Note: Where available, the PDF/Word icon below is provided to view the complete and fully formatted document
Standing Committee on Economics
08/03/2019
Review of Australia's four major banks

Go To First Hit


COHEN, Mr David, Deputy Chief Executive Officer, Commonwealth Bank Group

COMYN, Mr Matt, Chief Executive Officer, Commonwealth Bank Group

Committee met at 09:15

CHAIR ( Mr Tim Wilson ): I declare open this hearing of the House of Representatives Standing Committee on Economics for the review of the four major banks. This is the fifth round of hearings that the committee is undertaking as part of its review. These hearings provide an important mechanism to hold the four major banks to account before the nation's parliament. These hearings will, in particular, provide an opportunity to scrutinise the banks and the findings of the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry. The committee has held four rounds of hearings as part of its ongoing review.

The committee has made a suite of recommendations for banking reform which have been broadly adopted by the government. Key reforms to improve outcomes for Australian consumers to date include putting in place: a one-stop shop for consumer complaints, the Australian Financial Complaints Authority; the Banking Executive Accountability Regime; and new powers and resources for the ACCC to investigation competition in the setting of interest rates. The government also adopted the committee's recommendations to establish an open data regime and change the regulatory requirements for bank start-ups in order to encourage more competition in the sector.

I would also like to outline a number of matters related to the conduct of today's hearings. I refer members and witnesses to the House's resolutions and related procedures for dealing with witnesses at page 126, paragraph 9 of the House of Representatives' standing orders. I know you all have it by your bedside table! The resolution provides that should a witness refuse to answer a question they should be asked to state the grounds on which they object. The committee may either accept that objection or alternatively deliberate at a future private meeting on whether or not to insist upon an answer. If the committee does consider the matter in private, it may write to witness with the outcome of its discussion. During the course of the hearing, witnesses may be asked to provide documents at a later stage. If a witness subsequently refuses to provide documents, the committee may meet in private to consider the matter. Under stander order 236 of the House of Representatives, the committee has the power to compel witnesses to produce documents where the committee has made a decision that the circumstances warrant such an order.

I am also mindful that today we have a parliamentary hearing on an important matter and a subject that draws strong emotions. One of the important principles of having a parliamentary hearing is to make sure that it is held with decorum and respect between the witnesses and the parliamentary members. I also encourage that, as this is a public hearing, the public is most welcome to attend. I note there are a number of people from the public who are in attendance, including those wearing their campaign T-shirts. I recognise that we need to conduct these hearings in a civilised and respectful fashion, and the questions and answers are between the witnesses and parliamentary members. We would appreciate if witnesses' responses are heard in silence so that we can fully deliberate on what is said and so that we can have as free flowing a discussion between the committee members and the witnesses as possible. Since this is a new standard, according to my parliamentary register, I own bank shares. Does anyone else want to declare anything?

Mr JOSH WILSON: I have investments in Colonial First State, which I think CBA owns.

CHAIR: Those haven't been declared before either. Anything else?

Mr CRAIG KELLY: I use a CBA account.

CHAIR: Well, I used a Bank of Melbourne ATM the other day and I have CBA products. Anyone else? No. We have resolved all of that. We have representatives from the Commonwealth Bank of Australia present for today's hearings. I remind you that although the committee does not require you to give evidence under oath the hearings are legal proceedings of the parliament and warrant the same respect as proceedings of the House. The giving of false or misleading evidence is a serious matter and may be regarded as a contempt of parliament. I invite you to make your opening statement.

Mr Comyn : Thank you, Chair, and good morning. When I appeared before you six months ago, I talked about the actions we were taking to put customers first and to become a simpler, better bank. This remains my first priority as chief executive. The outcomes examined through the royal commission were confronting, and the failures that led to those outcomes were simply unacceptable. It is only through addressing these issues that we will, in time, earn back the trust of the community. In working towards rebuilding that trust, my focus has been in three key areas. First, we have been addressing past failings by looking again at a series of longstanding cases where customers remain dissatisfied with us and providing compensation where we got it wrong. As some of the members of this committee will be aware, I have personally been involved in guiding our response to some of the more difficult cases. We are making improvements to how we address customer complaints, to ensure that problems our customers experience are resolved consistently, quickly and fairly. Importantly, we are changing how we approach remediation, to identify systemic issues earlier and to ensure we address the root cause.

Second, we have been strengthening our internal governance, culture and accountability, to ensure the failures of the past are not repeated. This has been driven in part by our response to the APRA inquiry into the Commonwealth Bank, for which the implementation has been underway now for nine months. Last month the independent Promontory report showed that we are on track with progress to date, but we recognise that we have significant work still to do to deliver our remedial action plan.

Third, we are ensuring our business is squarely focused on delivering better outcomes for our customers. We have pledged to grow our lending to small business with a faster and better service for approving loans. We are supporting farmers facing difficulties, including recently announcing we would no longer charge default interest on agricultural term loans in the event of a drought or other natural disaster. And we continue to add features our customers tell us they want, such as Apple Pay and an instalment service on our credit cards to help customers pay down their outstanding debt more quickly and at a lower rate.

These are just some of the actions we have been taking, and this year we are accelerating the pace of change to deliver improvements to the way we serve our customers each and every week. These actions are also helping to address the issues raised through the royal commission. We welcome the final report and all of its 76 recommendations. They are the result of a comprehensive and detailed inquiry, and we are taking steps towards implementing all of those that apply to our business.

