This article is from the source 'guardian' and was first published or seen on . It last changed over 40 days ago and won't be checked again for changes.

You can find the current article at its original source at https://www.theguardian.com/australia-news/live/2018/nov/21/banking-royal-commission-cba-and-westpac-bosses-to-give-evidence-live

The article has changed 12 times. There is an RSS feed of changes available.

Version 3 Version 4
CBA grilled over executive pay at banking royal commission – live CBA paid out huge bonuses despite insurance scandal – live
(35 minutes later)
Now we’re on the remuneration report for the 2017 financial year.
It was delivered in July, only a few weeks before Austrac commenced civil penalties against the CBA.
Ian Narev, still the CEO, had recommended a 10% reduction for all group executives for long outstanding items and a further 10% reduction for certain group executives, including the now-CEO, Matt Comyn, in relation to anti-money laundering and counter-terrorism financing regulation.
But then Austrac lodged its proceedings alleging 53,700 breaches of anti-money laundering and counter-terrorism financing laws against the CBA.
So, when the board met in August, things had changed a little.
Rowena Orr asks Catherine Livingstone if she remembers the meeting. “Vividly,” she says.
“The discussion ... was to determine, in the light of what had happened, what the remuneration consequences should be, and how they should be delivered through the remuneration framework.”
The board decided that all the senior executives, including Narev, should have their short-term variable bonus reduced to zero.
The response from the executives varied:
Some were immediately accepting, some were angry, and others felt that because it had affected the whole group including people who hadn’t been there for very long that it wasn’t fair. But the point of the board taking this view was to emphasise the importance of collective accountability.
Narev, Livingstone says, “recognised that it was appropriate”.
But Narev’s long-term bonus wasn’t affected, and Orr wants to know why.
Given that at that time we were not fully aware of all the matters that were covered in the proceedings. So the view was that we should leave the long-term variable rem on foot in terms of the deferred rem, so that if there was a need for consequences further down the line, we would still have that option to exercise discretion then.
Rowena Orr has been asking Catherine Livingstone about the way the CBA calculates executive bonuses and what goes into that. After the 2016 strike against the remuneration report, the board made a number of changes, including an increased weighting on financial measures.Rowena Orr has been asking Catherine Livingstone about the way the CBA calculates executive bonuses and what goes into that. After the 2016 strike against the remuneration report, the board made a number of changes, including an increased weighting on financial measures.
Orr asks whether the board considered whether that “provided an incentive for misconduct”.Orr asks whether the board considered whether that “provided an incentive for misconduct”.
“We didn’t. We didn’t explicitly,” Livingstone says.“We didn’t. We didn’t explicitly,” Livingstone says.
We’re then told that since the 2011 financial year the CBA has never reduced an executive’s short-term remuneration as a result of a risk-related issue that had not yet been made public.We’re then told that since the 2011 financial year the CBA has never reduced an executive’s short-term remuneration as a result of a risk-related issue that had not yet been made public.
Orr asks: “Do you think that sends the right message to CBAs employees?”Orr asks: “Do you think that sends the right message to CBAs employees?”
“If you draw that conclusion, no, it doesn’t,” Livingstone says.“If you draw that conclusion, no, it doesn’t,” Livingstone says.
Orr: “What message do you think it sends?Orr: “What message do you think it sends?
Livingstone: “Well, clearly, that there will only be consequence if there is a public event, a media event.Livingstone: “Well, clearly, that there will only be consequence if there is a public event, a media event.
Orr: “If it’s found out. If the public learns of the problem?”Orr: “If it’s found out. If the public learns of the problem?”
Livingstone: “That would be the inference, yes.”Livingstone: “That would be the inference, yes.”
While Catherine Livingstone is being grilled by the commission, the Australian share market has taken a big dive amid a global stock sell-off.While Catherine Livingstone is being grilled by the commission, the Australian share market has taken a big dive amid a global stock sell-off.
Our man Martin Farrer has this report, which shows that a sell-off in tech, energy and banking stocks has sent the ASX200 plunging to its lowest point for nearly two years.Our man Martin Farrer has this report, which shows that a sell-off in tech, energy and banking stocks has sent the ASX200 plunging to its lowest point for nearly two years.
