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UPDATE 2-Heads roll at Australia's CBA amid money-laundering scandal

* CBA says two directors to step down, third to leave in a year

* Board change comes month after money laundering case filed

* Shares touch 10-month low (Recasts throughout, adds details from court, quotes)

SYDNEY, Sept 4 (Reuters) - Commonwealth Bank of Australia , the country's biggest lender, announced a major board shake-up on Monday as it scrambles to shore up investor support following allegations it oversaw thousands of breaches of anti-money laundering rules.

But the ouster of a third of the bank's non-executive board, including the first two directors to leave since the allegations were made public on Aug. 3, failed to impress shareholders as CBA stock touched 10-month intraday lows on the news.

The board overhaul came as CBA faced the first day of court hearings into the allegations and while it did not deny that illicit transfers had taken place, it said it would contest its level of responsibility.

Directors and audit committee members Launa Inman and Harrison Young would step down on Nov. 16, while a third director, Andrew Mohl, would leave in a year, CBA said in a statement, which did not give a reason for the departures.

The bank has already said Chief Executive Officer Ian Narev will leave by mid-2018, although it has maintained his departure is unrelated to the money-laundering scandal. Narev has blamed a coding error for most of the alleged breaches.

Robert Whitfield, a former head of institutional banking at CBA rival Westpac Banking Corp, would be appointed to the board, CBA said, without naming any other new appointees.

CBA has been under mounting pressure to respond more aggressively to the crisis, which has severely damaged its already tarnished reputation and exposed it to billions of dollars in potential fines.

"Directors are getting paid a lot of money (so) they can't say that they weren't aware of it," said Vas Kolesnikoff, head of Australia and New Zealand research at corporate governance advisory ISS.

CBA shares fell as much as 2 percent by mid-session, while the broader market was down 0.4 percent. The shares have dropped 12 percent since the scandal erupted last month wiping roughly A$14 billion ($11.14 billion) off its market value.

FIRST HEARING

Financial crime fighting agency AUSTRAC alleges CBA oversaw tens of thousands of illicit transfers amounting to A$624.7 million from 2012 to 2015, including some by known criminal gangs.

CBA's lawyers told the Federal Court on Monday the bank would not "in large part" contest the main facts of the legal action, but said they planned to file a defence.

AUSTRAC's lawyers told the court they expected the bank would try to prove it took reasonable precautions against money laundering and terror financing.

Judge David Yates gave CBA until Dec. 15 to file a defence. The next hearing was set for April 2, 2018.

The AUSTRAC case has triggered a landslide of bad news for CBA, with two other Australian regulators subsequently launching investigations and a law firm threatening to file a class action on behalf of shareholders.

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

($1 = 1.2563 Australian dollars)

(Reporting by Paulina Duran and Byron Kaye in Sydney, Sandhya Sampath in Bengaluru; Editing by Stephen Coates)