Banking royal commission: Round 7 — policy and CEOs - Matt Comyn

CBA CEO says he tried to warn predecessor Ian Narev and others at least three times about problem insurance products.

Senior counsel assisting the financial services royal commission Rowena Orr QC. Picture: Supplied

Welcome to our live coverage of the seventh round of the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry, this week being held in Sydney.

This morning the hearings began with some opening statements from senior counsel assisting the commission Rowena Orr QC, followed by the appearance of Commonwealth Bank CEO Matt Comyn.

In her statement, Ms Orr made it plain that the commission wishes to hear no more apologies and pledges from executives to do better. Rather it wants to get to the causes of the issues its case studies have uncovered.

This morning Mr Comyn has conceded that using short-term remuneration to encourage staff carries inherent risks that staff will be encourage to the wrong thing by customers. But CBA still sees bonuses as a necessary performance management tool.

He’s also been asked about conflicts in the mortgage broking channel, which CBA has announced it plans to exit. We’ve learned Mr Comyn had a well-developed plan to change the bank’s relationship with brokers. But the bank suddenly went cold on the idea.

During the afternoon sesssion, Mr Comyn made the surprsing revelation that he tried to warn CEO Ian Narev and others that the bank was selling problem insurance products, but that the advice, which had also been given by people outside the bank, had gone unheeded.

Thanks for joining us today. We’ll be back when Mr Comyn resumes his stint in the witness box at 9.45am tomorrow.

4.17pm: Wealth division concerns

Mr Comyn says he took false comfort from differences between the Australian and UK contexts when weighing up the risks in CBA’s consumer credit insurance division.

Despite internal documents raising concerns on CBA’s Credit Card Plus product and its similarities to the UK’s similar payment protection insurance scandal, he says no actions were taken to remedy the issues.

He says he raised the issue with others in the organisation but that “there was not demonstrable evidence that anything was going to come from that”.

Going through the chronology of the issues, in evidence tendered to the commission Ms Orr reads out an email from CBA head of wealth Annabel Spring which expresses concerns in March 2015 that sales of those products might be halted.

Ms Orr struggles to actually read the acronym-laden message.

“I’m sorry, we have our own language, and that’s another problem,” Mr Comyn apologises.

Ms Spring refers to rumours that the sale of insurance products will cease.

Ms Orr asks if the products were profitable for CBA.

Mr Comyn estimates that those products might be worth $150 million per year.

“So these were profitable products,” Ms Orr suggests.

Mr Comyn says that in the eyes of a “reasonable person” they’d be considered profitable, but that the scale at which CBA operated mean that it had walked away from businesses that delivered those sorts of returns.

Mr Comyn says that in March 2015 he had yet to reach the view that sales of the problem products should be halted, but says at that stage he had several conversations with his predecessor Mr McEwan in which he’d recommended to stop selling them.

Mr Narev and Ms Spring had been given the same advice by Mr McEwan, Mr Comyn says. Further emails showed Mr Comyn had asked some of his direct reports to be “sensitive” about the issue and so allow a product review to proceed properly.

Mr Comyn concedes the bank’s Creditcard Plus product should not have been sold to 64,000 customers as identified in a review in April 2015, and failed to implement changes to sales scripts recommended by ASIC in 2011.

Commissioner Hayne points out that it was about this time, in early 2015, that NAB-owned Clydesdale was fined milllions of pounds over the miss-sale of PPI products.

“That would have been a matter of note in the Australian banking industry, would it not?” the commissioner suggests.

Ms Orr then suggests that questioning would be better continued at the slightly earlier time of 9.45 tomorrow morning, and so the hearing is adjourned.

3.47pm: Key report went unseen

Alarm bells as to poor customer outcomes with consumer credit insurance could be heard as early as 2011, Ms Orr says.

Despite a number of recommendations from external sources, CBA continued to distribute those products. The bank failed to implement the advice, it had been given.

“We did not Ms Orr, we should have and we did not,” Mr Comyn concedes.