Today we have released an update on all the actions we have underway and will take in the future to deliver on the recommendations. Many of the recommendations require direct changes to our business and are already underway. Some of the recommendations will require action by government, regulators and industry bodies before we can implement them. We will support this work and take steps where we can so that, once the regulatory framework is in place, we are ready to act. We are implementing the royal commission recommendations transparently and will issue regular updates on our progress. I have also asked my deputy, David Cohen, to chair our royal commission implementation task force.

The immediate actions we are taking will ensure that we are putting our customers first and that we continue to strengthen our governance, to become a better organisation. We expect to be judged by our actions, not words, and that is why today I have focused on the actions that we are taking. I don't underestimate the task ahead to earn back trust, but it is vital that we achieve this, given the important role our organisation plays in the lives of so many Australians. I welcome your questions.

CHAIR: Thank you very much for your opening statement. The way I run these hearings is the way we've run them in the past, which is 20 minutes for me, 20 minutes for the deputy chair, 15 minutes for the other members and the remaining time divided between each person. Thank you very much, Mr Comyn, for those introductory remarks. Can you understand why, after the royal commission, many people have a great distrust of the banking sector?

Mr Comyn : Yes, I can, and I think we have acknowledged the failures that led to the royal commission and that were examined during the royal commission. I think that's why it's very important that we are very transparent on the implementation of each of those recommendations. The committee will note that we have provided some detail about how we intend to implement each of those recommendations. As I said this morning, we will also be providing regular updates.

CHAIR: What do you believe are the biggest lessons that come out of the royal commission for the banking sector overall, not just specifically for the CBA?

Mr Comyn : There are a number of key learnings for us as an organisation and, I dare say, the industry. Of course we are very focused on the lessons from customers. My personal experience in preparing to appear at the royal commission involved examining thousands of pages and many customer cases and the harm that can be done when a financial institution gets it wrong. It's also why I've spent a considerable amount of time since we last met meeting with individual customers and closely examining those cases. In a large organisation at times you can focus on what is happening across the average experience but you can, and we did, miss some of the worst experiences we were delivering for our customers. So, first and foremost, it has to be about a much greater and closer leadership, and better outcomes delivered for our customers.

A second key learning, which is also consistent with the work that was done by the APRA prudential inquiry, was that our management of non-financial risk was simply not good enough. We've made substantial changes to the way we manage, measure, govern and, importantly, lead to ensure that we are delivering a much more reliable service to our customers, ensuring that at all times we comply with our compliance obligations and manage both the operational and reputational risk for the organisation much better.

CHAIR: You mentioned that you've met with a series of customers over, say, the past six months—or certainly since the release of the final report. How many customers have you met since the last hearing when you were present in this room?

Mr Comyn : I deal with customers almost on a daily basis. Last week I hosted 60 customers with our private bank. Next week I'm hosting more than 50 customers in our business bank. I've written to eight million customers and I've received 14,000 responses. I typically call several customers per week, and some of those are within that 14,000. I've introduced customers into all of our senior leadership forums to ensure that all senior leaders have close access to customers. Importantly, from my perspective, I've got very close to a number of the key issues and, I think, some of the most concerning complaints that have been raised about the organisation over the last decade. I've personally overseen approximately 30 concurrent cases in the last several months. Each of those cases has gone through a thorough and external review to examine the case in detail. Some of those we have been able to resolve to the satisfaction of both parties and some of those remain outstanding today.

CHAIR: Do you consider the amount of time spent on customer complaints detracts from your role as CEO?

Mr Comyn : No, I think it actually enhances my role as chief executive through understanding where it's gone wrong, looking at some of the root causes, being able to then synthesise some of those and working closely with my deputy, David, who now oversees the complaints handling function for the bank. On the basis of those reviews and a number of things that we've learnt in the last 12 months, we're making substantial changes to the way that we're going to manage customer complaints going forward.

CHAIR: I guess there is cynicism—or at least scepticism; let's put it that way—from many Australians. They've had a royal commission. It's delivered a series of outcomes and recommendations about what needs to be done. Financial institutions have adapted as things have gone along as well as the government taking policy responses already. There are further actions to follow through but, when it comes to dealing with customers and some of the things you've outlined, it may only be a temporary thing to get through this period before we get back to business as usual. My question to you is: for instance, are these consultations that senior executives have with customers now a permanent part of the structure of the CBA, or is it just—I won't say a one-off—a temporary move to deal with protecting the reputation of the bank?

Mr Comyn : Firstly, I'd say I certainly do understand the cynicism, or scepticism, that you referred to. Given the failures that have been identified within the banking industry, from my perspective, it's going to be a very important element of the way I lead the organisation. Something I expect from all of the senior leaders is that they're very close to their customers, understanding how to improve and deliver better outcomes but also, most importantly, making sure they're across any of the issues or hardships that our customers are facing.

I think it's also very important, as we spoke about the last time we were together, given some of that cynicism and scepticism, which is understandable, that I and the Commonwealth Bank are able to demonstrate change through actions, and we expect to be measured on the progress we're making. We see the importance of coming together and appearing before this committee is to be able to give regular updates. We're happy to do so on the implementation of the royal commission recommendations. We also have an independent expert that reports twice a year, and we make those reports publicly available in response to the APRA prudential inquiry. I don't for a moment underestimate the task of the work ahead. I feel there's substantial work still to be done inside the organisation, and we're very committed—the board, my leadership team and I—to ensuring that it is done and that we deliver better outcomes for our customers into the future.

