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CBA hit with second regulatory probe after money laundering claims

  • Commonwealth Bank of Australia, the nation's biggest lender, has been hit with a public inquiry into its governance and culture
  • This is the second regulatory probe to be launched this month after the CBA was accused of massive breaches of money-laundering rules
  • The move heightens pressure on the Australian government to hold a broad parliamentary probe into the banking sector
Carla Gottgens | Bloomberg | Getty Images

Commonwealth Bank of Australia, the nation's biggest lender, has been hit with a public inquiry into its governance and culture - the second regulatory probe to be launched this month after it was accused of massive breaches of money-laundering rules.

The move represents the first time that the Australian Prudential Regulation Authority will hold a public inquiry into a lender and heightens pressure on the government to hold a broad parliamentary probe - known as a Royal Commission - into the banking sector.

CBA was sued this month by financial intelligence agency AUSTRAC which alleges that criminals and terror financiers laundered millions of dollars through CBA accounts - the first lawsuit of it kind against a major Australian bank and exposing CBA to a fine potentially amounting to billions of dollars.

Since then, the Australian Securities and Investment Commission has launched a separate probe while a class action law firm is planning a suit on behalf of shareholders. The bank has also flagged that CEO Ian Narev will retire by next June.

"The overarching goal of the prudential inquiry is to identify any core organizational and cultural drivers at the heart of these issues," APRA Chairman Wayne Byres said, adding that CBA will pay for the costs of the six-month probe.

Narev, whose tenure as been marked by both record profits and misconduct scandals on the part of the bank, told reporters the bank supported the inquiry and he expected it would address "the way in which financial objectives are balanced by other objectives and assessed in target performance."

Shares in the bank were trading down 1 percent at 9-month lows on Monday afternoon. CBA, which blames a software coding error for its alleged failure to detect nearly 54,000 suspicious transactions, has lost roughly 10 percent or A$12.5 billion ($9.9 billion) of its market value since the AUSTRAC allegations first came to light on Aug. 3.

"For CommBank shareholders there's going to be a real dollar cost to all of this. Also, you can safely say that professional and legal fees for this organization are not going down," said CLSA banking analyst Brian Johnson.

APRA's announcement immediately fueled fresh calls for a Royal Commission into Australia's banking system, which would have judicial powers such as calling witnesses and the right to recommend greater regulation or even criminal charges.

"The Govt has done everything it can to protect the banks, but is now out of excuses. We need a Royal Commission," Labor leader Bill Shorten tweeted on Monday.

Treasurer Scott Morrison, whose ruling conservative party opposes a 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.

Judith Fox, the head of the Australian Shareholders' Association which represents retail investors, said the association would prefer to see the outcome of the various probes before assessing whether a Royal Commission was needed.

The money-laundering allegations represent the third misconduct scandal under Narev. Last year, CBA admitted to using unscrupulous practices that cheated people out of life insurance payments, and in 2014 Narev publicly apologized after CBA advisors were found to have given customers poor financial advice.

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