CBA's Livingstone says board rarely challenged management

Commonwealth Bank chairman Catherine Livingstone says the bank's board up until recently rarely challenged management and this led to serious misconduct issues being overlooked, including CBA's $700 million fine for breaching anti-money laundering and counter terrorism financing laws.

Ms Livingstone told the royal commission on Tuesday that before she was chairman but still a CBA director it was rare for board members to challenge assertions and assumptions put forward by management.

Commonwealth Bank of Australia chair Catherine Livingstone.Credit: Joel Carrett

Ms Livingstone made the comments while giving evidence at the hearings in Sydney where she was grilled by counsel assisting Rowena Orr, QC.

Ms Livingstone, who became a CBA director in March 2016 and chair in January 2017, took to the witness box after CBA chief executive Matt Comyn who gave explosive evidence that former CBA boss Ian Narev told him to "temper your sense of justice" when Mr Comyn raised concerns some customers had been sold worthless consumer credit insurance policies.

Ms Orr spent a good part of the afternoon drilling into how and why the CBA board did not respond to a litany of misconduct.

Illustration: Matt GoldingCredit:

Illustration: Matt GoldingCredit:

This included serious issues that were identified during Ms Livingstone's tenure as a director and then chair, including CommInsure's use of outdated medical definitions, fees for no service and remediation of more than $100 million to customers, regulatory action over foreign exchange misconduct, mortgages being sold inappropriately and a scathing prudential inquiry that led to the bank being made to hold an extra $1 billion in capital.

"What were your views of the operation of the board at that time under the previous chair," Ms Orr asked Ms Livingstone.

"I was quite surprised by the lack of challenge," Ms Livingstone replied.

Ms Orr then asked: "What surprised you about it? Was it inconsistent with the style and frequency of challenge on the other boards that you have been a part of?"

Ms Livingstone agreed that was the case, pointing to similar issues being raised in a prudential inquiry into the bank conducted by the Australian Prudential Regulatory Authority.

"The point the prudential inquiry made about the follow up of issues I think the urgency there and the degree of follow up in general terms is not what I had been accustomed to."

Ms Livingstone has been the chair of Telstra, the CSIRO and the chancellor of the University of Technology Sydney.

The commission also heard CBA, Australia’s largest listed company, used to only provide incoming directors with a briefing paper of what the bank does and how it works.

New directors did not receive a broader document that covered a list of issues facing the organisation, Ms Livingstone said. Instead they are expected to glean an understanding of the complex issues the business faces from a series of meetings.

This included CBA's issues with Austrac.

Ms Livingstone said she had become concerned ahead of the bank's October 2016 board meeting that the board was not getting the full picture from management after the bank received a second notice it was in breach of anti-money laundering laws.

"I challenged management about why we were getting these notices," Ms Livingstone said.

"I have to say I was concerned about the fact of the notices and I had experience with Austrac in a previous role. It didn’t feel quite right to be me that Austrac would be comfortable with where we were but management provided assurances that they were fully informed about the situation in terms of our level of compliance."

When asked by Ms Orr which member of management gave the assurances, Ms Livingstone said it was the chief financial officer. David Craig was CFO at the time.

Ms Livingstone was taken to board minutes for CBA's December board meeting after Ms Livingstone said it was either October or December when she challenged management about the Austrac investigation. However, the bank's December board minutes do not show a discussion of the issue in December.

“No they don’t, but that wouldn’t mean that there wasn’t a discussion,” Ms Livingstone said.

"Why is that," asked Ms Orr.

“I can’t say why that is but it would have been discussed,” Ms Livingstone said.

Ms Livingstone will continue her evidence on Wednesday.