CHAIR: We've heard before about some of the challenges—you used the word 'hardship'—that customers face, and we've heard before about people who may have lost a lifetime of work or savings as a consequence of decisions where they feel the banks have made unjust decisions. What responsibility do you think there is for a bank to share said hardship if it occurs on a customer, recognising, of course, that customers also have a responsibility to make sure they exercise their behaviour judiciously?

Mr Comyn : To your point, yes, of course there are responsibilities for individual customers, but as a financial institution we need to be cognisant of customer circumstances, and often those circumstances are beyond their control. The No. 1 reason a customer would come to us and ask for financial assistance during a case of hardship would be loss of employment. The No. 2 reason would be where they or a close family member are suffering a serious illness. We need to be cognisant of being able to support them through that time. Of course there are times where difficult decisions are made from a banking perspective. The way we treat our customers should be, with the requisite level of empathy and compassion, to provide the support that we can, but we ultimately also have an obligation to ensure that we're protecting our depositors and our shareholders. So we need to strike the right balance, and I think in some of the cases that I've dealt with and the way we've communicated with customers during some of those difficult periods they have not been of the standard that we would expect.

CHAIR: So where there has been misconduct by the bank, has money been paid out to customers?

Mr Comyn : Yes, there has.

CHAIR: What quantum?

Mr Comyn : At the half-yearly results we disclosed the totality of what we then called in the results 'remediation', which includes compensation paid directly to customers. We called out a quantum of approximately $1.4 billion, which is going back over the last five years. Approximately $1.2 billion of that was within wealth management, another $200 million or so was within banking. Within that it includes things like fees for no service, inappropriate advice, issues around claims as they relate to insurance, and a number of interest and fee calculation errors, which have been refunded. I'd say all of those customers refunds, plus interest, are clearly ensuring that those sorts of compensation claims are not necessary simply because we get to the root cause of what caused those issues as our highest priority. At the moment we are very focused, as an organisation, on ensuring that any outstanding remediations, for which there are some, are paid as swiftly as possible, including with interest.

CHAIR: So 1.4 over how many people—how many cases?

Mr Comyn : That would be over the organisation.

CHAIR: Over a five-year period?

Mr Comyn : Yes, over a five-year period.

CHAIR: But the number of individuals? So 1.4 billion over five years over—you can take it on notice if you want.

Mr Comyn : I'd have to take it on notice to give you an aggregate sense of the number of customers. Clearly in some of the wealth management, for example around fees for no service, that would be the larger number of customers. I wouldn't like to provide an approximate answer today.

CHAIR: You just said before, I think, that there were some cases that were outstanding or still to be resolved. How many of those are there?

Mr Comyn : There are a number of customer remediations that still require refunds to be paid to customers. Again, I'd have to take on notice the exact number of those. The vast majority of those are very small, and I'd put that in a separate category.

CHAIR: Small in value?

Mr Comyn : Small in value, yes. They're typically where we've identified them as we've gone through and reviewed all of our processes and services. I think that one of the key elements of rebuilding trust with our customers and with the community is that we're able to deliver on our promises to customers and deliver, as best we can, a flawless level of service and product offering to our customers. The vast majority of those fall into that category. I would put that separately to the customer cases that I'm dealing with individually. They tend to be very much on a case-by-case basis. As I said, I'm overseeing approximately 30, or slightly more than 30, at the moment, but there would also be a number of cases that, for example, David, in his role in complaints handling, would be overseeing.

CHAIR: What would be the time frame for resolution? One of the complaints we've had in the past is about big banks versus individual customers and the capacity for banks to be able to have long time periods that favour them rather than customers. What are the average current time frames you are experiencing towards resolution, and targets in the future for resolution?

Mr Comyn : Again, I'd bifurcate between where there's an ongoing dispute or an issue with a customer and where the bank has determined that it charged for this product or service inappropriately and it's found an error. We're accelerating that work as best we can. That was highlighted in one of the reports that ASIC published, I think in October last year, where they talked about the time that it was taking for institutions, from the time a breach was discovered until the compensation was paid. We are trying to accelerate and, as best we can, complete as many of those that are outstanding by the end of this financial year.

I think your point is also referring to the way in which we deal with customers where there is a dispute, particularly a very difficult and at times complex dispute. One of the learnings from my perspective, having reviewed a number of these cases, is making changes to the way we deal with those. We're setting up a team, underneath David's management, with greater access to specialist resources. As part of that, we're also doing end-to-end external reviews around those individual customer cases. And, of course, we're making sure that we're using litigation as a last resort. We're working closely with AFCA; we're favouring alternative methods to resolve any disputes, including mediation. I think that's an important principle going forward. David, is there anything you want to add?

Mr Cohen : I will just add that on the broader remediations—for example, where there's been an incorrect charge that might have attached to hundreds or thousands of clients—ASIC in that report last year quite rightly called out that the time lag between discovering the error, confirming the error, reporting the breach and then contacting customers was too long. One of the things we've introduced is metrics that we look at now at our non-financial risk committee. They are metrics designed to look at how long does it take to compensate so that we can actually measure against the very things that ASIC highlighted in its report.

On the individual complaints that Matt just mentioned, what we are seeking to do is to reduce the time taken. We've set ourselves some benchmarks. Ninety-seven per cent of all complaints that we receive are resolved on the spot, and that's usually at the front-line. Three per cent, which is still a large number in aggregate, we deal with through our complaints management team. We seek to set benchmarks and we inform customers where we think the dispute or the claim is a very complex one. As Matt mentioned, we're trying to speed that up by getting specialist resources in place, so people who, for example, have specialist product knowledge around lending so that it's not going to a general complaints person.