Just back on CommInsure.Just back on CommInsure.
We’re still wrapping our heads around the fact that the head of CBA’s wealth management division had their short-term bonus reduced by 5% - an offensively small 5% - for the CommInsure scandal. We’re still wrapping our heads around the fact that the head of CBA’s wealth management division had their short-term bonus reduced by 5% – an offensively small 5% – after the CommInsure scandal.
The royal commission touched on this scandal two months ago, when it heard that CommInsure had rejected a woman’s insurance claim for breast cancer treatment by relying on an 18-year old medical definition of what constituted “radical breast surgery” against the advice of specialists. The royal commission touched on this scandal two months ago, when it heard that CommInsure had rejected a woman’s insurance claim for breast cancer treatment by relying on an 18-year old medical definition of what constituted “radical breast surgery”, against the advice of specialists.
The woman had made her claim in August 2016 and her policy’s medical definitions had not been updated since 1998.The woman had made her claim in August 2016 and her policy’s medical definitions had not been updated since 1998.
[As an aside, CBA chief executive Matt Comyn finally admitted yesterday that CommInsure had deliberately not updated its medical definitions because it was prioritising “financial objectives” - could that be profits? - over its customers]. [As an aside, the CBA chief executive, Matt Comyn, finally admitted yesterday that CommInsure had deliberately not updated its medical definitions because it was prioritising “financial objectives” – could that be profits? – over its customers].
Anyway, the woman had been paying premiums for more than 20 years, and her policy included cover for malignant tumours with an exclusion for “carcinoma in situ unless leading to radical breast surgery.”Anyway, the woman had been paying premiums for more than 20 years, and her policy included cover for malignant tumours with an exclusion for “carcinoma in situ unless leading to radical breast surgery.”
CommInsure tried to argue that the woman didn’t meet the policy definition of cancer because her carcinoma in situ and her treatment didn’t include radical breast surgery, insisting radical surgery only referred to re removal of an entire breast.CommInsure tried to argue that the woman didn’t meet the policy definition of cancer because her carcinoma in situ and her treatment didn’t include radical breast surgery, insisting radical surgery only referred to re removal of an entire breast.
It ignored that fact that specialists advised that medical practice had moved on since the 1990s and radical treatment now involved radiotherapy and breast-conserving therapy and didn’t mean entire breast removal.It ignored that fact that specialists advised that medical practice had moved on since the 1990s and radical treatment now involved radiotherapy and breast-conserving therapy and didn’t mean entire breast removal.
To make matters worse, CommInsure updated its cancer treatment definition in May 2017, but didn’t backdate the definition, meaning the woman was still ineligible. To make matters worse, CommInsure updated its cancer treatment definition in May 2017 but didn’t backdate the definition, meaning the woman was still ineligible.
To cut a long story short, CBA eventually had to pay the woman $170,000 after the financial ombudsman service got involved.To cut a long story short, CBA eventually had to pay the woman $170,000 after the financial ombudsman service got involved.
That was just one example of the types of thing that was going on in CommInsure. It led to a blistering Four Corners investigation.That was just one example of the types of thing that was going on in CommInsure. It led to a blistering Four Corners investigation.
Fast forward to today, and we heard that a CBA executive say their short-term bonus reduced by 5% as a consequence.Fast forward to today, and we heard that a CBA executive say their short-term bonus reduced by 5% as a consequence.
“A 5% reduction?” Orr asked.“A 5% reduction?” Orr asked.
“As I’ve indicated, that is patently inadequate and my board colleagues would recognise that today,” Livingstone replied.“As I’ve indicated, that is patently inadequate and my board colleagues would recognise that today,” Livingstone replied.
Today. Two years later.Today. Two years later.
Bevan Shields from Fairfax has done the math on Ian Narev’s total pay packet in 2016. Nice work, if you can get it.Bevan Shields from Fairfax has done the math on Ian Narev’s total pay packet in 2016. Nice work, if you can get it.
