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UPDATE 1-Australia's prudential regulator launches inquiry into CBA

* Prudential regulator to scrutinise CBA culture

* Follows money laundering lawsuit, corporate regulator probe

* Bank says new inquiry has its full support (Adds background and CBA response)

SYDNEY, Aug 28 (Reuters) - Australia's prudential regulator said on Monday it will establish an inquiry into governance, culture and accountability at the Commonwealth Bank of Australia (CBA) in the wake of alleged breaches of money-laundering and counter-terrorism financing rules.

CBA, which faces potential fines amounting to billions of dollars, has said a software coding error is mostly responsible for its failure to detect suspicious transactions nearly 54,000 times. The bank is defending the charges.

The Australian Prudential Regulation Authority (APRA) said in a statement that it launched the inquiry after "a number of issues which have raised concerns ... and have damaged the bank's reputation and public standing".

"The overarching goal of the prudential inquiry is to identify any core organisational and cultural drivers at the heart of these issues," APRA Chairman Wayne Byres said in the statement.

The Commomwealth Bank said in a separate statement that it would support the inquiry.

"CBA recognises that events over recent years have weakened the community's trust in us," the bank's chairman, Catherine Livingstone, said in the statement.

(Reporting by Tom Westbrook in Sydney; Editing by Richard Pullin)