Lastly, we have, as you probably know, a customer advocate function. That's a team that is separate from the complaints management team, which a customer can appeal to, if you like, or can have their matter reviewed in terms of how we've manage their complaint. We have reduced the time taken to deal with those reviews to around 10½ days. So we are trying to bring in those times consistently, but in a manner that ensures that we actually arrive at a quality outcome for the customer, rather than just rushing a review for the sake of saying we have done in it a short period.

CHAIR: So the 1.4 billion that has been provided out over five years—it is not an insignificant sum of money, I think we'd all agree—ultimately has to be funded by somebody. Who's paying for that?

Mr Comyn : Ultimately our shareholders do. There's a combination, as you'd expect, between the management overall of the organisation and the performance that is delivered back to shareholders. There's no escaping that.

CHAIR: So if there's an increase in it, it will be borne by shareholders in the amount of money that's paid out in compensation?

Mr Comyn : Yes. Largely, that's right.

CHAIR: If we face a situation where there's legislator obligated extra funding for compensation into the future, then it will ultimately be borne by shareholders as well?

Mr Comyn : Yes.

CHAIR: I'm mindful of the many other issues that want to come up, but I think in particular there's a concern about what action the banks are going to take now as a direct result after the royal commission. Is there any process that the bank has set up internally where it wishes to continue to pursue improvements in terms of its operations to make sure that the issues that come up from time to time around conduct will be appropriately reviewed? Can you outline those?

Mr Comyn : Yes, sure. One of the things that we have committed to this year is every week announcing and delivering an improvement to the way we serve our customers. That is separate to responding to each of the 76 recommendations of the royal commission and each of the 35 actions that we are responding to as part of the prudential inquiry response. We meet, both in the individual business units and the overall bank, to manage the overall non-financial risk, which looks at everything from updates around customer complaints to issues and incidents that are being reported to regulators and other areas which need to be focused on and managed. So there is a lot of activity to ensure that both the issues of the past are resolved and there are practical improvements announced on a weekly basis. We're implementing all of the recommendations and we're ensuring that that sort of conduct does not recur.

CHAIR: Out of the royal commission report there was a focus on some people being referred for prosecution. How many people were from CBA?

Mr Comyn : That is not a number that I'm able to share with you, simply because the matters were referred to ASIC. I think in total there are 24 instances that were referred to the regulator. Of course, as you would expect, we are working closely with the regulator on a number of matters. It is not clear to me exactly which of those are the Commonwealth Bank's versus other institutions'.

CHAIR: Have you done an internal risk assessment to make a judgement on how many cases may occur out of CBA?

Mr Comyn : For each of the individual instances throughout all of the rounds of the royal commission we have done a review both of whether the conduct that was examined specifically related to us and of whether it could apply to us. There is a lot of work that is underway on the response with regulators but also just in terms of the practical improvements of anything that was identified. So it's broader than a risk assessment, but certainly there is very detailed work and specific actions beyond even the 76 recommendations from the royal commission which are certainly underway.

CHAIR: I understand what you have just said—there is something broader than a risk assessment. You have obviously gone through and detailed the risks that may exist as a result of what's come out of the royal commission progressively, but you don't have any nervous executives or anyone else in the CBA?

Mr Comyn : There are a lot of those areas that we are examining closely both in terms of our conduct and whether the appropriate level of accountability and consequences have occurred in the past and also on whether we are making the necessary changes to ensure that they don't recur. A good example would be the management of our advice business. We're in the process of shifting the entire model for which we provide advice so that we no longer provide service on an ongoing basis. We will only provide customers with the option of paying for advice at the initial point with either a practical statement of advice or a record of advice. The whole administration so that a customer only pays at the time for the service that's delivered at that point in time mitigates the risks that were examined in some detail during the royal commission. That is one practical example. We are looking back at our management of that particular issue and whether, during the commission's examination, there was new information that came to light. That is an issue that we manage within the executive. It is also something that we report on to the board. That is something that they would take into account in determining further consequences during the course of the year.

CHAIR: As part of that risk assessment, have you also looked at the potential for legal changes that may have a retrospective effect around past conduct?

Mr Comyn : I am not sure I understand what you are—

CHAIR: As part of your risk assessment about the impact on individuals in the bank and whether there was misconduct, have you done any assessment of whether there might be some sort of change legally which could lead to retrospective prosecutions?

Mr Comyn : We are certainly aware of a number of the prospective changes that are coming up—changes to the penalty regime being one of those. We are certainly looking at any of the applicability of how that would then be determined or applied against our businesses. Of course, we are extremely focused on ensuring that we avoid any of the issues that we have had in the past. I think in some cases that will lead to us re-examining whether we will continue to operate in certain elements of the financial services industry. We are very focused on making sure we are delivering a very high standard to all of our customers, managing our non-financial risk and ensuring that the reputation of and trust in the Commonwealth Bank is restored.

CHAIR: I understand what you've just said, but is that a long way of saying yes?

Mr Comyn : Well, I think I'm answering your question as I think I understand it to be.

CHAIR: I understand.

Mr Comyn : It's broad ranging underneath the question that you're asking me. Certainly there's a lot of work in terms of determining prospectively—less about the legal changes retrospectively. It's more a basis of: what are all the things and lessons that we've learned, and how will we practically apply those to both resolve issues in the past and ensure that those instances do not reoccur?