$236,000 a week.... https://t.co/jcIPj42Up4$236,000 a week.... https://t.co/jcIPj42Up4
The CBA’s shareholders ended up rejecting the 2016 remuneration report for 2016. 50.1% of them voted against it. But they were also rejecting an attempt to restructure remuneration to focus on non-financial or shareholder issues.The CBA’s shareholders ended up rejecting the 2016 remuneration report for 2016. 50.1% of them voted against it. But they were also rejecting an attempt to restructure remuneration to focus on non-financial or shareholder issues.
Orr wants to know if the “two strikes rule” – where shareholders vote against a rem report twice, triggering a spill of the board – prevents the board from focusing on those issues.Orr wants to know if the “two strikes rule” – where shareholders vote against a rem report twice, triggering a spill of the board – prevents the board from focusing on those issues.
Orr asks:Orr asks:
Do you think that the operation of the two strikes rule should be restricted or qualified in any way to better enable financial services entities to adjust their remuneration policies to benefit stakeholders other than shareholders?Do you think that the operation of the two strikes rule should be restricted or qualified in any way to better enable financial services entities to adjust their remuneration policies to benefit stakeholders other than shareholders?
Livingstone:Livingstone:
Well, I think, Ms Orr, what we’re observing, in fact, is the two strikes rule and the vote against the remuneration report is actually being used for purposes beyond remuneration. So institutional shareholders may use that vote to register dissatisfaction with other elements, not related to remuneration. And I think this is – this is causing a distortion and compromising, I think, the ability of the two strikes rule to work effectively.Well, I think, Ms Orr, what we’re observing, in fact, is the two strikes rule and the vote against the remuneration report is actually being used for purposes beyond remuneration. So institutional shareholders may use that vote to register dissatisfaction with other elements, not related to remuneration. And I think this is – this is causing a distortion and compromising, I think, the ability of the two strikes rule to work effectively.
Now to Narev’s pay that year. The former chief executive recommended to the board that he receive 108% of his short-term target bonus, or $2.862m.Now to Narev’s pay that year. The former chief executive recommended to the board that he receive 108% of his short-term target bonus, or $2.862m.
Orr appears fairly incredulous at this point:Orr appears fairly incredulous at this point:
“For this year, in which there were ongoing investigations into CBA’s life insurance business, known problems with anti-money laundering compliance, it was known that customers had been charged fees for no service, and it was known that consumer credit insurance had been mis-sold?”“For this year, in which there were ongoing investigations into CBA’s life insurance business, known problems with anti-money laundering compliance, it was known that customers had been charged fees for no service, and it was known that consumer credit insurance had been mis-sold?”
“That’s correct,” Livingstone says.“That’s correct,” Livingstone says.
Orr: “Do you agree that they were all things – that was the context for this recommendation by the chair of the board for Mr Narev to receive a short-term variable award of $2.862m?Orr: “Do you agree that they were all things – that was the context for this recommendation by the chair of the board for Mr Narev to receive a short-term variable award of $2.862m?
Livingstone: “I do.”Livingstone: “I do.”
Orr: “Do you have any reflections on that recommendation, Ms Livingstone?”Orr: “Do you have any reflections on that recommendation, Ms Livingstone?”
Livingstone: “As I’ve indicated, we have all reflected on these outcomes, and would regard them as inappropriate.”Livingstone: “As I’ve indicated, we have all reflected on these outcomes, and would regard them as inappropriate.”
Well. We’re told that in 2016 one executive had a short-term bonus reduced. By 5%. Why, Orr wants to know, did that executive – the head of their wealth management division – receive a reduction?Well. We’re told that in 2016 one executive had a short-term bonus reduced. By 5%. Why, Orr wants to know, did that executive – the head of their wealth management division – receive a reduction?
“My understanding is to reflect the CommInsure issue,” Livingstone says.“My understanding is to reflect the CommInsure issue,” Livingstone says.
“A 5% reduction?” Orr asks.“A 5% reduction?” Orr asks.
“As I’ve indicated, that is patently inadequate and my board colleagues would recognise that today.”“As I’ve indicated, that is patently inadequate and my board colleagues would recognise that today.”
