The Commonwealth Bank of Australia (ASX: CBA) share price has fallen 1.5% to $76.60 this morning as shareholders digest news that the banking regulator APRA would be taking a closer look at the company.
APRA, which stands for Australian Prudential Regulatory Authority, is the body responsible for overseeing Australia's lending, superannuation, and insurance sectors. It wields significant power and recently instructed banks to slow their lending activity among property investors.
This morning Commbank and APRA announced that the regulator would establish an independent panel to investigate "a number of issues which have raised concerns regarding the frameworks and practices in relation to the governance, culture and accountability within the CBA group, and have damaged the bank's reputation and public standing."
APRA acknowledged that the bank is well-capitalised and financially sound, so the investigation is focusing primarily on Commonwealth Bank's internal workings. The goal of the inquiry is to identify any shortcomings and will include "considering whether the group's organisational structure, governance, financial objectives, remuneration and accountability frameworks are conflicting with sound risk management and compliance outcomes."
So what?
Commonwealth Bank has been at the centre of numerous scandals dating back to the GFC. More recently it's had life insurance and wealth management scandals, as well as the recent money laundering allegations.
However, APRA noted that the panel would not be making decisions on matters that are currently before the courts, so the investigation is likely to be more general in nature and may consider things such as conflicts of interest (where incentives override the customer's best interests) and so on. Commonwealth Bank is bearing the costs of the investigation, although they are unlikely to be material to the company.
Finance professionals who think that Commbank is a well-intentioned business with its customers best interests at heart are few and far between. However, bank engagements with regulators are typically very tame, usually involving a polite back-and-forth. APRA has the power to enforce changes but poor corporate culture and governance can be hard to tangibly quantify and thus, hard to change.
As a result, I do not think the APRA inquiry is likely to be a big deal, although regulatory risks are increasingly mounting at the big banks.
