UPDATE 2-Australia's CBA promotes retail banking boss Matt Comyn to CEO

* CBA promotes retail boss Matt Comyn to CEO, in surprise move

New CEO's unit is accused of anti-money-laundering breaches

* Australia's finance sector faces government inquiry into conduct (Recasts, adds shares, updates chairman quote)

By Paulina Duran

SYDNEY, Jan 29 (Reuters) - Commonwealth Bank of Australia named retail banking boss Matt Comyn as its new chief executive officer, to lead the company as it faces challenging trading conditions as well as allegations of massive money laundering system breaches.

The country's biggest lender has been under pressure after being accused in a 2017 federal lawsuit of enabling more than 50,000 transactions where it failed to follow anti-money-laundering protocols. It is fighting the lawsuit.

CBA surprised many with the internal appointment for CEO amid expectations it would seek to overhaul its reputation through a candidate from outside the company.

But CBA Chairman Catherine Livingstone said Comyn's familiarity with the A$137 billion ($111 billion) company made him the best candidate for the role.

"There are aspects of the bank and its culture that we absolutely want to preserve and nurture and Matt is very well aware of those, as he is equally aware of the issues which have led to our current reputational issues," she said.

"The importance of maintaining momentum at the moment should not be underestimated."

Comyn will start as CEO on April 9.

He will replace Ian Narev, who has led CBA December since 2011 and is stepping down following calls for him to resign amid the money-laundering scandal.

CBA said Comyn would receive a fixed annual remuneration of A$2.2 million ($1.78 million).

Comyn's appointment comes as CBA and its dominant peers face a government investigation into misconduct in the sector.

Last month, the Sydney-based lender formally admitted to some allegations leveled against it by financial intelligence agency AUSTRAC, including claims of late submission of over 53,000 so-called threshold transaction reports.

Australia's "Big Four" are among the world's most valuable and profitable banks. They have underpinned a multi-decade housing and economic boom, racking up strong earnings thanks in part to regulations that have helped shield them from non-bank lenders and overseas rivals.

But the trading landscape has become tougher for these banks amid tighter credit conditions and competition from technology giants such as Apple Inc, Amazon and Facebook

CBA shares were 0.18 percent higher in early trading, in line with broader market gains of 0.25 percent. ($1 = 1.2344 Australian dollars) (Reporting by Paulina Duran and Byron Kaye; Editing by Peter Cooney, Jonathan Barrett and Himani Sarkar)