CHAIR: But there is around the retrospective possibility?

Mr Comyn : Yes, but less from whether the legal changes will apply retrospectively. It's more: if we look at the conduct of the last five to eight years, have we sufficiently understood and examined the root cause of that; have we made the necessary changes and have the right level of consequences and changes been applied; and, if not, what's the nature of the changes that are required going forward?

CHAIR: Thank you.

Mr THISTLETHWAITE: Mr Comyn, were you happy with the findings of the royal commission?

Mr Comyn : During the course of the commission's recommendations and the final report, I don't think we could ever reflect a degree of happiness about it. I found it a very difficult, confronting process for the organisation. It identified a number of failures. I was obviously able to participate and understand a lot of the material that was examined and, as I said, I've met with a number of the customers who were impacted by at least some of those issues of misconduct. So the recommendations, I think, were appropriate, but from my perspective there's obviously a lot of work that's been set out that we need to ensure we implement in full.

Mr THISTLETHWAITE: You've said that the recommendations were appropriate, but were you happy with those recommendations or were you not happy with them?

Mr Comyn : I wouldn't describe my reaction as either happy or unhappy. I think the set of recommendations, as I said, was appropriate. I think the report was detailed and outlined the conclusions and the justification for each of those recommendations. The work, from our perspective, is beyond those individual recommendations, and we recognise the harm that our failures had caused and also the work that's required to ensure we not only resolve and fix those but prevent them from reoccurring.

Mr THISTLETHWAITE: It would appear that some of your investors are happy with the recommendations of the royal commission, as are investors in some of the other banks, given that in the wake of the handing down of the royal commission's findings there was a rally in markets on shares in banks. I think the figure is that close to $20 billion was added to the value of banks in the wake of those findings coming down. Why did that happen given that there was such damage done to the banks during the royal commission process, there were some serious findings that were made and there are potential criminal prosecutions that are going to be taken up in, as you say, 28 circumstances? Why was there a rally on the banks when the news was all bad?

Mr Comyn : I wouldn't like to speak to the movements in our share price. Obviously, they're fundamentally driven by supply and demand. Like you, I see the recommendations and the royal commission processes identifying very confronting failures of both the Commonwealth Bank and the broader industry. I see that as an enormous amount of work that needs to get done. That's what I'm very focused on doing, rather than the daily or short-term movements in our share price.

Mr THISTLETHWAITE: As part of that work that's got to be done, recommendation 4.11 of the royal commission relates to the Australian Financial Complaints Authority and cooperation with that organisation and the requirement to take reasonable steps to cooperate with AFCA in the resolution of disputes. You're putting in place a remediation program. Has that been discussed with AFCA, and are they involved in the process of looking at this remediation program?

Mr Comyn : David would like to comment more specifically. Certainly there's a set of principles that we've put in place for our engagement between us and AFCA. I think having a close working relationship with AFCA and ensuring that we're working through the issues that are being resolved is very important. Clearly, we're very supportive of an appropriate complaints-handling process, both internally and externally, that provides access to affordable, fair and timely resolutions for customers.

Mr Cohen : I'd just add that, back in the middle of 2018, we agreed in principle, with AFCA, what the appropriate engagement principles should be—the openness, the transparency, the flow of information—and we formalised that in November 2018. Those principles are now in place.

The other thing to add is that we're conscious of the fact that the royal commission highlighted some instances in the past where cooperation with AFCA's predecessor, FOS, was not as it should have been. We are keen to ensure that that doesn't happen again, hence the discussions with AFCA around openness, transparency and full information flow. I think that is working well. I think one of the challenges we and AFCA face at the moment is that, as you would expect, following the royal commission, there has been quite an increase in the number of complaints that AFCA is receiving. That's placing a strain on both AFCA's resources and our own, and we're gearing up to deal with that so there aren't the delays that have been experienced in the past.

Mr THISTLETHWAITE: Has your remediation program been implemented?

Mr Cohen : Are you referring to the overall remediation action plan following the APRA prudential inquiry?

Mr THISTLETHWAITE: Yes.

Mr Cohen : Yes, that's well underway.

Mr THISTLETHWAITE: Has AFCA been involved in and seen that remediation plan? Has it provided comments or feedback?

Mr Cohen : That remediation plan was in response to the APRA prudential inquiry report. We have taken APRA, as you would expect, through that plan in detail, and APRA has endorsed it, hence we are implementing it. We have not taken AFCA through that entire plan. That plan deals with a wide range of issues that were canvassed in the APRA report, such as the management of non-financial risk. Where there are elements of the way we deal with customer complaints that are relevant to AFCA, yes, we've engaged with them, but we've not taken AFCA through the remediation action plan in detail, end to end.

Mr Comyn : There's the distinction between the actions that are underway to respond to the prudential inquiry and the day-to-day remediation and compensation to customers, as David said, where appropriate. We obviously err on the side of being as open and transparent as possible. We're very happy to engage with AFCA, and I know there are a number of elements of some of those remediation programs that are underway that they have been briefed on directly. Within each of the business units, we run a central team which is managing all of the customer remediation, and there's oversight at the group level. We do that to ensure there is consistency in approach in the way that that's handled.

Mr THISTLETHWAITE: There's a specific recommendation in the royal commission findings about cooperating with AFCA. We're hearing that one of the areas where the Commonwealth Bank could improve is in providing more of those details to AFCA, and, specifically, working with them on the remediations that are taking place and any future remediations that will come as a result of the royal commission. Will you take that criticism on board, and look to working more closely with AFCA?