The CommInsure problem came to light in March 2016. The former chief medical officer of CBA’s insurance arm made claims about a culture of dishonest and unethical practices to avoid payouts to sick and dying people, revealing that doctors were pressured to change their opinions, outdated medical definitions were used to deny payouts, and medical files disappeared from the internal filing system.The CommInsure problem came to light in March 2016. The former chief medical officer of CBA’s insurance arm made claims about a culture of dishonest and unethical practices to avoid payouts to sick and dying people, revealing that doctors were pressured to change their opinions, outdated medical definitions were used to deny payouts, and medical files disappeared from the internal filing system.
People in the gallery scoff.People in the gallery scoff.
We’re seeing a report from Ian Narev, the CBA’s former chief executive, about the 2016 senior-executive remuneration.We’re seeing a report from Ian Narev, the CBA’s former chief executive, about the 2016 senior-executive remuneration.
“I am not aware of any reasons why deferred [bonus pay] should not be paid in full to all relevant executives,” Narev wrote.“I am not aware of any reasons why deferred [bonus pay] should not be paid in full to all relevant executives,” Narev wrote.
Narev recommended that all of the group executives receive a rating of “fully met” for dealing with risk. He recommended that none of them have their short-term incentive reduced for risk matters, and that each of them – aside from one executive on a different pay scheme – receive more than 100% of their target short-term incentive.Narev recommended that all of the group executives receive a rating of “fully met” for dealing with risk. He recommended that none of them have their short-term incentive reduced for risk matters, and that each of them – aside from one executive on a different pay scheme – receive more than 100% of their target short-term incentive.
Orr wants to know what Livingstone thinks of that recommendation.Orr wants to know what Livingstone thinks of that recommendation.
“Well, I think, as I’ve indicated, that there are individuals here for whom the level of award was not appropriate, in light of the risk matters which, as you’ve pointed out, were on foot in the group at the time,” she replies.“Well, I think, as I’ve indicated, that there are individuals here for whom the level of award was not appropriate, in light of the risk matters which, as you’ve pointed out, were on foot in the group at the time,” she replies.
“Subsequently, one executive’s [bonus] award was reduced downwards, but even that reduction was patently inadequate for what was going on at the time.“Subsequently, one executive’s [bonus] award was reduced downwards, but even that reduction was patently inadequate for what was going on at the time.
Orr asks what a more appropriate “risk adjustment” would have been.Orr asks what a more appropriate “risk adjustment” would have been.
“Well, in some instances, I – probably 100% reduction, which is the approach that, as you know, we’ve taken subsequently,” she says.“Well, in some instances, I – probably 100% reduction, which is the approach that, as you know, we’ve taken subsequently,” she says.
It’s clear from the last couple of days that the royal commission has become very, very interested in way banks pay their staff and senior executives.It’s clear from the last couple of days that the royal commission has become very, very interested in way banks pay their staff and senior executives.
It’s all pointing towards the commission’s final report.It’s all pointing towards the commission’s final report.
I’d wager that the final report will make serious recommendations to overhaul the financial industry’s remuneration practices.I’d wager that the final report will make serious recommendations to overhaul the financial industry’s remuneration practices.
Take this exchange from Rowena Orr, senior counsel assisting the royal commission.Take this exchange from Rowena Orr, senior counsel assisting the royal commission.
Orr asked Catherine Livingstone why CBA bothered to pay its executives variable remuneration at all.Orr asked Catherine Livingstone why CBA bothered to pay its executives variable remuneration at all.
Livingstone’s answer was typical of someone on a board of a major Australian bank – it’s apparently all very complicated, we need to pay executives some fixed pay and some variable pay, a mix of short-term and longer-term incentives, to encourage them to meet certain objectives (ie to do their jobs).Livingstone’s answer was typical of someone on a board of a major Australian bank – it’s apparently all very complicated, we need to pay executives some fixed pay and some variable pay, a mix of short-term and longer-term incentives, to encourage them to meet certain objectives (ie to do their jobs).