“We did not do a thorough assessment and understanding of (ASIC’s) report 256. We didn’t sufficiently thoroughly review both the scale of sales scripts... we over-relied on disclosure documents.

Mr Comyn says says no one within Retail Banking Services division recieved a copy of an internal audit report dated October 2012.

The report was given an Amber rating - something Ms Orr says that today would be judged to be risk.

Mr Comyn says today, that report would have been escalated to the board and have had dates firmly set for when those issues would be fixed.

“But none of those things happened...” Ms Orr suggests, confirming that the first time that Mr Comyn saw the report was when it was highlighted by the commission.

3.29pm: Narev’s indecision

Former CBA CEO Ian Narev. Picture Kym Smith

Mr Comyn says he started to develop concerns about the sale of consumer credit insurance products from about 2014.

He said he had concerns as to the value of the product, the eligibility criteria, whether the bank was meeting a genuine need, the claim payout ratio, and whether some elements of the product provided appropriate value and benefits for the customer.

Ms Orr asks if he regarded them as “poor value” products.

“Certainly as it related to other insurance products and life insurance products, yes, I think they are lower value,” he says, adding that he did have concerns that customers didn’t understand the products.

“I was concerned broadly about sales practices and targets around the sale of products.”

“Were you concerned that customers didn’t understand those products?”

“Yes.”

“Were you concerned that there were poor sales practices around those products?”

“Yes.”

Ms Orr asks Mr Comyn what action he took as the result of the concerns he had developed in 2014.

After some initial evaluation, he told CEO Ian Narev.

“In the period of 2015, I discussed my concerns with the chief executive. I discussed my concerns again in 2016 with the chief executive, and on at least three occasions raised those concerns. We I had the decision rights in March of 2018, I ceased the sale of two of the three products that you are referring to - Creditcard Plus and personal loan protection insurance” he tells Ms Orr.

“What was the CEO’s reaction when you raised these concerns about the products?” Ms Orr asks.

There’s a bit of a pause before Mr Comyn answers.

“I raised the concerns, he had a differing view,” he says of his conversations with Mr Narev.

“I raised at various points in time, and certainly suggested a decision to suspend those sales.

“There was generally indecision around that and I took that indecision to be the decision,” Mr Comyn says.

Ms Orr asks Mr Comyn to confirm that the products continued to be sold, despite his concerns as head of the retail bank. “Yes,” he says.

Mr Comyn says his concerns had their origin in discussions with British bankers over the scandal-plagued PPI insurance products, which were similar to those CBA were selling. Those discussions included conversations with his predecessor Ross McEwan, who by that stage was running the Royal Bank of Scotland, Mr Comyn says.

3.15pm: Less reliance on HEM

Ms Orr’s questioning turns to the residential mortgage risk management practices at CBA: an issue raised by APRA as to its reliance of the borrower benchmark known as the Housing Expenditure Measurement (HEM).

“I acknowledge that the level of HEM usage as a prudent floor at that point in time was too high. It is lower now and needs to continue to become lower during the course of the months ahead,” Mr Comyn says.

He says its reliance on HEM is “coming down each week”.

CBA has invested in new systems to better capture customer spending and reduce its alliance on HEM, he says.

“I would certainly like to see it in the 50s very soon and am very confident its going to be at that level very soon... somewhere aroudn 40 or 50 per cent should be largely reflective of the underlying expenditure.”

3.04pm: Trailing commissions

Financial services royal commissioner Kenneth Hayne. Picture: Supplied

Mr Comyn says there is no plan as to how to comply with ASIC’s recommendation 18 in its broker remuneration report, saying moving unilaterally would be “extremely challenging”.

“So you are waiting for the commission Mr Comyn?” Ms Orr says

“You seem to be probing in the right areas,” he says.

“Why is a trail commission paid to a broker any different to a fee being charged for a service that’s not provided in the financial advice industry,” Ms Orr asks, promptings murmurs from those seated in the commission.

