Commonwealth Bank of Australia chief Matt Comyn. Picture: AAP
Commonwealth Bank of Australia chief Matt Comyn. Picture: AAP

Bank boss says model was categorical failure

Commonwealth Bank chief Matt Comyn says the group's model of making and selling wealth management and insurance products has "categorically failed" due to conflicts of interest.

But the group will continue to employ financial advisers regardless, Mr Comyn has told the banking royal commission.

Counsel assisting the commission Rowena Orr, QC, on Tuesday showed him an internal document from a meeting earlier this year where he met with representatives from the banking watchdog.

At the meeting, Mr Comyn told the Australian Prudential Regulation Authority the model was broken and the bank was selling some business units.

"CBA's CEO stated that the bancassurance model had categorically failed," the APRA document said.

It said that Mr Comyn felt it was "wrong to exit financial advice and not provide this service to customers, however the current model provides for too much conflict of interest".

Ms Orr asked why the bank had decided to continue employing some financial advisers despite those views.

Mr Comyn replied: "Because we would like to provide financial advice, but only in a way which ensures that we can do so to deliver outcomes which have been different to what we've delivered in the past".

In selling its wealth management business, the CBA would no longer be manufacturing such products, which partly resolved the conflict, he said.

Ms Orr asked Mr Comyn if it was feasible for banks in Australia to offer services beyond their core business of retail and business banking in a way that was sustainable and did not pose unacceptable risks to customers.

"It may be possible but in the instance of the Commonwealth Bank, we've decided to focus on our core business," he replied.

"Our view is that we've decided strategically to focus on our core businesses going forward and a separation between our banking business and our wealth management business."

"Of course, the alternative models where they remain integrated are of course viable but those conflicts need to be managed in a better way than we have been able to do in the past."

Separately on Tuesday, CBA chair Catherine Livingstone said she did not feel comfortable with assurances from executives at the bank in 2016 that they were on top of an unfolding money laundering scandal.

Commonwealth Bank of Australia chairwoman Catherine Livingstone. Picture: AAP
Commonwealth Bank of Australia chairwoman Catherine Livingstone. Picture: AAP

Ms Livingstone, in her first appearance at the royal commission, acknowledged the board could have done more to follow up on the issues as alarms were sounded by regulators.

She revealed that in November 2016 - when she was relatively new to the board - the bank had accrued three "red" statutory notices from the anti-money-laundering regulators amid concerns it was breaking the law.

Ms Livingstone said she had not requested copies of the three reports in question.

She could not recall other directors asking for them either, and said she thought an executive summary given to the board made the seriousness of the issues clear.

Ms Livingstone, who joined the board in March 2016 - having previously served as Telstra chair and chief executive of hearing implant maker Cochlear - became chair in January last year.

In August last year, the regulator, the Australian Transaction Reports and Analysis Centre, sued CBA for breaching anti-money-laundering laws more than 50,000 times by failing to report suspicious transactions carried out at its so-called smart ATMs.

The bank ended up paying $700 million in fines.

Ms Livingstone said that when she raised her concerns with executives late in 2016, she was told they were managing the issue.

Ms Orr presented audit committee board papers from December 2016, in which the minutes had no record of the Austrac issue being discussed despite the three statutory notices.

She asked if the audit committee took the Austrac issues seriously enough.

"It is fair to say not seriously enough," Ms Livingstone replied.

The bank had reduced short-term executive bonuses after Austrac took action, she said, and then chief executive Ian Narev had also moved on.