Orr then asked Livingstone pointblank: “I want to ask you, Ms Livingstone, why you can’t achieve those objectives with an appropriate fixed salary and a consequence management framework and a promotion and reward framework?”Orr then asked Livingstone pointblank: “I want to ask you, Ms Livingstone, why you can’t achieve those objectives with an appropriate fixed salary and a consequence management framework and a promotion and reward framework?”
Orr could have added, “like in almost every other industry”.Orr could have added, “like in almost every other industry”.
Rowena Orr is taking Catherine Livingstone to the CBA’s 2016 remuneration report, released in August that year.Rowena Orr is taking Catherine Livingstone to the CBA’s 2016 remuneration report, released in August that year.
At this point both Asic and Apra were investigating CBAs life insurance business.At this point both Asic and Apra were investigating CBAs life insurance business.
The CBA was also aware of the anti-money laundering and counter-terrorism financing issues with Austrac, the charging of fees for no service and the mis-selling of credit card insurance. Those issues weren’t public, and they weren’t mentioned in the executive remuneration report.The CBA was also aware of the anti-money laundering and counter-terrorism financing issues with Austrac, the charging of fees for no service and the mis-selling of credit card insurance. Those issues weren’t public, and they weren’t mentioned in the executive remuneration report.
Before Orr even gets a chance to take her to the detail, Livingstone interrupts to say it was “inadequate”.Before Orr even gets a chance to take her to the detail, Livingstone interrupts to say it was “inadequate”.
The bank’s chief risk officer, Ian Cohen, mentioned both the fee for no service and Austrac issues in the report, but wrote that he did “not believe there to be any risk issues or risk behaviours that would suggest [bonus pay] should be modified from that recommended based on other achievements or results”.The bank’s chief risk officer, Ian Cohen, mentioned both the fee for no service and Austrac issues in the report, but wrote that he did “not believe there to be any risk issues or risk behaviours that would suggest [bonus pay] should be modified from that recommended based on other achievements or results”.
The board agreed.The board agreed.
Orr asks whether it was CBAs policy “to wait until a risk had eventuated publicly before imposing any sort of consequence for failing to manage that risk?”Orr asks whether it was CBAs policy “to wait until a risk had eventuated publicly before imposing any sort of consequence for failing to manage that risk?”
“I don’t believe that was the intention, but it might be the impression created,” Livingstone replies.“I don’t believe that was the intention, but it might be the impression created,” Livingstone replies.
She says the “process around the remuneration outcomes for 2016 was patently inadequate”.She says the “process around the remuneration outcomes for 2016 was patently inadequate”.
Shares in Commonwealth Bank, which is the country’s biggest company by market value, have fallen 42c or 0.6% to $68.78c this morning amid a sharp overall selloff on the ASX200.Shares in Commonwealth Bank, which is the country’s biggest company by market value, have fallen 42c or 0.6% to $68.78c this morning amid a sharp overall selloff on the ASX200.
The stock has dropped 15% in the past 12 months as the bank has been buffeted by revelations of mismanagement at the royal commission.The stock has dropped 15% in the past 12 months as the bank has been buffeted by revelations of mismanagement at the royal commission.
CBA’s fall this morning is mirrored in the performance this morning of the ASX200’s financial sector, which is off by 0.64%.CBA’s fall this morning is mirrored in the performance this morning of the ASX200’s financial sector, which is off by 0.64%.
So, short-term variable pay can be between 0% and 150% of executives’ fixed remuneration. Half is paid in cash, half in shares a year or two later. Long-term variable pay can be as much as 180% of the fixed pay, depending on performance.So, short-term variable pay can be between 0% and 150% of executives’ fixed remuneration. Half is paid in cash, half in shares a year or two later. Long-term variable pay can be as much as 180% of the fixed pay, depending on performance.
26% of pay is fixed remuneration, 26% is short-term variable remuneration and 48% is long-term variable remuneration.26% of pay is fixed remuneration, 26% is short-term variable remuneration and 48% is long-term variable remuneration.
Rowena Orr wants to know why the CBA doesn’t just pay its executives a fixed salary and give them a raise if they do a good job.Rowena Orr wants to know why the CBA doesn’t just pay its executives a fixed salary and give them a raise if they do a good job.
