Commonwealth Bank has confirmed that the banking regulator has endorsed its plan to address its governance issues, which includes a move to slash executive pay by $60 million.
In May, the Australian Prudential Regulation Authority (APRA) released a report that criticised Commonwealth Bank (CBA) for having “inadequate oversight”, “unclear accountabilities” and “a widespread sense of complacency”, among many other failings, following a year of damaging headlines.
These included misconduct by financial advisers, mis-selling of insurance, allegations that it rigged the bank bill swap rate and repeatedly breached anti-money laundering and counter-terrorism laws.
Following its inquiry, APRA issued CBA with 35 recommendations, prompting the bank to review and revise its governance, culture and accountability frameworks via a suggested Remedial Action Plan.
The plan, which has not been publicly released, reportedly outlines the bank’s intention to “improve the way it runs its business, manages risk and works with regulators”. The key areas for improvement include:
- Strengthening governance and oversight
- Achieving better customer and risk outcomes
- Building a more accountable, customer-focused and transparent culture
- Taking a proactive approach to risk
- Improving execution and delivering of plan
The bank’s CEO Matt Comyn said: “We have submitted our plan to APRA and are pleased to have received APRA’s endorsement that it provides a reasonable basis for addressing the inquiry’s recommendations.
“Work is underway to strengthen governance, culture and accountability within Commonwealth Bank. 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.”
He continued: “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.”
Executive pay slashed by $60 million
Further, the bank has noted that it has advised APRA that the findings of its inquiry will also impact the remuneration outcomes of current and former CBA executives.
CBA has said that its board determined that there should be “collective and individual accountability” for both current and former executives as a result of the poor risk and customer outcomes that have occurred.
The bank has revealed that senior executive remuneration “consequences” will be more than $60 million and will range from reductions to variable remuneration and/or partial or full lapsing of outstanding deferred variable remuneration awards.
This includes the actions taken last year to reduce non-executive director fees and eliminate the short-term variable remuneration for group executives for the last financial year.
The major bank has also announced that Promontory Financial Group has been appointed as an independent reviewer that will oversee the bank’s implementation of its Remedial Action Plan.
CBA stated that it will provide an update on its progress following the release of its annual report on 8 August 2018, with the major lender also set to report publicly on its progress.
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