CBA action plan wins backing from regulator as execs take $60m hit

CBA’s response to an APRA report into its cultural and governance failures will result in senior staff losing bonuses.

A fCommonwealth Bank branch in Brisbane. Picture: AAP

Commonwealth Bank will slash the pay of about 500 past and present senior executives by more than $60 million in response to the damning review of CBA’s culture and governance by an APRA-appointed panel.

CBA on Friday said that the prudential regulator had supported its remedial action plan, which was formulated after APRA made 35 recommendations in its May report and will be overseen by an independent expert, Promontory Financial Group.

Chief executive Matt Comyn said that APRA had determined the plan provided a reasonable basis for addressing the inquiry’s recommendations.

“Work is under way to strengthen governance, culture and accountability within CBA,” Mr Comyn said.

“We expect to make good progress in delivering the plan over the next 12 months. We recognise that it will take time to demonstrate changes in capability and culture.

“CBA’s board and executives fully recognise we will not be judged by the plan or by completing milestones, but by sustainable improvements in customer and risk outcomes.”

The plan involves a comprehensive change program to improve the way CBA runs its business, manages risk and works with regulators, including a strengthening of governance and oversight and achieving better customer and risk outcomes.

CBA also wants to develop a more accountable and transparent culture, and take a more proactive approach to risk.

The move to cut into the remuneration of about 500 past and present executives shows that the board has determined accountability for the Austrac money laundering debacle should run deep into the organisation.

Three management layers have been hit with financial penalties, including general managers, executive general managers and group executives, with the $60m to come from reductions in variable pay and partial or full lapsing of deferred remuneration.

The board decision follows Federal Court action by Austrac in August last year that alleged multiple transgressions of anti-money laundering and counter-terrorism financing laws.

CBA settled the Austrac case for $700m earlier this month.

In the lead-up to the settlement, the board was extensively restructured, short-term bonuses for group executives in 2017 were slashed to zero, and the board activated its chief executive succession plan, with ex-retail boss Matt Comyn taking over from Ian Narev.

Past executives included in the pay cut are expected to include Mr Narev and former chief financial officer David Craig. The $60m figure includes the bonuses forfeited last year, and the associated decision to cut the pay of non-executive directors.

The APRA report fired a rocket at the CBA directors over their complacency and a “dulling of the senses” that blinded them to a deterioration in the bank’s risk profile, particularly in relation to non-financial risks such as operational, compliance and conduct risks.

“These 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 report said.

“The consequences of this slowness were not grasped.”

It also found that the board deferred to Narev for internal and external communications to ensure there was a single, consistent voice. The result was that the board didn’t have a highly visible presence, and the lack of apparent urgency in dealing with non-financial risks could have resulted in a “tone of inaction” where sound risk management principles were de-prioritised.

These findings related to the operation of the board before last year’s appointment of new chair Catherine Livingstone.

Under Livingstone, the panel found, agendas had been enlivened, and there had been an increase in urgency, and an environment of greater challenge and engagement with the executive team.

Board members talked of a “don’t tell me, show me” philosophy to ensure that the trust placed in executive teams was justified.