(Peter Brandson, CEO of Bank Reform Now, is one of the people seated immediately behind Ms Orr, and he is sporting a t-shirt prominently displaying his logo.)

“I understand that the mortgage broking commission model originally was not unlike what we’ve discussed today, insofar as a flat fee, and it evolved to be an upfront a trial,” Mr Comyn replies.

Commissioner Hayne chimes in to ask whether there is at all any ongoing services provided by the broker.

“Ongoing services would be limited commissioner,” Mr Comyn replies.

“Limited or none?” Commissioner Hayne asks

“Closer to none,” Mr Comyn replies — again sparking laughs from the courtroom.

“I’ll take that as none”

2.55pm: Out on a limb

Ms Orr continues to dissect a report from CBA which overwhelmingly comes to the conclusion that broker commissions should be scrapped and a flat fee model implemented in its place.

“We believe this is an opportunity that will not be repeated and one that requires decisive action,” Mr Comyn wrote in the April 2017 document.

“Well what happened, Mr Comyn?” Ms Orr asks.

“We come to a view that nobody will follow. And we will suffer material degradation in volume. And we will to improve customer outcomes,” Mr Comyn replies.

“Why not change Mr Comyn?” Ms Orr asks.

“I can certainly see advantages in that model. I would add that that view would not be supported by other participants in the industry,” he says, adding that in his view the best approach is that of the Netherlands example.

2.44pm: Backflip on brokers

Ms Orr tenders emails between Mr Narev and Mr Comyn, discussing their competitors and potential to change the model for broker commissions.

Remember at this time Mr Comyn was head of Commonwealth Bank’s retail banking operations. The delivery of the Sedgewick review’s report was imminent.

“A discontinuity in this construct would be referring to the opportunity to reshape the commission model in the market in order to improve customer outcomes..,” Mr Comyn says of the potential to be the first mover to scrap commissions.

In an email in April 2017, he says the bank discussed a proposal to delink the value of a loan from the broker commission and replace it with a flat fee.

It’s something that had been touted for implementation in February 2018.

Broker commissions had increased 45 per cent since 2009 as the result of increased house prices, Mr Comyn notes in the email to Mr Narev.

From Mr Comyn’s email, the bank was very close to announcing such a move, with the announcement to be made the following week.

Ms Orr is surprised that the change did not go ahead.

“You were proposing to announce this in the following week,” she says.

Mr Comyn says that Ms Orr is right and that he was “very seriously considering” changing the broker remuneration structure at the time.

“It seems you were more than considering it, Mr Comyn. You were proposing to announce it the next week,” Ms Orr says.

“Yes that’s right.” Mr Comyn says he’d moved to a “firm recommendation”

This brings a laugh from Ms Orr, who points out again that the change was about to be announced.

But she moves on.

At the time, Mr Comyn said the change to the broker commission structure would not “break” the broking industry.

“It would certainly have been a high risk move to try and reshape the industry by ourselves. We had tried to structure in a number of payments because we were very conscious of the fact that there are thousands of very high quality mortgage brokers,” he says

“And changing the economics of their industry would — for very understandable reasons — wouldn’t be well received.”

Figures from a CBA report says the impact of proposed arrangements on new brokers would reduce expected broker revenue on an average loan from $6627 to $2310 — aligned with market guidance on the expected price of $2500-$4000 for complex financial advice.

2.28pm: No first mover advantage

As the discussion about mortgage lending continues, former CBA employee and whistleblower Jeff Morris has taken up a seat right behind Ms Orr as she continues to question Mr Comyn.

Ms Orr cites a statistic from the Productivity Commission that smaller lenders would need to open 118 new branches to generate the equivalent market share achieved through brokers.

Mr Comyn agrees with that statistic and says that competition is a good thing for customers in the home loan market.

“But so is removing remuneration models that are inherently conflicted and therefore create the risk, according to your work at CBA, the reality, of poor customer outcomes.” suggests Ms Orr. Mr Mr Comyn agrees.