Catherine Livingstone says it enables the bank to “discriminate between executives” based on performance. It also uses short- and long-term remuneration “to deliver consequences where that’s necessary”.Catherine Livingstone says it enables the bank to “discriminate between executives” based on performance. It also uses short- and long-term remuneration “to deliver consequences where that’s necessary”.
Orr:Orr:
Do you think there’s a perception among executives that unless they do something wrong, they should get their short-term variable remuneration, that is, they should get it for doing their jobs?Do you think there’s a perception among executives that unless they do something wrong, they should get their short-term variable remuneration, that is, they should get it for doing their jobs?
Livingstone:Livingstone:
I would argue, if you look at the results for FY17 and FY18, no executive in CBA would think that they would get their short-term variable remuneration just for doing their job.I would argue, if you look at the results for FY17 and FY18, no executive in CBA would think that they would get their short-term variable remuneration just for doing their job.
Oh, fun. We’re on to senior executive pay. As well as their fixed pay, the bank’s top brass also receive “short-term variable remuneration” and “long-term variable remuneration”.Oh, fun. We’re on to senior executive pay. As well as their fixed pay, the bank’s top brass also receive “short-term variable remuneration” and “long-term variable remuneration”.
Rowena Orr describes short-term variable remuneration as essentially an annual bonus.Rowena Orr describes short-term variable remuneration as essentially an annual bonus.
“We don’t regard it as a bonus,” Catherine Livingstone says.“We don’t regard it as a bonus,” Catherine Livingstone says.
Orr is now taking Livingstone to a letter she sent to the Apra chairman, Wayne Byres, in February this year. You may remember that Apra released a report that was critical of the CBA’s previous board earlier this year.Orr is now taking Livingstone to a letter she sent to the Apra chairman, Wayne Byres, in February this year. You may remember that Apra released a report that was critical of the CBA’s previous board earlier this year.
In the letter Livingstone wrote that the board “has a duty to inquire and interrogate; management has a duty to inform and disclose, and these two aspects must result in a meeting of the minds. This contextual aspect of governance is receiving explicit attention.”In the letter Livingstone wrote that the board “has a duty to inquire and interrogate; management has a duty to inform and disclose, and these two aspects must result in a meeting of the minds. This contextual aspect of governance is receiving explicit attention.”
Orr asks Livingstone to reflect on the period prior to the Apra report, and whether the board had “failed in its duty to inquire and interrogate”.Orr asks Livingstone to reflect on the period prior to the Apra report, and whether the board had “failed in its duty to inquire and interrogate”.
Livingstone: “I think it’s – it is correct to say that there was not enough challenge and that would be through inquiring and interrogating of particular matters, yes.”Livingstone: “I think it’s – it is correct to say that there was not enough challenge and that would be through inquiring and interrogating of particular matters, yes.”
Orr: “So the board did fail in its duty to inquire and interrogate?”Orr: “So the board did fail in its duty to inquire and interrogate?”
Livingstone: “It didn’t adequately address the duty, yes.”Livingstone: “It didn’t adequately address the duty, yes.”
Orr: “And do you think that management failed in its duty to inform and disclose?”Orr: “And do you think that management failed in its duty to inform and disclose?”
Livingstone: “Yes. I think that’s correct.”Livingstone: “Yes. I think that’s correct.”
At the heart of this questioning is a fairly straightforward question: did the CBA board do its job in questioning senior management over the litany of issues the bank was facing, including concerns by regulators?At the heart of this questioning is a fairly straightforward question: did the CBA board do its job in questioning senior management over the litany of issues the bank was facing, including concerns by regulators?
Yesterday and today Rowena Orr has taken Catherine Livingstone to a “red” audit report about the Austrac matters. Livingstone, before becoming chair, heard a briefing about the report but did not request a copy.Yesterday and today Rowena Orr has taken Catherine Livingstone to a “red” audit report about the Austrac matters. Livingstone, before becoming chair, heard a briefing about the report but did not request a copy.
And, heck, Livingstone tells Orr there would have been “no point” reading the report because management weren’t in a position to do anything about it.And, heck, Livingstone tells Orr there would have been “no point” reading the report because management weren’t in a position to do anything about it.
