SYDNEY, May 1 — A damning report into Commonwealth Bank of Australia says its financial success “dulled the senses” and engendered complacency in addressing risks such as its systemic breaches of anti-money laundering laws.
Insular attitudes, a lack of intellectual curiosity, inadequate board oversight and a pay framework that had “little sting” for senior staff at the nation’s largest lender created a culture where the focus was on process rather than outcomes, according to the report, which was commissioned by the banking regulator in the wake of the money-laundering scandal.
“A widespread sense of complacency has run through Commonwealth Bank, from the top down,” the inquiry found. “Commonwealth Bank turned a tin ear to external voices and community expectations about fair treatment.”
The scathing report piles further woe on Australia’s banking industry, which is grappling with the fallout from an inquiry into misconduct in the sector.
The probe has uncovered a litany of wrongdoing, from lying to regulators, falsifying documents and taking bribes, to extracting fees from customers long since dead.
The revelations have hit shares of the banks, as investors price in the potential for tougher regulation and higher compliance costs.
“Whilst it’s targeting Commonwealth Bank, the other major banks will do well to heed the comments and look themselves in the mirror,” said Daniel Smith, Australian head of CGI Glass Lewis, the governance analysis and proxy voting firm.
“The banks can’t afford complacency on culture and conduct.”
In the only financial sanction, the Australian Prudential Regulation Authority has applied a A$1 billion (RM2.95 million) add-on to Commonwealth Bank’s minimum capital requirements, it said in a statement today.
The lender will also appoint an independent reviewer to report on its progress in fixing flaws.
The bank has also been battered by a succession of allegations about its mistreatment of customers, from giving poor financial advice to failing to honor insurance claims.
The report was critical of the bank’s tardy response to such issues, saying that a “slow, legalistic and reactive, at times dismissive, culture also characterized many of Commonwealth Bank’s dealings with regulators”.
There needs to be an “injection into Commonwealth Bank’s DNA of the ‘should we?’ question in relation to all dealings with and decisions on customers,” the report says.
Commonwealth Bank shares rose 0.7 per cent in early Sydney trading. The stock has slumped 14 per cent since the scandal broke in August, as investors price in the potential cost of penalties and the likelihood of more regulation.
The report is another headache for new chief executive officer Matt Comyn, who is already dealing with the fallout from the inquiry into financial system misconduct, accusations the bank manipulated a benchmark interest rate and facing class action lawsuits, after succeeding Ian Narev last month.
“It’s confronting to read,” Comyn said in a statement.
“We have embraced the report as a critical but fair assessment of the issues facing us and we will act on its recommendations.” Comyn said he won’t take his short-term bonus this year.
The report should be a “wake-up call” for board members in companies across the nation, Treasurer Scott Morrison said.
“It is up to these institutions to step up, to ensure they never see these things happen in their organization again.” — Bloomberg
