The Australian Prudential Regulation Authority (APRA) has hit Australia's largest bank with a $1 billion charge following a scathing review into the bank's culture and governance.
The Commonwealth Bank (ASX: CBA) has been ordered to carry an additional $1 billion in regulatory capital and enter into an enforceable undertaking to conduct remedial action by ARPA.
The prudential regulator said the bank's framework for managing risks were "cumbersome" and senior leadership were slow to react to emerging threats.
The 110 page report details widespread complacency, excessive complexity and blasts the bank's senior management.
The report called Comm Bank's culture "insular" and said it's continued success "dulled the senses of the institution".
APRA criticised the bank for a "slow, legalistic and reactive, at times dismissive, culture" and its "overly collegial and collaborative working environment [that had] lessened the opportunity for constructive criticism."
The regulator, in addition to the $1 billion charge, has given CBA 35 key recommendations which Commonwealth Bank has agreed to implement.
Chairman Catherine Livingstone says it is necessary for the institution to implement these changes in order to meet the public's expectations.
"Addressing the findings of the Report is a key focus for the Board and management to ensure that our governance, culture and accountability frameworks and practices are significantly improved to meet the high standards expected of us," says Livingstone.
"We understand the scale of change which is necessary and its seriousness in order for us to become a better, stronger bank for our customers, staff, regulators and shareholders."
Following the report, CBA will establish a remedial action plan and appoint an independent reviewer to report to APRA every three months.
In an interview with GRACosway's joint managing partner Geoff Elliott, posted to the ASX, CBA chief executive officer Matt Comyn (pictured) says the report was "confronting" but the bank is working to address the concerns of the regulator.
"[The report is] confronting to read, and it is critical in a number of areas," says Comyn.
"I also think it's a very fair and balanced assessment of the issues that we have been facing."
"I think it's a very helpful road map for us for the future, and we are going to get on now with implementing the recommendations in full, which I hope will go towards restoring the confidence and trust in the Commonwealth Bank."
Comyn says the report is more of an indictment on the failures of the bank's leadership than it is the hundreds of staff working for CBA around the country.
"There are tens of thousands of people around the country who come to work every day and do a great job serving their customers. This report is not about them. This is a report about the failures of senior leadership inside the Commonwealth Bank, including me. The focus has to be on how we are going to change the leadership and the culture of the organisation, starting from the top," says Comyn.
The APRA report comes at a sticky time for the banking world as the failures of Australia's top financial institutions are coming to light at the Royal Commission into financial services.
Heads have rolled at AMP where the CEO, Chairman, and general counsel of the financial service institution have resigned following the revelations that the group was charging fees and not giving services.
CBA is also currently embroiled in a confrontation with AUSTRAC who alleged the institution has been engaged in money laundering.
The bank says the allegations are false and that it has done all it could to comply with the regulator's demands.
In early February 2018, CBA set aside more than half a billion dollars to cover potential costs from the AUSTRAC investigations.
In the wake of the money laundering scandal ex-CEO Ian Narev stepped down and was replaced in April by Matt Comyn.
Shares in CBA closed at $71.82 per share on Monday afternoon.
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