The Commonwealth Bank has entered into an enforceable undertaking (EU) with the Australian Prudential Regulation Authority (APRA) as part of the regulator’s Prudential Inquiry into the big banking group.
APRA announced it had accepted the EU from the Commonwealth Bank at the same time as announcing the outcome of the Prudential Inquiry it started at the behest of the Government in August last year.
The over-arching conclusion of that inquiry was that “CBA’s continued financial success had dulled the senses of the institution”, particularly in relation to the management of non-financial risks.
The report also found what APRA described as a number of “prominent cultural themes such as a widespread sense of complacency, a reactive stance in dealing with risks, being insular and not learning from experiences and mistakes, and an overly collegial and collaborative working environment which lessened the opportunity for constructive criticism, timely decision-making and a focus on outcomes.”
APRA said the Prudential Inquiry Panel had identified:
- inadequate oversight and challenge by the Board and its committees of emerging non-financial risks;
- unclear accountabilities, starting with a lack of ownership of key risks at the Executive Committee level;
- weaknesses in how issues, incidents and risks were identified and escalated through the institution and a lack of urgency in their subsequent management and resolution;
- overly complex and bureaucratic decision-making processes that favoured collaboration over timely and effective outcomes and slowed the detection of risk failings;
- an operational risk management framework that worked better on paper than in practice, supported by an immature and under-resourced compliance function; and
- a remuneration framework that, at least until the AUSTRAC action, had little sting for senior managers and above when poor risk or customer outcomes materialised (and, until recently, provided incentives to staff that did not necessarily produce good customer outcomes).
Commenting on the outcome, APRA chairman, Wayne Byres said the findings showed the bank’s governance, culture and accountability frameworks and practices were in need of considerable improvement.
He said the EU had established a framework by which the big banking group would demonstrate it was addressing the full set of recommendations made by the panel.