There was no point, at that point, at that time, to drilling down into further detail because management could not respond.There was no point, at that point, at that time, to drilling down into further detail because management could not respond.
They could not articulate the problem, nor the root cause. At that time, so that is towards the end of 2016, and I was going to take up the role of chair from 1 January 17, my intention was from January 17, when I was in the role of chair, that I would be in a position to take action.They could not articulate the problem, nor the root cause. At that time, so that is towards the end of 2016, and I was going to take up the role of chair from 1 January 17, my intention was from January 17, when I was in the role of chair, that I would be in a position to take action.
Rowena Orr QC, the counsel assisting the royal commission, is grilling Livingstone about the board minutes from the October 2016 board meeting at which she says she questioned CBA managers over how they were handling Austrac’s concerns about anti-money laundering risks.Rowena Orr QC, the counsel assisting the royal commission, is grilling Livingstone about the board minutes from the October 2016 board meeting at which she says she questioned CBA managers over how they were handling Austrac’s concerns about anti-money laundering risks.
The minutes do not record that exchange. Livingstone insists she did raise it, and that board minutes don’t include every exchange “verbatim”.The minutes do not record that exchange. Livingstone insists she did raise it, and that board minutes don’t include every exchange “verbatim”.
Orr:Orr:
Do you understand that a failure to comply with the requirements in relation to the keeping of minutes under section 251A of the Corporations Act is an offence?Do you understand that a failure to comply with the requirements in relation to the keeping of minutes under section 251A of the Corporations Act is an offence?
She is now taking Livingstone through subsequent board meeting minutes from December. They again show no board member challenging CBA management on the response to Austrac’s concerns.She is now taking Livingstone through subsequent board meeting minutes from December. They again show no board member challenging CBA management on the response to Austrac’s concerns.
Catherine Livingstone has begun with a statement about what she did as a board member in the lead-up to the Austrac scandal.Catherine Livingstone has begun with a statement about what she did as a board member in the lead-up to the Austrac scandal.
We heard yesterday that by November 2016, CBA had received three statutory notices from Austrac requiring the bank to provide information about its anti-money laundering activities. In June this year the bank paid $700m to settle civil proceedings relating to breaches of anti-money laundering and counter-terrorism financing laws.We heard yesterday that by November 2016, CBA had received three statutory notices from Austrac requiring the bank to provide information about its anti-money laundering activities. In June this year the bank paid $700m to settle civil proceedings relating to breaches of anti-money laundering and counter-terrorism financing laws.
Livingstone told the commission she had raised concerns about the bank’s non-financial risk profile but had received assurances from CBA management that Austrac “knew we were working hard” to reach compliance. She admitted that the board had not taken the risks seriously enough, saying it had been an “inadequate response”.Livingstone told the commission she had raised concerns about the bank’s non-financial risk profile but had received assurances from CBA management that Austrac “knew we were working hard” to reach compliance. She admitted that the board had not taken the risks seriously enough, saying it had been an “inadequate response”.
She has told the commission this morning that the response she received from management had confirmed her concerns that “management at that time did not have the capacity to respond to what was clearly an escalating, significant and serious systemic control challenge”.She has told the commission this morning that the response she received from management had confirmed her concerns that “management at that time did not have the capacity to respond to what was clearly an escalating, significant and serious systemic control challenge”.
“They did not have the capacity either because they couldn’t or wouldn’t,” she said.“They did not have the capacity either because they couldn’t or wouldn’t,” she said.
She said that when she became chair in January 2017 she “understood very clearly that the degree of diligence that would be required from me would be greater than anything I had undertaken to date in my career and that it would take years.She said that when she became chair in January 2017 she “understood very clearly that the degree of diligence that would be required from me would be greater than anything I had undertaken to date in my career and that it would take years.
“Unfortunately that judgment was borne out by subsequent events. I put my reputation on the line [by] taking up the role of chair of CBA.”“Unfortunately that judgment was borne out by subsequent events. I put my reputation on the line [by] taking up the role of chair of CBA.”
