The prudential inquiry's finding that Commonwealth Bank was too "legalistic" and "adversarial" when dealing with regulators has put focus on the bank's in-house risk and legal teams. In a damning assessment of the bank's risk area, led by David Cohen, and legal team, led by Anna Lenahan, the prudential inquiry found the bank has been "reactive" in dealing with risks.
The inquiry concluded a "slow, legalistic and reactive" and "at times dismissive" culture characterised many of the bank's dealings with regulators.
The findings were based on the inquiry panel's meetings with the Australian Prudential Regulation Authority, the Australian Securities and Investments Commission, the Australian Transaction Reports and Analysis Centre and the Financial Ombudsman Service.
CBA group chief risk officer Mr Cohen is a former CBA group general counsel and before that AMP's general counsel and an Allens partner. Group general counsel Ms Lenahan is a former chief risk and legal officer at Suncorp Group, and was also a partner at Allens.
In the 2017 financial year, Mr Cohen received $2.3 million in remuneration, including over $1 million in bonuses. Ms Lenahan received close to $1.4 million during the same period, including more than $800,000 in bonuses.
The inquiry said the chief risk officer's fixed and variable remuneration mix is not materially different from that of other executives.
It said at some other banks chief risk officers typically have a higher weighting on fixed remuneration "aimed at safeguarding the independence of this critical function".
CBA also spent $404 million last financial year in "professional fees", which includes its legal fees. It spent $247 million on professional fees in the 2016 financial year and $390 million the year before.
Defensive and perfunctory
However, addressing the media on Tuesday, chief executive Matt Comyn said the legal department could not be blamed for the inquiry's findings.
Mr Comyn admitted the bank has been "defensive", "legalistic" and "perfunctory" in some instances in the past.
The APRA report found: "The regulatory agencies found CBA defensive, and at times perfunctory, in its attitude to matters raised by them.
"The panel heard that CBA's 'default response' to being challenged was a legalistic and defensive."
The inquiry said at times CBA would insist on hearing why it was legally required to take action before it would do so.
"This adversarial approach appeared to put strict legal interpretation above risk or customer outcomes. Observations were also made on the difficulty of obtaining cooperation on matters where the group legal department had already provided a response."
The report emphasised compliance obligations are broader than strict legal requirements, and incorporate standards of integrity and ethical behaviour.
The inquiry also recommended business unit chief risk officers to have "the necessary independence to provide effective challenge to the business".https://www.afr.com/
Author: Misa Han