. “CBA’s continued financial success dulled the senses of the institution”, it concludes, particularly in relation to the management of non-financial risks (like complying with the law). It was "complacent" and "desensitised to failings with customers". It was "reactive": "operational risk and compliance issues tended to receive attention only once they had emerged ... a slow, legalistic and reactive, at times dismissive, culture also characterised many of CBA’s dealings with regulators" and it was "insular" -- including "[turning] a tin ear to external voices and community expectations about fair treatment."

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11 thoughts on “Commonwealth’s rotten culture exposed as bank cops huge penalty

  1. Smit

    So the non-penalty primarily hits the shareholders (by reducing profitability slightly) while management keeps all the excessive pay and bonuses accrued to date. I suggest a few prison sentences would send a better signal.

  2. Jim Egan

    More than a few prison sentences are needed. Corral all the CEOs and Board Chairpersons (and complicit subordinates) and start with 10 years hard labour for the worst offenders. Fine the top dogs their total remuneration since the dates of the crimes committed. This might mean their entire tenure in the Bank.

    In fact I am surprised that a ‘contract’ has not been put out on a top dog. For $15K a service to the community could be performed, one life lost or seriously maimed, and many customers saved into the future.

    Reason this: The Big Bank has just ruined you at age 60 by lousy advice and you will now have to work to 80 or die prematurely; it has foreclosed on viable businesses which never missed a loan repayment by unilaterally ‘re-rating’ the assets and sent people like my wife’s closest friends to the wall.

    A lost business of 30 years hard work, lost home and early death of husband has resulted. Your life will be shite for the next 15-20 years in any case.

    Why not serve the next 15 years at her majesty’s pleasure, well fed and watered, respected by the other inmates, running the library and giving trade classes and having conjugal visits. Revered by all those in a similar position, darling of the media, and striker of terror into all the finance spivs and grubs into the distant future. You know it makes sense.

  3. graybul

    Bernard and Glenn . . . Best post have read in last six months. APRA has genuinely delivered a calculated whack on the knuckles likely to bring tears to eyes for some time into future. And now we await the RC’s contribution. Let’s hope they seriously address the political/ finance industry linkage as well as individuals. This Commission surely has an opportunity to completely ignore false apologies; protection or threats by those in high places; and endless cries of pain or remorse.

    1. bref

      Just the first of the glossy reports. We’ve been here before. I await the coming faux mea culpas and effete new regulations. ALP, save your affected outrage, you guys were only marginally better when you were in power, think of sensible policies to take to the next election instead.

  4. klewso

    “Thanks ever so much for showing us where we went wrong. This is the most humble day of our lives.”????
    Big business? What does it say about the moral compass of those “in charge” that an outside body had to come in to show them the way? What does it say about those that appointed such amoral twats to these positions?

  5. Peter Wileman

    So, poor old Ian Narev lost his job. $12 million a year. He clearly wasn’t up to it, but let’s just let him run off into the sunset with his loot, paid for not being able to do the job he was overpaid to do! A fish goes off from the head.
    Ian was the head.
    He allowed all of this to criminal activity to happen on his watch.
    Let him apply for Centrelink and he’ll be in the clink before he can blink. But of course he’ll be more likely meeting up with Malcolm at some time ‘offshore’ to compare notes.

    1. Jim Egan

      I’m for bringing Narev back in a tumbril, fining him all his ill gotten gains and putting him on trial with the end game a 10 year sentence. Similar for the Mike Smiths, Gail Kellys and all the other fleas who have fleeced the punters.

  6. Wexford

    “The Business Council…is essentially a branch office of the Liberal Party”
    Is it not the other way around?

  7. Administrator

    Do not accept the CBA offer of an Enforceable Undertaking ! That would merely provide a fund for the payment of future indiscretions.
    Also, the EU seeks coverage of whatever further breaches are disclosed by the RC. It is a blanket Get Out Of Jail Free request.
    Hell no ! It is past offences requiring of enforcement. These are breaches of culture at the highest level, committed by the Board, and they may not be allowed to escape just sanction.
    Why was the Board distracted from its duties? Because it has been allowed by sleeping regulators and governments to diversify from banking into superannuation, insurance, stockbroking, wealth mismanagement and a host of business activities for which its talents are unsuited. Banking is a specialised industry. That is why we have a Banking Act, licences and specialised regulators. The risks requiring management in Banking are quite unlike the risks to which the Australian Big Four have exposed themselves.
    This issue can only be fixed at its root. Divestiture of the non-bank businesses is the only way the public can continue to underwrite the Lender Of Last Resort role of the RBA.

    1. Jim Egan

      Sounds like Glass-Steagal of the FDR era? Yes??

      If you rob or defraud someone, you don’t getaway with restoring their loss (maybe with interest) and calling it quits. You get charged with a crime and pay that penalty (maybe with jail time) THEN you get to pay restitution to the victim.

      That is what should happen to Bankers (from Chairman down) who have committed these crimes.

  8. [email protected]

    Your right the 1B AUD is not really a penalty, all that has happened is APRA has put some undertakings on CBA that included a 1Billion increase in common equity, effectively tying up assets that could have earned about $100 million a year, which is a significantly lighter penalty for such a large number of transgressions by the bank for so many years.

    Also the bank is obliged to fix up its processes and systems which is a significant task. CBA’s recent real time core banking system where most of the customer accounts are posted and stored needs to be supported by systems that can do real time monitoring, same day reconciliations, investigations and reporting of suspect transactions. Particular in the payments and funds transfer area now that we have the real time new payments platform being launched by the banks, along with existing domestic and overseas clearing systems that also need to be rigorously monitored for CTF and AML.

    I suspect this work may come in at over 1B AUD when you add the people, the project development work, the testing and operational aspect of such an undertaking. It may take many take years with extensive cost overruns as its doubtful they will find the right people with the skills and knowledge of the current ageing legacy systems that need to be fixed. Added is the complexity of the information technology which is in the hands of numerous outsourcing companies, along with the loss of many in house managers and specialized staff having moved to Westpac to work on their new banking system or having retired.

    The you have the CTF and AML breaches that have not been settled with Austrac, if you just take the transactions agreed by the bank and the maximum fine for each transaction you are looking at putting the bank into receivership. If through mediation or the court, the fines are awarded on a comparative basis and with the interest shown by US FinCen regulator you are looking at fines upwards from 800m AUD, which was the amount Bancorp was fined for AML breaches in the United States. The fines could be higher still if they are assessed on the excess profits the bank made by cutting corners in monitoring and compliance.

    Its all likely to add up to considerable time and expenditure and the bank will be lucky to escape with only a few billion in costs and fines!

    The regulators will need to closely monitor the bank for any recidivism when the remediation works gets tough and costs go up shrinking profits. It may be necessary to have a government representative on the board to ensure compliance.

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