In a letter from February 2017, CBA raised the idea of a flat fee payment for brokers, which could enable brokers to be agnostic towards loan size and leverage.

“Despite presenting the consumer pays flat fee model, by February 2017 the bank had moved instead to a flat fee paid by the lender … Why didn’t you go to the Netherlands model instead of the lender model?” Ms Orr asks.

Mr Comyn says that taking such a move would offer no real advantage to customers, as the industry would not follow its lead. CBA would also suffer commercially.

“There would be a commercial detriment to us and no accompanying improvement to customer outcomes. And a shift to a flat fee bank pays, we thought was more likely to be something that would be contemplated here,” Mr Comyn replies.

Commonwealth Bank CEO Matt Comyn en route to his appearance at the financial services royal commission in Sydney. Picture: AAP

2.15pm: Fees for brokers?

The afternoon session has begun with CBA chief executive Matt Comyn still in the stand.

Senior counsel assisting the commission Rowena Orr QC brings up the example of the Netherlands removing conflicted remuneration for brokers, and the way Mr Comyn had analysed that example.

Key takeaways were that a customer-centric starting position should minimise the impact of changes and to expect significant drops for products that are “sold”, rather than “bought”, products, as Mr Comyn puts it, that customers might not know that they need.

Adding to that, CBA said that the fixed-fee, consumer-pays broker model encouraged price competition, reducing broker revenue.

The banks scale may give them a price advantage here, because of their greater ability to absorb cost. So a regulator may “level the playing field” by forcing banks to charge for service to put them on an equal footing with brokers. .

Mr Comyn says a flat fee paid by the customer would lead to better customer outcomes than the present commission model and that it would reduce the broker’s share of the home loan market — dependent on where the fee was set.

“What surprised me in the Netherlands was the dramatic shift. Despite, as you would imagine, a lot of resistance, over time it actually, at least in their view, had proven to be quite effective.”

But Mr Comyn says fees to the consumer would create a distortion between brokers and financial institutions, what would require regulatory intervention to prevent.

1.55pm: Calls went unheeded

One of the key revelations from this morning’s hearings was that CBA apparently ignored the advice of its own staff that things were wrong.

The revelations came in messages from executives to CEO Matt Comyn in response to his call for feedback following the delivery of APRA’s report into the bank in May.

Former CBA wealth executive Marianne Perkovic said in a letter to Mr Comyn that the bank relied too much on consultants and other advisers and had not done enough listening to customers.

Joyce Moullakis and Melissa Yeo have looked at the issue in more detail here.

Picking up the same thread, Richard Gluyas says Mr Comyn will now have to listed to those lost voices as he seeks to remake the bank’s culture

12.57pm: Broking channel outcomes

The commission now examines results from a five-year, longitudinal study into broker commissions and lending practices, which was lodged to ASIC back in 2016.

In one slide it shows offers of higher broker commissions are associated with increased flows to lenders.

It’s shown as a 5.9 per cent increase to flows as a result of increased commission, and a 5.1 per cent decrease when that commission was decreased.

Further, analysis from that study showed broker-originated loans are paid down more slowly, costing borrowers more in interest.

Ms Orr says she has another document to review, but then agrees with the Commissioner’s assessment that it might be a good time for lunch.

The hearing will resum at 2pm.

12.45pm: Questions on home lending

Questioning turns to home lending and its bonus structure.

CBA has a huge mortgage lending business. Yet it also owns mortgage aggregators like Aussie.

“Why has CBA owned, or part owned aggregators?” Ms Orr asks.

“Aussie was an explicit strategic choice going back to 2008 as it was seen as an explicit distribution channel,” he answers.

But now that it’s selling these channels, CBA’s view has clearly changed.

“Our views have shifted in that time,” Mr Comyn says.,

Mr Comyn said bank executives detailed the plan to exit mortgage broking to the board in May.

