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UPDATE 1-Australia banking watchdog says probe to dig deep into CBA culture

* APRA inquiry will examine culture and governance at CBA

* Preliminary report due Jan. 31, final report due Apr. 30

* CBA says will cooperate fully

* Probe follows allegations of money laundering (Adds details of terms of reference, treasurer quote, timing of inquiry and background)

SYDNEY, Sept 8 (Reuters) - Australia's banking regulator said on Friday its unprecedented investigation of Commonwealth Bank of Australia would examine whether its corporate structure had enabled a series of scandals that have rocked the lender's reputation.

Treasurer Scott Morrison said the watchdog had the power to remove directors and its investigation would dig deep into what had gone wrong at Australia's biggest company, amid calls for a wider judicial inquiry into the financial sector as a whole.

"It's going well beyond the specific instances to look at broader issues of how issues are managed, how issues are escalated, how the board themselves have dealt with these actions," he told reporters in Sydney.

The Australian Prudential Regulation Authority (APRA) said it aimed to identify whether "any core organizational and cultural drivers" at the country's biggest lender had contributed to scandals at the bank in recent years.

CBA was sued last month by financial intelligence agency AUSTRAC claiming "serious and systemic non-compliance" with anti-money laundering rules allowed criminals and terror financiers to wash millions of dollars through CBA accounts.

Last year, CBA admitted using unscrupulous practices to cheat people out of life insurance payments, and in 2014 Chief Executive Officer Ian Narev publicly apologized after the bank's advisors were found to have given customers poor financial advice.

The AUSTRAC lawsuit is the first of its kind against a major Australian bank and it exposes CBA to the biggest corporate fine in Australian history potentially amounting to billions of dollars.

Since it was lodged, APRA and corporate watchdog the Australian Securities and Investments Commission have opened investigations into the lender, while a class action law firm is planning a suit on behalf of shareholders.

The bank says a coding error was to blame for most of the more than 50,000 suspicious transactions and plans to defend itself in the Federal Court against the AUSTRAC allegations.

Even so, in the wake of the crisis it has slashed bonuses for executives, announced the departure of a third of its non-executive directors and flagged that CEO Narev would stand down by mid-2018.

BIG GUNS

APRA said in a statement that its inquiry - the first of its kind to be held in public - would examine risk management, compliance, remuneration and accountability at the bank. It would also consider whether CBA's efforts to address shortcomings in those areas were sufficient.

It would not make specific determinations regarding other legal proceedings or investigations.

The inquiry would be run by former Reserve Bank of Australia director Jillian Broadbent, former APRA chairman John Laker and former Australian Competition and Consumer Commission chairman Graeme Samuel.

It would deliver a progress report by Jan. 31 and a final report by April 30.

Commonwealth Bank said it welcomed the appointments and that it would cooperate fully with the inquiry.

CBA shares fell 0.4 percent, with other financial stocks, to A$73.71 while the broader market was flat in early trade on Friday.

CBA shares have dropped 12 percent since the money-laundering scandal erupted last month, wiping roughly A$17 billion off its market value even though it reported its eighth consecutive record cash profit on Aug. 9.

($1 = 1.2416 Australian dollars) (Reporting by Tom Westbrook; Editing by Byron Kaye and Stephen Coates)