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UPDATE 2-Second Australia regulator starts CBA inquiry after money laundering claims

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* Prudential regulator to scrutinise CBA culture

* Follows money laundering lawsuit, corporate regulator probe

* Bank says new inquiry has its full support (Adds treasurer reax, graphic link)

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

Commonwealth Bank of Australia, which has said a software coding error is mostly responsible for its failure to detect nearly 54,000 suspicious transactions, faces potential fines amounting to billions of dollars from a civil lawsuit by anti-money-laundering agency AUSTRAC. The bank is defending the charges.

Australia's corporate regulator, the Australian Securities and Investment Commission, has also launched its own probe, and a class action lawfirm is planning a separate shareholder case.

The bank has said Chief Executive Officer Ian Narev plans to retire by June 2018. It has not said it will sack or punish any staff over the money-laundering allegations.

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 costs of the inquiry will be met by CBA.

CBA said in a separate statement that it would support APRA's 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.

CBA's case has fuelled calls for a broad judicial inquiry into Australia's banking system, which could recommend greater regulation or even criminal charges. A banking inquiry has strong public backing is supported by the opposition centre-left Labor Party.

Treasurer Scott Morrison, whose ruling conservative party opposes a so-called Royal Commission, said the APRA investigation showed Australia's existing regulatory regime had sufficient power to pursue civil penalties.

"The things that a Royal Commission could potentially recommend: we're already doing that," Morrison told reporters.

"Action is being taken now with the banks, particularly into these more serious issues that we've seen with CBA, as should be the case."

CEO Narev has faced calls from shareholders, analysts and some politicians to resign over the money-laundering allegations, the first of their kind against a top Australian bank and the third scandal to engulf CBA under his watch.

In 2016, CBA admitted to using unscrupulous practices to cheat people out of life insurance payments, and in 2014 Narev publicly apologised after CBA advisors were found to have given customers poor financial advice.

CBA shares were down 1.3 percent in early trading, hitting a a 9-month intraday low, while the broader sharemarket was down 0.7 percent.

(Reporting by Byron Kaye and Paulina Duran. Additional reporting by Tom Westbrook; Editing by Richard Pullin)