Mr Comyn : Yes, absolutely.

Mr Cohen : Absolutely.

Mr THISTLETHWAITE: Ultimately, if people aren't happy with the remediation program, they are potentially going to end up at AFCA anyway.

Mr Comyn : You're quite right. I've had the opportunity to meet with both the CEO and the chair of AFCA. Working closely with the complaints-handling body on a number of matters is absolutely important. As David said, there have been a couple of matters, historically, that we didn't work on as openly as we should have. We're very determined to resolve that, going forward.

Mr THISTLETHWAITE: I want to turn to another issue that came out of the royal commission—that is, former CBA chairman David Turner refusing to hand back fees when he was asked to by the board. Why did the board request that he hand back those fees?

Mr Comyn : Sorry, I don't have any more information to provide other than what was provided by our chairman. I was not involved in any of those discussions with the former chair. I simply can't comment any further than what's already on the public record.

Mr THISTLETHWAITE: Were you involved, Mr Cohen?

Mr Cohen : No, I wasn't. It was a board matter. Management would not normally be involved in that type of discussion.

Mr THISTLETHWAITE: Mr Turner stated that the reason he refused to hand back the fees was—and this is all on the public record:

… he didn't recognise in the APRA report the CBA board that he knew.

This is despite the fact that it's reported that Mr Turner approved $14.2 million in bonuses for bank executives in just 10 minutes, when there were scandals mounting around the bank. What do you think about that statement that he made that 'he didn't recognise the CBA board that he knew in the APRA report'?

Mr Comyn : I heard that comment; I saw it on the public record. Given I wasn't involved in the conversation, I'd be reluctant to provide any further colour and context behind it. The element I certainly would agree with—insofar as it was the time that was set aside to consider remuneration recommendations at that point in time, or any point in time—is that around 10 minutes is clearly inappropriate. I don't think there is any disputing that. So I'd separate that, but I simply don't have any additional content to provide or context behind those comments as they were relayed to the royal commission.

Mr THISTLETHWAITE: Do you believe that the CBA has changed in the wake of him stepping down from the board as the chair?

Mr Comyn : Let's use the example around remuneration. Clearly, a number of things have changed in the broader context—

Mr THISTLETHWAITE: Let's talk about governance generally. He was the chair of the board, the principal person responsible for the governance of the bank. Do you think the governance of CBA has changed since that time period under his chairmanship?

Mr Comyn : Yes, I do. I say that also from the context that I am playing. As the chief executive I have greater access and visibility around the broad range of roles of the board. I was a participant and attended the board. Clearly, as a member of the board I see all of the work that is done across all the various committees, the remuneration committee which meets regularly, and is a very comprehensive analysis of any decisions that are made both from a policy perspective but also from individual determinations. I can't speak strongly between the from-to, because I simply wasn't a member of the board under Mr Turner's leadership, but I can certainly talk about the very robust and detailed work that is done during the governance processes of the Commonwealth Bank today.

Mr THISTLETHWAITE: Would you say that the governance of the board is now better than in the period when he was the chair?

Mr Comyn : The governance processes of the bank have been substantially strengthened. They were some of the areas that were focused on in the prudential inquiry. We have incorporated a number of those. They would be some of the milestones that the independent expert has said are on track. Remuneration is one element of that. Another clearly is the management of non-financial risk and the reporting through to the board; the management of audit issues, audit items; the time frames by which those issues are escalated are within 24 hours to, as an example, the chair of the risk committee, the chair of the audit committee and the chair of the board themselves. I am very confident that the board of the bank is working hard across both the governance and overall leadership of the organisation.

Mr THISTLETHWAITE: Will you have to explain to the shareholders of your company why Ms Livingstone—it was Ms Livingstone that gave evidence to the royal commission on 21 November that CBA had asked former chair David Turner to repay 40 per cent of his director's fees because of leadership failures. Will you have to explain that to the shareholders of your company?

Mr Comyn : We provide very detailed disclosure as part of the annual report. Of course, the annual general meeting would be the opportunity for any shareholder who would like to ask a question on that particular topic or any other to ask that question, and I'm sure our chair would be happy to answer it.

Mr THISTLETHWAITE: What is the explanation that you'll give to the shareholders about why he's been asked to return those fees?

Mr Comyn : Again, I don't think it would be appropriate for me to comment further, because I wasn't involved in the conversation. I think those who were involved in the conversation would be better equipped to provide an answer.

Mr THISTLETHWAITE: If this question is asked at the annual general meeting—and a shareholder says, 'Why did you ask David Turner to return his fees?'—is that the answer you're going to give?

Mr Comyn : I suspect the question may not be directed to me. I suspect it will be directed to our chair, who would respond.

Mr THISTLETHWAITE: Have any further steps been taken to recoup these fees?

Mr Comyn : Not that I'm aware of, but it's not a matter that I have been closely involved in. I'm happy to take that on notice and follow up.

Mr THISTLETHWAITE: If you could, that would be good. It was also reported in the wake of the royal commission that you'd been unable to stop charging fees to investors, as ordered by ASIC, because you were unable to switch off many of those fees. Is this still the case?

Mr Comyn : I'd characterise it in a couple of elements. There were a number of commitments that we'd made to ourselves and to ASIC in the management of our advice businesses. We made substantial improvements but not the full extent of the improvements we'd committed to, which from my perspective is both unacceptable and disappointing. One of the responses to that was to stop charging fees on an ongoing service basis for our advice clients. As at today, we've stopped the fees of, I think, 97 per cent, and I believe that will be 100 per cent within the next 10 days.

