CBA Case Study: APRA Report Analysis on Governance and Accountability

This case study examines the governance, culture, and accountability issues within the Commonwealth Bank of Australia (CBA) based on the Australian Prudential Regulation Authority (APRA) report of April 2018. It identifies problems such as misconduct by financial advisors, breaches of anti-money laundering regulations, and fraudulent activities related to financial products. The report highlights the ineffective risk management approaches and a corporate culture lacking ethical values as primary reasons for these issues. These problems negatively impacted CBA's brand reputation and customer trust. The role of regulation in ensuring financial intermediaries adhere to defined laws and the importance of a robust risk governance structure are emphasized. Actions taken by CBA to resolve these issues, along with their successes and inadequacies, are examined, and recommendations are made for improving industry practices to prevent similar occurrences in the future. Desklib provides access to this and other solved assignments for students.

CBA case study
1

Executive Summary
This report has been undertaken to develop an understanding of the importance of
maintaining effective governance and risk management structure within the financial
intermediaries. In this context, the report ahs illustrated the issues related with governance,
culture and accountability occurred within the Commonwealth Bank of Australia (CBA). This si
carried out on the basis of the report developed by Australian Prudential Regulatory Authority
(APRA) in April 2018 seeking to investigate into the problems occurred in recent within the
banking group. It has depicted that CBA need to place emphasis on strengthening its governance
and risk management structure for reducing the occurrence of any unethical and illegal activities.
The role of regulation is also very important for ensuring that the financial intermediaries have
maintained an efficiency governance structure and corporate culture.
2

Introduction
This report is developed in relation to examining the issues related with governance,
culture and accountability within the Commonwealth Bank of Australia (CBA). This is carried
out on the basis of the report that is developed by the Australian Prudential Regulation Authority
(APRA) for identifying the shortcomings in the frameworks and practices within the banking
group. In this context, the report specifically addresses the problems identified within the
banking group by the prudential inquiry carried out. Also, it discusses the cause of problems
within the financial intermediaries and their impact on the banking group future growth. The role
of the regulation in addressing the governance, culture and accountability within the financial
intermediaries is also discussed within the report. Lastly, it analyzes the actions taken by the
financial firms for resolving the problem identified and the outcomes of such actions taken. The
industry practices that can be taken for overcoming the occurrence of such issues in the future
have also been examined within the report.
Problems Identified in the Prudential Inquiry into the CBA in April 2018
The problems that have been identified by the APRA by the inquiry held within the CBA
can be stated as follows:
 Financial advisers of the CBA were guilty of misconduct by seeking fees for the services
that were meant to be delivered for no fees
 Breach of anti-money laundering (AML)
 Fraudulent activities in selling of financial products to the customers such as credit card
insurance
 Lack of an appropriate risk management and governance system within the banking
group
The major reasons for the occurrence of all these above mentioned issues as identified by the
panel in relation to the CBA are its ineffective approaches for risk management due to its is not
able to adequately manage its non-financial risks. The major non-financial risks such as
operational, compliance and conduct risks were highlighted by the APRA that lead to the
occurrence of misconduct issues within the banking group. It has focused on stating the
organizational and cultural factors such as its corporate culture that lack an effective system of
3

ethical values, beliefs and norms responsible for the occurrence of unethical activities within the
CBA (Prudential Inquiry into the Commonwealth Bank of Australia, 2018).
Impact of the Problems Identified on Financial Intermediaries and their Customers
The allegations made on the CBA in relation to its governance, culture and accountability
has caused a negative impact on its brand reputation by losing the customer trust and confidence
within the banking operations. It has been reported that since the past few years there were large
number of complaints made by the customers of the banking group in relation to the
accountability of their financial products and services. The APRA has highlighted the weakness
of the bank in causing a differentiation between the issues raised by the customers from the
customer satisfaction (Prudential Inquiry into the Commonwealth Bank of Australia, 2018). The
banking group has not placed emphasis on increasing evidences related to the complaints of its
customers. This has resulted in negatively impact the trust and confidence of the customers
within the banking group and has caused the need for it to overcome the governance problems
for increasing customer trust (Henderson, 2013).
Role of Regulation in Context of addressing governance, culture and accountability
problems within financial intermediaries
It can be analyzed by the APRA report that CBA has not adequately met the legal rules
and policies developed by different regulators such as ASIC as well as the Financial Ombudsman
Service Australia. The regulatory agencies have identified that CBA has maintained a defensive
approach to all the matters raised by the regulatory agencies. The role of regulation is very
important for ensuring the financial intermediaries such as CBA work under the defined laws and
regulations (Prudential Inquiry into the Commonwealth Bank of Australia, 2018). The presence
of an effective risk governance structure need to be present within the financial intermediaries
for ensuring that there are effective internal controls within the bank to reduce the operational
risk. As such, there has emerged a need for developing a corporate governance framework that
need to be followed by the board of directors for reporting information in relation to the
governance system of a financial intermediary (Caruana, 2015).
The issue of lack of accountability within the business operations of CBA has caused the
need for prudential regulators to maintain high standards of accountability as a key attribute of
4

the corporate governance system. In this context, the Banking Executive Accountability Regime
(BEAR) have bee established for promoting the power of APRA in enhancing transparency and
accountability within the decision-making process. Similarly, the customer problems such as that
occurred within the CBA can be overcome by ensuring the presence of effective regulatory
system for continually monitoring and assessing the risk culture and ensuring that all the needs
and requirements in relation to the risk culture are maintained (Litan, 2009).
Actions taken for Problem Resolving
The banking institutions within Australia after the occurrence of global financial crisis
are actively working towards developing an effective governance framework that is able to
manage adequately both the financial as well as non-financial risks. The banking groups within
the country are pacing large importance on developing risk management and compliance systems
for addressing the issues related to governance, couture and accountability.
Examination of success Attained by the Actions taken and identifying any Inadequacy
The actions taken by the banks for improving the risk and compliance outcomes are
associated with varying degrees. There are still large changes required to be adopted within the
risk management system of the banks for overcoming the issues related with the internal control
policies and procedures. The inadequacies are present within the lack of a proper oversight by
the Board in relation to the non-financial risks that can occur within the future context. There is
still the presence of an overly complex and bureaucratic decision-making process within the
financial intermediary (Prudential Inquiry into the Commonwealth Bank of Australia, 2018).
Recommendations
The industry practices within the banking sector can be improved within the future by
increased attention placed by the Board and the executive members for designing and
implementing a governance system that is accountable and leads to the development of a strong
corporate culture (Andenas, 2013).
Conclusion
5

It can be stated form the overall discussion that CBA has recently faced claims regarding
its governance, culture and accountability of business processes due to weakness in risk
management and compliance systems. As such, APRA has recommended the banking group to
strengthen its governing system for ensuring its long-term growth and development.
6

References
Andenas, M. 2013. The Foundations and Future of Financial Regulation: Governance for
Responsibility. Routledge.
Caruana, J. 2015. Regulatory stability and the role of supervision and governance. [Online].
Available at: https://www.bis.org/speeches/sp151103.htm [Accessed on: 10 September 2018].
Henderson, S. 2013. Issues in Financial Accounting. Pearson Higher Education AU.
Litan, R. 2009. Financial Sector Governance: The Roles of the Public and Private Sectors.
Brookings Institution Press.
Prudential Inquiry Into The Commonwealth Bank Of Australia. 2018. [Online]. Available at:
https://www.apra.gov.au/sites/default/files/CBA-Prudential-Inquiry_Final-Report_30042018.pdf
[Accessed on: 10 September 2018].
7

8

9

10

11

12