APRA ‘unsure’ of CBA executive pay role, says Byres

The prudential regulator’s chairman says he should have pursued Commonwealth Bank harder over executive pay.

APRA chairman Wayne Byres.

The prudential regulator’s chairman, Wayne Byres, has admitted he should have pursued the ­scandal-prone Commonwealth Bank harder over its sky-high executive pay two years ago, as his predecessor called for the agency to dial up its “mongrel”.

Under sustained questioning at the Hayne royal commission, Mr Byres said despite being aware of a spate of issues at CBA, the Australian Prudential Regulation Authority didn’t take action or pursue change in late 2016 after the bank announced bumper pay packets for executives, including $12.3 million trousered by then-boss Ian Narev.

Mr Byres said APRA previously wasn’t confident to take on CBA over poor risk culture, conduct and pay matters because it didn’t have “sufficient expertise” at the time outside its primary role of supervising banks’ capital and stability.

“The issue had been flagged and called out,” Mr Byres said. “This was an area where we didn’t have the same capability … we were less sure of our ground as to what was reasonable to demand.”

In May, APRA lambasted CBA over its failings and culture. The bank has been at the centre of a string of high-profile scandals including thousands of breaches of anti-money laundering and terrorism financing laws, charging fees to dead people and stalling on paying out life insurance policies at subsidiary CommInsure.

Commissioner Kenneth Hayne’s interim report hit out at APRA for taking a soft-touch approach to financial institutions, including not pursuing them in court for failings, and Mr Byres yesterday admitted that over the past decade, the regulator had never taken action against a bank over bulging mahogany-row pay packets.

An APRA briefing paper from earlier this year, tendered to the royal commission, said the regulator had to lift its game. The commission heard the phrase “supervisory mongrel” was coined by former APRA chairman John Laker, as he urged the regulator to step up its level of aggression against banks.

Dr Laker was part of a panel that reviewed CBA for APRA, resulting in the regulator’s scathing May report.

“Supervision ‘mongrel’ is an attitude rather than a framework issue,” APRA’s board was told in the briefing paper.

“Senior leadership in APRA would need to set the tone on how this supervision ‘mongrel’ would operate in practice.”

Mr Laker, former competition tsar Graeme Samuel and veteran banker Jillian Broadbent presented the APRA board with the results of their scathing inquiry.

Mr Byres agreed with counsel assisting the commission, Michael Hodge QC, that APRA knew that CBA was not “identifying, escalating and addressing significant operational risks” by August 2016, when the bank announced its executive pay for the year.

APRA supervisors, concerned that CBA’s executive pay packets did not reflect the scandals affecting the bank, asked it to provide more information on how remuneration was calculated.

However, the response did not impress APRA officers, who were told the group’s chief risk officer had decided “there were no risk matters that should impact on the award of variable remuneration to the CEO or group executives”.

Mr Byres said at the time “there was a view within CBA that many matters were (afoot) and hadn’t been determined yet, Comm­Insure being an example”.

Mr Byres said the issue was not raised when he met CBA’s board in December 2016.

“We went to that meeting thinking we didn’t have to rub their nose in it,” he said.