CBA bosses Comyn, Livingstone share banking shame blame

Commonwealth Bank chief executive Matt Comyn came out swinging at his predecessor Ian Narev yesterday.

Matt Comyn outside the royal commission hearing in Sydney yesterday. Picture: Hollie Adams

Commonwealth Bank chief executive Matt Comyn came out swinging at his predecessor Ian Narev at the Hayne royal commission yesterday, as he conceded the scandal-prone bank failed its legal obligations and faced a potential blowout in customer remediation for junk insurance.

In the second day of the royal commission’s policy round, CBA chairman Catherine Livingstone was also grilled about the bank’s lax compliance culture and the board’s knowledge of a string of audit failures that should have raised the alarm.

The often dysfunctional operations of CBA — which has 16 million customers — were laid bare as senior counsel assisting the commission Rowena Orr QC took Mr Comyn and Ms Livingstone to task over the bank’s poor behaviour and systems and how they would reform the company.

She asked Mr Comyn about CBA’s failure to treat its breaches of compliance rules and anti-money-laundering and terrorist-financing law appropriately, and how it was possible he was not aware of legal obligations.

“We should have (known the legal obligations), Ms Orr. We did not,” he said.

“There was not a sufficient understanding or awareness of exactly what the risks associated to money-laundering was.”

Mr Comyn and Ms Livingstone used the hearings to apportion a large share of the blame on their respective predecessors, former CBA chief Mr Narev and former chairman David Turner.

Mr Comyn said his multiple pleas to Mr Narev for CBA to stop selling controversial consumer insurance products went ignored, even after he raised issues about their “opaque pricing” and limited value to customers.

In a meeting in 2015 steered by then CEO Mr Narev, Mr Comyn said he took hand-written notes of proceedings during which he was told to tone down his opposition to the products.

“ ‘Temper your sense of justice’, that is what Mr Narev said to me,” Mr Comyn said.

“We had, I think, quite a robust discussion during the course of that meeting and my recommendation to suspend the sales was not agreed with.”

Mr Comyn also outlined that he and the then head of wealth management, Annabel Spring, disagreed on the course of action for the products in question.

The debate centred on add-on insurance, which is typically sold with credit cards, personal loans and car loans as a revenue source for banks in the event the customer can not make repayments.

CBA was forced by the corporate regulator to repay $10 million to 64,000 customers of those products but a review by EY Australia showed the potential number could balloon to 500,000 customers after further assessment.

Mr Comyn said credit card remediation stood at about $15m for add-on credit card insurance remediation, of which the bank had paid about $10.5m. For loan protection insurance, the bank has set aside about $31m for customer repayments.

Where the bank charged thousands of customers fees in its wealth arm, and did not provide any services, Mr Comyn said CBA had repaid about $116m.

When drilled on accountability, Mr Comyn said he suspected there was an “imbalance between the consequences that were applied” to staff involved, many of whom had their bonuses cut but not forfeited.

Mr Comyn also said CBA would maintain a small presence in financial planning despite his earlier view that the bancassurance model had “categorically failed”. CBA has agreed to sell its global asset management unit and is also spinning off the bulk of its ­financial planning and mortgage broking arms.

CBA’s troubled relationships with regulators were also raised yesterday, with Ms Orr taking aim at the bank’s failure to self-report breaches of laws and regulations.

“What about giving a heads-up by making a breach notification as you were required to under the law,” Ms Orr said, when Mr Comyn outlined his increased personal engagement with heads of regulators including the Australian Securities & Investments Commission’s chairman, James Shipton.

Mr Comyn said: “We have certainly been trying to work and engage (with regulators) in a very different way.”

CBA’s obstructionist approach to dealing with regulators was a “mindset that people need to get over”, Mr Comyn added, despite the risk of enforcement action.

He said he had met Mr Shipton four or five times and spoken over the phone as many as 10 times this year to canvas his views on CBA’s regulatory approach. He also met with Morgan Stanley’s global chief, James Gorman, to understand how the US bank navigated greater regulatory scrutiny following the global financial crisis.

The royal commission also heard of several alarming audits of CBA’s anti-money-laundering and counter-terrorism systems, which were not acted on in a meaningful way until government agency Austrac began legal proceedings.

While she joined the board as a non-executive director in 2016, Ms Livingstone said after red flags were raised she and other board members had not requested audit reports dating as far back as 2014. “We should have asked for the detailed reports, but we didn’t,” she said.

Under intense questioning, Ms Livingstone said although she had concerns about the audits and raised the matters, she did not take further action until taking the reins as chairman in January 2017.

“I was concerned about them (the audits) and not confident in the assurances I was receiving from management,” she said. That assurance was provided by finance chief at the time, David Craig, documents tendered suggested.

The Austrac saga expedited the exit of Mr Narev and prompted a damning prudential review of CBA’s governance and risk systems, released in May. CBA was implicated in helping to facilitate criminal activities, some of which was conducted through its so-called intelligent deposit machines (IDMs).

In June, CBA agreed to a $700m penalty from Austrac to resolve its breaches of anti-money-laundering and counter-terrorism financing laws.

CBA accepted, among other things, that it had failed to provide 53,506 threshold transaction reports to Austrac on time for cash transactions of more than $10,000 from its IDMs over a three-year period, and that it had not complied with requirements of its AML/CTF program on 778,370 ­accounts.