The practical reason for the delay is that it takes time—and I provide this as an explanation rather than an excuse—to give those instructions to the individual platforms which then turn off the fees. This is one of the reasons why we're reforming our advice business so that we're charging a customer for the service that's delivered only where there is evidence at the time of that delivery. We will ask at that same time for an authorisation from the customer to deduct the cost of that service from their account. At that point in time we'll provide that to the administration platform, and the funds will be deducted only at that point so we can ensure that we never find ourselves in the situation where customers are paying for a service on an ongoing basis and then trying to determine whether that service was provided faithfully and completely.

Mr THISTLETHWAITE: So it's your evidence here today that that problem will be 100 per cent fixed within 10 days?

Mr Comyn : It's my understanding that 100 per cent of the fees will be within approximately 10 days and, as I sit here today, it's my understanding that approximately 97 per cent of those fees have been switched off.

Mr THISTLETHWAITE: The chair asked you earlier about potential criminal prosecutions in the wake of the royal commission. The commission has handed that over to ASIC. You mentioned 28 cases. Do any of those cases involve CBA executives or staff?

Mr Comyn : Again I'd distinguish between the number of referrals which have gone through to ASIC, which I believe is approximately 27. My reading of the royal commission's final report was that there was already an investigation underway for a single institution, against a provision of the Corporations Act known as 1041G, which I believe is what you're referring to. There is reference to a further two institutions having been referred to the regulator. It is not clear to us exactly which institutions they are—that's a matter for ASIC of course—but, as you would expect, we are working closely and constructively with ASIC on a range of different matters and ensuring that we're providing them with all of the information that they require as part of their ongoing investigations and supervisory activities, which are robust.

Mr THISTLETHWAITE: Are you aware whether any of your executive members, directors or staff have been interviewed by ASIC as a result of these referrals?

Mr Comyn : In relation to those particular referrals, no, although maybe David has something to add. I will give you another practical example. I know that ASIC have provided evidence around their close and continuous monitoring. We've had an ASIC team onsite as part of their close and continuous monitoring activities. There were 73 people that were interviewed as part of that process. I suspect that a couple of those matters are probably in enforcement, so I think it would be reasonable to say that there have been some staff either examined or questioned. Clearly, we would have provided evidence as it relates to those. We're dealing with a number of matters which are a subset of those that were referred to by the royal commission, but, of course, there are a number of investigations that the regulator would be undertaking in the ordinary course of their supervision.

Mr Cohen : In addition I'd say that we have received a series of notices from ASIC across a broad range of matters. These are information-seeking notices which we respond to. In respect of the particular matters that were discussed in the royal commission and in the report, I'm not aware of interviews as such, but certainly there has been a flow of information at the request of the regulator.

Mr THISTLETHWAITE: I want to ask a couple of questions about AUSTRAC. It's reported that ASIC have interviewed Mr Narev» and Ms Livingstone. During the October 2017 hearings of this committee, Ms Livingstone appeared and gave repeated assurances that the bank had complied with all of its continuous disclosure obligations. Do you still believe that that's the case?

Mr Comyn : Yes, we do. We believe that the bank complied with its continuous disclosure obligations.

Mr THISTLETHWAITE: Then why are ASIC interviewing Mr «Narev» and Ms Livingstone about, potentially, breaches of those disclosure obligations?

Mr Comyn : My understanding is that ASIC announced that investigation in approximately August 2017. As you would expect, ASIC are gathering as much information as possible as part of that investigation. I couldn't comment specifically on the status or nature of the investigation, but clearly it's ongoing, and that remains the case.

Mr THISTLETHWAITE: Did they interview you, Mr Cohen?

Mr Cohen : No, they have not yet.

Mr THISTLETHWAITE: Did they interview you, Mr Comyn?

Mr Comyn : Not yet.

Mr EVANS: Thank you, Mr Comyn and Mr Cohen, for being here again. I want to continue the earlier conversation that was happening around the actions CBA is taking to respond to those customers who still want their cases reviewed. Mr Comyn, you spoke earlier about having about 30 cases on your desk. Last time you were here we also talked about additional internal resources that CBA was committing, including a customer advocacy team—I think it was about 45 people or so working on that case load. Just comparing the conversation we had last time to some of the conversations we've had here today, I'm still a little bit unclear about what that workload looks like and where it's up to. Last time I'm sure you said words to the effect of 'CBA has received about 9,000 letters and emails from customers' and that your senior leadership team was meeting with customers and had that internal team working through those cases. I'm just comparing and contrasting that to Mr Cohen's statement about how 97 per cent of complaints or inquiries are resolved on the spot and there's just that three per cent going further. Was that 9,000 that you talked about last time a business-as-usual estimate of the inquiries and complaints you'd had in that period of time, or was it a reference to what we'd characterise as the backlog or the case load associated with customers who have ongoing, unresolved complaints?

Mr Comyn : Why don't I talk to the 9,000 that you're asking about and also the cases that I'm overseeing, and then I'll let David talk to the broader complaints-handling process and the improvements that we're making. I suspect my reference to the 9,000 at that point was in response to the letter we had sent to eight million customers. That number of responses is now 14,000. It's important to note that they're not all complaints. There are a number of other elements in some of that correspondence—not only suggestions and compliments but also issues that people would like to see addressed. They have been handled through the internal complaints team or directed to the relevant parts of the organisation, some of whom I've called myself personally or emailed back.

