OPINION: Will prudential inquiry into CommBank salvage APRA’s enforcement reputation?

by Dr. Andrew D. Schmulow

Thomson Reuters Regulatory Intelligence, (2017), published electronically.

The Australian Prudential Regulation Authority (APRA) announced this week it will convene an independent prudential inquiry into the Commonwealth Bank of Australia (CBA). The inquiry will focus on governance, culture and accountability frameworks and practices at the bank and report back within six months.

To this end, APRA will be able to rely upon Prudential Standard CPS 510, an enforceable standard that “sets out minimum foundations for good governance of an APRA-regulated institution”, such as CBA. Compliance with the standard in question is compulsory.

The timing, however, seems questionable, and for a couple of reasons. These include the fact that CPS 510 was promulgated on January 1, 2015. Since then APRA has had opportunities to use this standard to investigate an ever-growing list of scandals and incidences of potential governance failures.

These include significant examples of poor governance — including illegality, in Commonwealth financial planning, unreasonable denial of life and permanent disability claims at CommInsure, charging for financial services that were never provided, sale of credit card insurance in inappropriate circumstances (such as unemployment insurance to people already unemployed), CBA staff found complicit in running an A$76 million Ponzi scheme, and then the money laundering scandal which broke almost three weeks ago.

The scandals affecting customers involve tens of thousands of customers, and remediation is running into hundreds of millions of dollars. The number of alleged anti-money laundering (AML) breaches exceed 53,700 breaches, in amounts that were eye-watering.