Commonwealth Bank chair Catherine Livingstone has defended the board's decisions on disclosure and executive pay, under at times heated questioning over the money laundering compliance scandal that has rocked the bank.
Ms Livingstone and chief executive Ian Narev fronted the federal government's banking inquiry on Friday, the first such appearance since explosive money laundering allegations were levelled against the country's biggest bank.
The grilling came after National Australia Bank chief Andrew Thorburn faced the same committee, fielding questions over staff falsely witnessing 2000 documents, vowing there would be "consequences" for staff involved.
In August this year, Austrac launched explosive legal action claiming CBA failed to report more than 53,000 large cash transactions, and that crime gangs laundered millions of dollars through the bank's ATMs.
Inquiry chairman David Coleman repeatedly asked Ms Livingstone why the board didn't tell investors earlier about the alleged breaches, given it was first made aware of some breaches in August 2015.
Mr Coleman also suggested it had been "extraordinarily incompetent" of the board to have determined that targets relating to risk management had been met, when it set remuneration in 2016.
Ms Livingstone, who became chair at the start of this year, acknowledged the Austrac matter had been "very challenging" and was a "crucial issue" for the board of Australia's biggest bank.
She defended the bank's disclosure to investors, saying the board knew about only one component of the Austrac allegations against it in 2015. This related to the bank's alleged failure to make threshold transaction reports - the requirement to notify Austrac of transactions above $10,000.
She said it remedied this situation within a month, including by boosting its financial crimes surveillance activity.
"We have met our continuous disclosure obligations based on our knowledge of the matters," Ms Livingstone said.
Ms Livingstone said there was "a great deal" of detail in Austrac's statement of claim, filed in August this year, of which the board had not been aware before it was lodged.
Mr Coleman also questioned Ms Livingstone over the board's decision that group executives had satisfied performance criteria that included "risk" in 2016, when it was compiling its remuneration report. This is one metric included when determining executive bonuses.
Mr Coleman asked Ms Livingstone if the board had "manifestly failed in its duty" in making this determination.
"It is very, very hard to see how at bare minimum that is not extraordinarily incompetent, if not more problematic for the individual directors," Mr Coleman said to Ms Livingstone.
In response, Ms Livingstone stood by the decision, saying it was "appropriate" at the time, as the board did not know Austrac would ultimately launch a civil case against CBA.
"The first we were aware that Austrac intended to launch civil proceedings was the third of August this year, and the period to which you relate and the events of that time are the subject of the Austrac civil proceedings," Ms Livingstone said.
'Further accountability'
The fresh round of scrutiny comes after Ms Livingstone scrapped short-term bonuses this year in response to the severe hit to the bank's reputation caused by the Austrac scandal.
On Friday she vowed there would be "further accountability consequences as necessary" as the bank investigated the allegations further.
"As chairman, my position on accountability can be quite simply put," she said.
"Where claims of serious misconduct are substantiated, there are consequences, including dismissal. People who underperform are supported to improve, however, if their performance doesn't improve they are also asked to leave."
As banks, and especially CBA, look to rebuild public trust in the industry, Ms Livingstone said the bank was conscious of the need for "greater transparency" and "greater accountability for the outcomes it delivers".
"It is my goal as chair to ensure that we have robust governance, accountability and risk management systems in place," she said.
Ms Livingstone also signalled that people had left CBA as a result of the flaws in the bank's anti-money systems before Austrac launched the bombshell action against CBA in August.
Three former high-ranking executives of the bank had missed out on deferred pay as a result of the board's pay cut this year, she said.
When pressed on specific details of Austrac's claims, Ms Livingstone and Mr Narev said they were limited in what they could say because of the ongoing legal proceedings.
CBA is due to file its defence in the Austrac matter in December.
Mr Narev made it clear the bank would acknowledge it had made mistakes, and would not fight every aspect of Austrac's claim against CBA.
"The statement of defence is going to make clear we've made mistakes," he said. "We won't fight the claim or fight aspects of the claim where we know we're in the wrong."
Analysts have estimated the bank could face a fine of up to $2.5 billion as a result of Austrac's case, and suggested this is likely to weigh on the board's capital management decisions.
Share price slump
Since the Austrac allegations came to light, CBA's shares have been downgraded compared with rival banks, and Mr Coleman put it to Mr Narev that the billions wiped off its market capitalisation would be "the largest example of shareholder value destruction in Australian history".
"We understand that nobody wants to see the share price go down," Mr Narev said in response.
"We would hope that many of those losses, over the short term, can be recuperated over the long term."
The corporate watchdog has said it is investigating whether the bank's board complied with its continuous disclosure obligations, while the plaintiff law firm Maurice Blackburn is also running a shareholder class action over the issue.
The Austrac scandal has put the spotlight on potential risks from banks' intelligent deposit machines - which allow customers to make large cash deposits and were at the heart of CBA's problems.
On Friday, CBA confirmed its machines continued to accept a maximum deposit of $20,000 in cash, compared with other major banks' limit of $4000 to $5000.
Mr Narev said this decision on cash deposits was a reflection of small business customer "utility".
