Australia's banks are under pressure to rebuild trust in the industry, Philip Lowe, Governor of Australia's central bank, told parliament Friday.
The comments come amid a governance scandal affecting the Commonwealth Bank of Australia Ltd., which has been accused by the government's financial-intelligence agency of failing to monitor money laundering through its ATMs. The agency has launched a civil suit in federal court, and the country's securities regulator said Friday it has begun its own investigation.
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"It is a very serious matter. We have these rules and these laws for a reason," Gov. Lowe said.
"If shortcomings are identified, then there needs to be accountability, and that accountability needs to be through the courts and internally within the organization ... people need to be held to account," he said.
The Australian Transaction Reports and Analysis Centre, or Austrac, last Thursday filed a lawsuit against Commonwealth Bank, alleging tens of thousands of compliance failures that opened the bank up to money laundering. Each breach carries a maximum penalty of 18 million Australian dollars (US$14.2 million).
In comments to parliament Friday, Greg Medcraft, chairman of the Australian Securities and Investments Commission said the regulator had begun inquiries to determine whether the bank's directors and executives had complied with their duties and if the bank had met licensing and disclosure obligations.
"Creating a sustainable business today is not only about the quality of the product or service that is delivered. It is also about the quality of a firm's conduct, both internally and externally," Mr. Medcraft said of corporate culture more broadly.
Austrac alleged the bank contravened the Anti-Money Laundering and Counter-Terrorism Financing Act more than 53,700 times, largely relating to a failure to provide timely reports on transactions above a A$10,000 threshold over about three years from 2012, as well as failing to report suspicious transactions on time or at all and that even after it became aware of suspected money laundering of not monitoring customers.
The allegations relate to the use of the bank's "intelligent deposit machines," a type of ATM that allows anonymous deposits of up to A$20,000 in cash at a time to be automatically credited to accounts.
The bank blamed the vast majority of the reporting failures alleged by the agency, about 53,000, on a coding error inadvertently introduced in late 2012 with a software upgrade. It said the error became apparent in 2015 and Austrac was notified within a month of it being discovered, and the missing reports were provided and the coding error fixed.
In the wake of the suit, Commonwealth Bank's board axed short-term bonuses for Chief Executive Ian Narev and other senior executives for the just-ended year through June. Chairman Catherine Livingstone acknowledged the reputation of the bank and the industry was affected, and said a committee had been set up to deal with the bank's handling of the allegations. However, she said there was no reason to believe the allegations stemmed from deliberate or unethical behavior or from any profit motive.
The Austrac allegations have stirred renewed calls from opposition politicians for a judicial inquiry into the banking industry's behavior.
"Trust in banking has been strained. Banks know that and it needs to be a priority to rebuild trust," Gov. Lowe said. "It's fair to say service has taken a back seat to sales and the banks know that and they're addressing it-changes in remuneration structures and incentives in the organization but there's been for too long a focus on sales and not on service."
Gov. Lowe said Australia has been well served by the banking industry, which "didn't fall into the same trap that overseas banks did a decade ago" and helped the country skirt the global financial crisis, avoiding recession.
"But, I think we can all identify examples where the desire for short-term profit has probably led to not enough attention to risk management issues. So the focus needs to be rebuilding trust, delivering high quality service to customers and a strong focus on risk management," he added.
Speaking to investors Wednesday following the release of a record full-year profit for the bank, Mr. Narev said significant work on compliance had been done since 2015. "Is everything perfect? Absolutely not," he said. "If there's still more that need to be done, it'll get done and no stone will be left unturned to look at that."
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(END) Dow Jones Newswires
August 11, 2017 02:22 ET (06:22 GMT)