“Do mortgage brokers provide a valuable service?” Ms Orr asks.

“Yes,” is the response. Brokers do provide a valuable service to customers, when it’s done well.

Adding to that, he says changes to bank capital requirements have led to a complexity in the product offerings of bank lenders.

“In your opinion do mortgage brokers provide financial advice?” Ms Orr asks.

“Yes.”

“But under the present legislative framework, financial planners and advisers are not permitted to receive conflicted remuneration, but mortgage brokers are.”

“Yes.”

12.24pm: Shifting on remuneration

An email response to Mr Comyn from former CEO Ian Narev asks what the beliefs and principles behind CBA’s incentive scheme are:

“Do we believe it is necessary for discretionary effort? Is it necessary for establishing/reinforcing priorities?” Mr Narev asks.

“Customers lack the financial literacy to understand their needs and the products to best meet them,” Mr Comyn replied at the time.

“So we need to create an environment where out frontline is proactive. We believe that variable compensation is an effect way to motivate people to provide discretionary effort.”

In response to this evidence, and asked by Ms Orr if the bank actually “needs” the incentive structure, Mr Comyn says he is “shifting on the spectrum; the shift being in a direction away from incentives.

12.14pm: Failures in advice

Mr Comyn says clearly the bank had failed in some ways to deliver advice on a general basis.

“I am generally grappling with how to deliver general advice products. In the case of general super I am happy to no longer do that,” he says.

“Do I think that it should be left solely to the financial advisers? How we most appropriately meet a need and not a sale and how to strike that balance is, I think, an important point,” he says.

12.08pm: Foreign examples

Referencing international examples from the Netherlands and UK, Ms Orr asks Mr Comyn about caps on incentives and how Australia differed to those examples.

In an email tendered to the commission, he says he saw four differences to those markets:

• Australian banks were not responsible for the economic disaster that impacted Europe and the US during the GFC, and therefore have not faced the same regulatory scrutiny,
• that market structure and conduct in Australia led to an environment focused on good customer outcomes
• that there was no evidence of widespread miss-selling and
• incentive schemes had already been through efforts to orient them towards good customer outcomes.

But in replying to Ms Orr he says acknowledges that the differences with offshore banks were no longer as great as they had been.

11.54am: Teller bonuses

Commonwealth Bank CEO Matt Comyn appearing at the financial services royal commission in Sydney. Picture: Supplied.

Commissioner Hayne asks what horizon he should make his decision on.

“Long term Commissioner, that is certainly mine in respect of the tenure of my time as about some of the matters we’ve been discussing,” Mr Comyn responds.

Continuing along the line of incentives — Ms Orr brings up an email discussing how CBA compares to its competitor banks in regards to its incentive structure.

She asks what Mr Comyn meant by his comment that Westpac’s moves had been “vague but yet powerful in the marketplace” and whether the bank’s removal of teller bonuses was driven by customer outcomes or the perception from the market.

CBA has also removed teller bonuses.

He says the removal of those bonuses has as yet not resulted in a deterioration in their performance.

“Having their performance solely evaluated on their advocacy as opposed to an element of financial performance, I would say for many, if not the majority, would be their preference.”

11.44am: Shareholder views on variable remuneration

Attention turns to an email from Mr Comyn to CBA chair Catherine Livingstone sent ahead of his appointment in the CEO role, in which he foreshadows issues likely to be raised in the royal commission.

In the email brings up reward and incentive arrangements for their staff and residential lending standards, something he said at the time could be a further material risk.

Mr Comyn says he has considered moving away from short term variable remuneration but to date has not opted to move away from that model.

“Nothing would need to happen other than for you to make that decision,” Ms Orr says, “but you have not decided to respond to those links by removing variable remunerations.”

Ms Orr asks whether there would be any problem to be the first retail bank to remove variable remuneration.

“I would be conscious of an even playing field across financial institutions and key intermediaries such as mortgage brokers. Those sorts of concerns would not exist for many other roles,” he says.

