The Australian Prudential Regulation Authority (APRA) has released its report into the Commonwealth Bank of Australia, finding that the bank’s “continued financial success dulled the senses of the institution”, especially in terms of monitoring and managing non-financial risk.

The inquiry was established following a series of incidents denting the bank’s reputation, including allegations of anti-money laundering and counterterrorism financing breaches.  

The report on the inquiry found that in addition to dulled senses, the bank also suffered 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”.

These governance challenges were compounded by poor understanding of non-financial risks.

“These [operational, compliance and conduct] risks were neither clearly understood nor owned, the frameworks for managing them were cumbersome and incomplete, and senior leadership was slow to recognise, and address, emerging threats to CBA’s reputation. The consequences of this slowness were not grasped," the report stated.

Should poor customer outcomes materialise, the bank’s remuneration framework had little impact on senior managers and above and could even provide incentives to staff that did not necessarily bring about good customer outcomes.

Improved accountability and customer focus part of the solution

The inquiry report recommended CBA focused on more rigorous board and executive-level governance of non-financial risks, improved accountability standards supported by remuneration practices and a substantial upgrade of the authority and capability of operational risk and compliance management.

Additionally, the report recommended CBA inject into its DNA a “should we” question when it came to all dealings with and decision made on behalf of customers.

The report also urged CBA to embrace “cultural change that moves the dial from reactive and complacent to empowered, challenging and striving for best practice in risk identification and remediation”.

APRA chairman Wayne Byres said: “The panel notes in its report that regaining community trust will require time, hard work and an undistracted risk and customer focus and that its recommendations should assist the CBA board and staff in translating CBA’s undoubted financial strength and good intent into better meeting the community’s needs and expectations.”