Good morning and welcome to day three of the final week of the banking royal commission. We’ll start today hearing from the Commonwealth Bank chairwoman, Catherine Livingstone, who returns after giving evidence yesterday.Good morning and welcome to day three of the final week of the banking royal commission. We’ll start today hearing from the Commonwealth Bank chairwoman, Catherine Livingstone, who returns after giving evidence yesterday.
Here’s a quick mop-up of everything that happened yesterday if you’re playing catch up, then we’ll get straight into it. You can also read Gareth Hutchens’ piece from yesterday, including a call from the Reserve Bank governor, Phillip Lowe, for harsher penalties for bankers who do the wrong thing.Here’s a quick mop-up of everything that happened yesterday if you’re playing catch up, then we’ll get straight into it. You can also read Gareth Hutchens’ piece from yesterday, including a call from the Reserve Bank governor, Phillip Lowe, for harsher penalties for bankers who do the wrong thing.
Livingstone told the commission she had been “surprised by the lack of challenge” to management by the previous board, and that there was a lack of urgency in following up issues including the Austrac scandal.Livingstone told the commission she had been “surprised by the lack of challenge” to management by the previous board, and that there was a lack of urgency in following up issues including the Austrac scandal.
By November 2016, CBA had received three statutory notices from Austrac requiring the bank to provide information about its anti-money laundering activities. Livingstone told the commission she had raised concerns about the bank’s non-financial risk profile, but had received assurances from CBA management that Austrac “knew we were working hard” to reach compliance.By November 2016, CBA had received three statutory notices from Austrac requiring the bank to provide information about its anti-money laundering activities. Livingstone told the commission she had raised concerns about the bank’s non-financial risk profile, but had received assurances from CBA management that Austrac “knew we were working hard” to reach compliance.
She admitted the board had not taken the risks seriously enough, saying it had been an “inadequate response”.She admitted the board had not taken the risks seriously enough, saying it had been an “inadequate response”.
Earlier in the day we heard that the CBA chief executive, Matt Comyn, had numerous discussions with his former boss Ian Narev about the bank’s much-criticised credit card insurance products. Comyn supported dropping the products but was opposed by the bank’s wealth division. He told the commission he had been unable to convince Narev of his thinking.Earlier in the day we heard that the CBA chief executive, Matt Comyn, had numerous discussions with his former boss Ian Narev about the bank’s much-criticised credit card insurance products. Comyn supported dropping the products but was opposed by the bank’s wealth division. He told the commission he had been unable to convince Narev of his thinking.
On one occasion, Comyn said, Narev told him to “temper your sense of justice”.On one occasion, Comyn said, Narev told him to “temper your sense of justice”.
About April 2015 the CBA introduced a “knockout question” for in-branch and telephone sales of its CreditCard Plus insurance product to stop the sale of the product to ineligible customers. But the knockout question was not introduced for online sales of the product for another two years, which Comyn says was a mistake.About April 2015 the CBA introduced a “knockout question” for in-branch and telephone sales of its CreditCard Plus insurance product to stop the sale of the product to ineligible customers. But the knockout question was not introduced for online sales of the product for another two years, which Comyn says was a mistake.
He admitted there were a number of examples in recent years where the CBA had prioritised financial objectives over its customers, including the fee-for-no-service scandal, and CommInsure.He admitted there were a number of examples in recent years where the CBA had prioritised financial objectives over its customers, including the fee-for-no-service scandal, and CommInsure.
The CBA expects to pay about $15m in remediation to 64,000 customers over its CreditCard Plus Insurance, but an internal report prepared by Ernst and Young identified a further 27,000 “high risk” customers who had been sold the product.The CBA expects to pay about $15m in remediation to 64,000 customers over its CreditCard Plus Insurance, but an internal report prepared by Ernst and Young identified a further 27,000 “high risk” customers who had been sold the product.
On the Austrac scandal, Comyn said he’d asked himself many times how so many had become so complacent about non-financial risk.On the Austrac scandal, Comyn said he’d asked himself many times how so many had become so complacent about non-financial risk.
He admitted the CBA had been “arrogant” in its past dealings with regulators such as Asic.He admitted the CBA had been “arrogant” in its past dealings with regulators such as Asic.