He says a first-mover disadvantage would not be felt within the retail bank but says he “probably” thinks any change would correlate with a drop in performance.

“There is an alignment issue that would need to be addressed. It would be quite easy for me to remove variable compensation for a range of roles … but for the people further up it isn’t as effective as it otherwise could be …”

He says shareholders, and in particular institutional shareholders, are reluctant to remove financial performance from management metrics for the appointment of short term remuneration.

He says retail shareholders care about their dividend, but says they want the profits that fund that dividend to be earned ethically.

11.24am: Why not demotion?

A report on incentive schemes is tendered to the commission.

“We have to focus on holistic motivation, not just formal incentives … at its most fundamental, our people care about job security, personal growth, a positive environment and career advancement,” the board paper says.

“CBA has a strong service culture and our people are intrinsically motivated by feeling that they are helping customers and playing their part in a winning team.”

Ms Orr suggests demotion could be used as tool of consequence management, rather than simply withholding variable pay.

Mr Comyn pauses to think.

“You don’t do that in CBA?” Ms Orr asks

Mr Comyn concedes that demotion is “certainly not common practice”.

Mr Comyn agrees that using variable remuneration to encourage performance has “inherent risks”.

Mr Comyn agrees that there have been examples where variable remuneration has encouraged staff to do the wrong thing by customers.

Ms Orr references the Dollarmites example, where branch staff deposited money to make accounts active.

“One of our failures at that point in time is that we had not considered that staff would deposit money into that account to allow for activation,” Mr Comyn says.

11.13am: Remuneration questions

Turning to remuneration Ms Orr asks about the structure of CBA bonus payments.

Mr Comyn says he does not refer to the short-term variable remuneration as a “bonus” because it sends the wrong message about being something in addition to just coming to work.

He says short term variable remuneration is important and can be both a way of eliciting discretionary effort as well as a form of consequence management.

“We want to make sure that we set an environment where people are striving to do their best and to ensure that their performance is well balanced and appropriate,” he says.

He says a fixed remuneration is not sufficient.

“I understand that for the vast majority of people it may be hard to understand why a fixed component would not be sufficient,” he says. “Try and explain it to me,” Ms Orr encourages him

Mr Comyn begins an anecdote about a lender at a British bank which had cut out all bonuses, instead a larger fixed remuneration. This banker told Mr Comyn that removing the incentive meant that she did 30 per cent less work.

Commissioner Hayne wants to know more. “Selling 30 per cent less, or doing 30 per cent less work? There is a real and radical distinction,” he says. “I would say both, Commissioner,” Mr Comyn responds.

Ms Orr asks if there are ways other than bonuses to motivate front line staff. She reads a list of possible alternatives to Mr Comyn, including methods such as promotion and gaining satisfaction from helping customers. He accepts they’re all appropriate and suggests CBA uses many of them.

But the bank still believes short-term variable remuneration still needs to be part of the mix.

11.04am: Listening to staff

Mr Comyn says he is making staffing changes to ensure increased compliance but Ms Orr says the response is not just about more people but listening about the staff that the bank already has.

Mr Comyn says within senior levels there was too much focus not just on collaboration but also a sense of relationship at all cost, what needs more sharpness and a willingness to listen and challenge each other.

11.01am: Concerns went unheard

Ms Orr turns to a letter reflecting on the APRA findings from senior Commonwealth Private’s executive Marianne Perkovic to Mr Comyn, in which she says she wasn’t able to speak up loud enough to have her concerns heard.

“We have relied too much on legal, finance and consultant view on how to run our business at the expense of customer and community expectations,” says the letter, which is being read out loud to the commission.

“We are too reative and only increase our sense of urgency to fix things if issues become mandatory compliance, it’s a regulatory change and gets raised at the CBA board or becomes a media/reputational risk.”

Mr Comyn agrees with this second point, saying it is a “common theme”.

