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20 Aug 2017 23:49
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  •   Home > News > Business

    Commonwealth Bank: ASIC to investigate CBA over money-laundering scandal

    The Australian Securities and Investments Commission will investigate the Commonwealth Bank's handling of suspicions its intelligent deposit machines were used by money launderers and criminal gangs.

    The Australian Securities and Investments Commission (ASIC) has confirmed it will investigate the Commonwealth Bank's handling of suspicions its intelligent deposit machines were used by money launderers and criminal gangs.

    ASIC chairman Greg Medcraft said the corporate regulator would investigate whether the CBA's board complied with continuous disclosure laws when it decided not to alert investors to the suspicious behaviour.

    Earlier this week, CBA chairwoman Catherine Livingstone said the bank's board first became aware the intelligent deposit machines were at risk of being targeted by criminal elements including money launderers in the second half of 2015.

    Speaking to a parliamentary joint committee in Sydney this morning, Mr Medcraft said ASIC would look specifically at whether the CBA's officers and directors complied with their disclosure duties under the Corporations Act.

    "I wanted to inform the committee that ASIC has commenced inquiries into this matter and any consequences this matter has for the laws we administer," Mr Medcraft said.

    Mr Medcraft said the probe would examine whether the CBA complied with their licensing obligations, "to act efficiently, honestly and fairly" in line with a requirement to report potential liabilities.

    Reserve Bank governor Philip Lowe told a parliamentary committee he did not wish to make any specific comments on the matter as it was before the courts, but that trust in the banking system had been strained.

    "It is fair to say that service has taken a back seat to sales," Dr Lowe said.

    He said if the CBA was found to have breached anti-money laundering and terrorism funding laws, the bank would need to be held to account.

    "It is a very serious matter," he said. "I mean, we have these rules and these laws for reasons.

    "The focus needs to be on rebuilding trust, delivering high quality service to customers and a strong focus on risk management."

    Commonwealth Bank chief executive Ian Narev has rejected criticism the bank's board should have informed investors as soon as it became aware of the gravity of the money-laundering allegations.

    "In an organisation of this size there are individual items that come to the attention of board and management from regulators and others all the time," Mr Narev told the ABC on Wednesday.

    "We shouldn't and can't be in a situation where we could disclose every time anything comes to our attention. That would end up being very confusing to the market."

    ASIC chair reiterates financial services culture concerns

    Treasurer Scott Morrison yesterday described the latest scandal engulfing the Commonwealth Bank as "an epic fail" and "incredibly serious".

    Mr Morrison said the decision not to disclose the suspicions to investors was one of the reasons he was "puzzled" about the CBA's handling of the allegations.

    Mr Medcraft noted companies including the CBA were not required to alert ASIC to breaches of anti-money-laundering and terror-financing laws.

    However, in his address to the parliamentary committee, Mr Medcraft repeated his earlier concerns about the importance of culture in financial services firms.

    "Our view is that culture is a set of shared values and assumptions within an organisation," Mr Medcraft said.

    "It reflects the underlying mindset of an organisation and the unwritten rules for how things really work."

    "If the culture and values of a business are not aligned with customer outcomes it is easy to see how a trust deficit will emerge and this will impact its long-term sustainability."

    Without specifically mentioning the Commonwealth Bank, Mr Medcraft alluded to an earlier case, involving the Centro property group, where disclosure rules were breached.

    Mr Medcraft said directors needed to, "bring professional scepticism in exercising their role" while ensuring the effectiveness of risk-management systems.

    He added banks needed to lift their game or risk losing public trust.

    "I would encourage them to be more transparent, sometimes they are far too legalistic," he said.

    "I would say to all of them: think about your reputation because you have legal risk and you have reputational risk."

    The ASIC investigation of the money-laundering scandal is the latest chapter overshadowing CBA's full-year profit of $9.93 billion announced on Wednesday.

    Financial intelligence agency AUSTRAC alleged the Commonwealth breached anti-money-laundering regulations on almost 54,000 occasions and failed to report suspicious activity when they become aware.

    The Commonwealth Bank is preparing a defence while chief executive Mr Narev has conceded "mistakes were made" in the handling of the scandal.

    In a statement, a spokesperson said the Commonwealth Bank had noted Mr Medcraft's comments.

    "We respect ASIC and will always work with the regulator to assist it with any inquiries it may have in relation to our business," they said.

    Follow Peter Ryan on Twitter @peter_f_ryan

    © 2017 ABC Australian Broadcasting Corporation. All rights reserved

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