A response from Larissa Shafir, a CBA general manager of compliance, is tendered to the commission. The note describes her teams feeling as “vindicated and relieved” that risk and culture comments reinforced what her team had been saying for “some time now”.

Ms Orr says Ms Shafir’s comments are an indictment of the culture within CBA in relation to the treatment of compliance risk, and operational risk more generally.

10.49am: Reviewing the APRA report into CBA

Moving to APRA’s prudential review into CBA, Mr Comyn said it opened his eyes to how culture, governance, accountability and consequences manifested within his organisation.

He says he sent the report to his top 500 executives. In an accompanying letter he wrote that some executives might think its findings were untrue or that they didn’t apply to them. But they had to each reflect on what resonated with their teams, where there was resistance and where the report would change their behaviour.

He says lessons from those letter and the findings are:

“A feeling of disappointment, embarrassment, very much an acceptance of some of the key issues that were there, in terms of our inability to escalate and resolve conflict.”

A response from group auditor Mark Worthington described the report was a ‘double edged sword”

“For it lends credibility to our work but has now led to too much public criticism of the organisation … frankly, there is not much in the APRA report that Audit has not said before, but perhaps we need to improve in the area of articulating our views.”

10.38am: Relationships with customers

Asked what the overarching cause might have been for the breaches identified during the commission’s hearings, Mr Comyn says it comes down to relationships, for example lender to borrower.

“In too many instances we did not understand the various relationships which do differ depending on what we are providing for our customers, and therefore, a clear understanding of the duties and obligations associated with that.”

He says he thinks the bank should have understood the obligations attached to all relationships.

For example, he says that evidence about the behaviour of financial advisers dating back to the early 2000s cannot simply be attributed to a “small number” of advisers who acted badly.

“Well, a culture of us not learning from issues of misconduct in the past,” he says in response to why that relationship breakdown occurs.

“What do you think is going to be the hardest cause for CBA to fix?” Ms Orr wants to know.

Mr Comyn gives a complicated answer, but indicates that dealing with the issues raised in the APRA report will be a very big undertaking.

Asked if non-financial risk might be his biggest challenge, Mr Comyn responds that it’s more likely to be changing CBA’s culture.

10.34am: CBA CEO Matt Comyn appears

Commonwealth Bank CEO Matt Comyn appearing at the financial services royal commission in Sydney. Picture: Supplied.

Commonwealth Bank CEO Matt Comyn has taken his oath and has taken the stand as the first witness in the final round of public hearings for the financial services royal commission.

He begins by saying he takes ultimate responsibility for the entire submission in response to Hayne’s interim report.

Turning first to causes, Ms Orr questions Mr Comyn on causes relating to customer and culture.

Mr Comyn confirms that CBA has been “complacent and lacked appreciation of non-financial risk”, and imposed only “limited consequences in response to this, especially on those at the senior levels in your organisation”.

Asked what he meant by “insular” in the banks response to the interim report he says it was give to mean “not sufficiently listening to external voices and appropriately considering that in the way we run our business”.

Mr Comyn is asked how an organisation of CBA’s size could lack capability in critical areas of compliance. He says he has no adequate explanation.

10.19am: Witnesses to appear

Ms Orr says that the commission does not have the capacity to hear from senior executives from all companies that have been involved in the case studies heard to date.

Instead the commission will focus on a representative selection.

This will include the CEOs of all the four major banks: CBA’s Matt Comyn, ANZ’s Shayne Elliott, Westpac’s Brian Hartzer and NAB’s Andrew Thorburn.

But major banks are not the only important layers in the financial services, and so Ms Orr says witnesses, including Macquarie Group CEO Nicholas Moore and AMP acting CEO Mike Wilkins will also appear later this week.

She says the board of each institution also plays a pivotal role, not just the CEOs with Commonwealth Bank’s Catherine Livingston and NAB’s Ken Henry, as well as Bendigo and Adelaide Banks’s Robert Johannsen to appear at this round.

Adding to that, she details the appearance of the regulators — ASIC’s James Shipton and APRA’s Wayne Byers — before breaking to let CBA CEO Matt Comyn prepare for his appearance on the stand.

10.15am: Ten points of agreement

Ms Orr highlights ten examples of agreement from the thousands of submissions made to the commission:

1. She says there was widespread agreement on the need for simplification of current laws and regulations.
2. Agreement that the duty owed by a mortgage broker to clients would benefit from clarification
3. Support for ending grandfathered commission payments to financial advisers and from superannuation accounts.
4. Support for simplification of disclosure requirements. However Ms Orr notes some groups warned that simplification should not results in consumer protections being watered down
5. Support for measures to assist those in regional and remote areas and to improve the accessibility of banking services, including dedicated staff to assist Aboriginal and Torres Strait Islander customers.
6. Almost universal support to bring expenses under funeral insurance within Chapter 7 of the Corporation Act
7. Widespread support for legislative change to impose civil penalties for a breach of requirement in the SIS Act that the trustees and directors of super funds act in the best interests of beneficiaries.
8. Support from major banks and industry groups for forms of add-on insurance to be sold only through a deferred sales model.
9. There was broad support, including support from ASIC, insurers and consumer groups for amending unfair contract term provisions to insurance contracts.
10. Support for introduction of a compensation scheme of last resort

10.05am: Opening statement

The hearing is underway and senior counsel assisting the commission Rowena Orr QC has begun her opening statement.

“Commissioner, in your interim report, you identified particularly issues and policy questions that arose from the case studies examined in the first four rounds of public hearings,” she says.

“The commission received a very large number of policy submissions in response to those invitiations. Close to 2000 policy submissions were received in total.”

Ms Orr says financial services entities have offered public apologies or expressions of regret for that conduct and have been accompanied by promises.

“The purpose of this round is not to hear further apologies or expressions of regret. We do not think that this will assist you in fulfilling your task,” she says.

Instead, the commission is seeking to understand the causes of the misconduct and what can be done to prevent misconduct in the future.

“Are changes needed to the culture of financial services entities? Are new accountability structures needed? Should the law be changed? DO we need new mechanisms for oversight for our regulators?”

9.30am: Performance D’Orr

Senior counsel assisting the royal commission Rowena Orr QC.

Senior counsel assisting the commission Rowena Orr QC has become a somewhat reluctant star of its hearings. Together with her impressive counterpart Michael Hodge QC, Ms Orr has carried the weight of the commission’s inquiries and her calm, methodical and effective efforts have earned widespread respect through the business and legal communities.

In The Weekend Australian, Ben Butler took a fascinating look ar Ms Orr’s career to date and asked top legal minds where she might be heading.

It’s highly recommended reading.

9.00am: An ethical centre

John Durie reports that The Ethics Centre’s Simon Longstaff has urged royal commissioner Kenneth Hayne to keep ethics at the centre of his deliberations as he moves towards his final report.

Indeed it can be the case that ethical considerations are overall more important than actual breaches of the law.

“We think the commissioner should consider reminding businesses of the fact that without a measure of care they could inadvertently undermine the legal foundations upon which they depend — especially in circumstances where politicians are exposed to popular outage and disgust,” Mr Longstaff says.

7.30am: Macquarie’s turn in the hot seat

Ben Butler and Turi Condon report in this morning’s The Australian that the first week of the final round of hearings is expected to bring the first appearance of Macquarie Group executives at the commission.

“It is understood CBA chief executive Matt Comyn will be the first witness in the stand, with chairman Catherine Livingstone tipped to appear as early as today or tomorrow. NAB chairman and former Treasury secretary Ken Henry is expected to give evidence when the commission travels to Melbourne next week,” their report this morning says.

“It will be the first time Macquarie has appeared before the commission, with the so-called “Millionaire’s Factory” so far avoiding the inquiry’s hot seat ­despite a string of scandals including financial planning rip-offs and its alleged involvement in a German tax rort.”