Insofar as I've been looking at the more than 30 customer cases that we're doing a review on, as I said, they were some of the most serious and longstanding issues. We chose to use some external resources—an external law firm and an experienced set of barristers, who were overseeing that process. Importantly, from my perspective, we also looked at all of the information that was associated with those individual cases going back as far as our records would allow. We didn't just look at those from the perspective of legal principles; we also looked at the way we treated customers and communicated with them and tried to take a very holistic approach, which, as I said, I found to be very informative. Fortunately, we've been able to satisfactorily resolve some of those. A number of those are still works in progress. Perhaps I'll let David talk to the ordinary course of how we're managing any customer issues.

Mr Cohen : Of the 14,000 responses to Matt's letters to customers, which Matt just referred to, about 5,500 of those were classified as complaints. So that was a significant additional workload over and above our normal compliant-handling processes. In order to deal with those 5,500, we established a team of approximately 40 people. That team has worked through those 5,500 complaints and responded. We're now reviewing those to make sure that we achieved quality outcomes in the way we handled those complaints. That's a little bit of a one-off, if I can call it that.

The next category, of course, is our normal level of complaint management—that is, everyday complaint management. The 97 per cent that I referred to then is typically a case where a customer might call one of our call centres or come to one of our branches with a particular complaint and the frontline staff are able to resolve it then and there on the spot. However, the rest, which are more complex than those on-the-spot resolutions, go through to our normal complaints management team. That team has also experienced a significant increase in the number of complaints. Partly that's because of the appropriate scrutiny that was highlighted during the royal commission. Partly that's because we want to ensure that we are actually being quite conservative in what we regard as a complaint. We've had to, as you'd expect, apply additional resources to that team as well in order to get through the increased number of complaints.

Mr EVANS: So it would be fair to say that, if you were to characterise the case load associated with the number of customers who believe that they have longstanding and unresolved complaints, it's somewhere in the magnitude of 5,000 to 6,000?

Mr Cohen : In terms of longstanding complaints, no, it's not in that order.

Mr EVANS: The letter process that you've done has elicited what you'd consider 5,500 complaints.

Mr Cohen : That's right.

Mr EVANS: There would have already been a case load or a number of customers you were aware of that had ongoing concerns.

Mr Cohen : Correct.

Mr EVANS: Are we adding those together? Is that what you consider to be the body of work that has to be done or is in front of you?

Mr Cohen : In terms of what's in front of us today, we have the complaints that Matt has referred to, which we would categorise as the more sensitive or longstanding complaints. Then there is the category that I have referred to, the 5,500, most of which are dealt with. Then we have our business-as-usual workload.

Mr EVANS: So most of those 5,500 are dealt with. What's the residual? What does the current workload look like?

Mr Cohen : It's significant. In terms of numbers of outstanding complaints, just to give you a sense of it, internally we've increased our resources substantially by around 25 per cent in order to deal with those complaints. One of the things we're trying to do, Mr Evans, is get to a consistent level of quality of outcome. Therefore, we're taking more time, if it is necessary, to achieve that. In terms of the actual flow of complaints externally—as you would be aware, once we have dealt with it internally, if a customer is dissatisfied they can then go externally. Just to give you a sense of how it's looking externally, we had a backlog of complaints with AFCA, which we have steadily worked through. That has gone from about 800 in the backlog queue down to about 160, I think, or even lower. However, that said, there has been an increase in referrals to AFCA of Commonwealth Bank customers. I think that is partly as a result of some of the issues highlighted during the royal commission. Right now, AFCA has approximately 990 Commonwealth Bank complaints on its books, as I understand it. I think that dates from 1 March.

Mr EVANS: So the ongoing case load is really in the hundreds of cases, and it sounds like five to 10 per cent of those are on the CEO's desk, and the majority are on the desks of other senior managers or those internal teams. Is that right?

Mr Cohen : That's correct.

Mr Comyn : It's also understood that the definition of a complaint is 'an expression of dissatisfaction'. As you'd appreciate, that's a very broad definition. That's why David was referring to the vast majority of complaints being dealt with on the spot, as you would appreciate. After that they are triaged and sent to the right areas and we are of course trying to accelerate our efforts trying to resolve those.

Mr EVANS: I was trying to draw that distinction, thank you. You gave an answer earlier to the Chair about $1.4 billion being paid in remediation. Can I confirm: has CBA ever paid remediation in that order of magnitude before?

Mr Comyn : Certainly not in the last 25 years. I think it would be unlikely that it would have occurred prior to that.

Mr EVANS: The vast majority of that remediation, I think you said, was on wealth products rather than in banking. What is the split—about 80-20?

Mr Comyn : We have disclosed it's $1.2 billion in wealth and approximately $200 million in banking. It's in our presentation deck for a half-year results.

Mr EVANS: In answer to a question from the Chair before, I think you said that at the end of the day it's the shareholders who shoulder the burden of paying for that remediation. That's what you said, wasn't it?

Mr Comyn : Yes, that's broadly right.

Mr EVANS: What about the other impositions on the banks? I think there was an article in the Financial Review earlier this week where I believe I read that Anna Bligh and the Banking Association seemed to be saying that, if certain new policies—there is a list of those proposed by the opposition—go beyond the Hayne recommendations or are quite separate or different from the royal commission findings, it would ultimately mean things like additional credit risks for all Australians who are borrowers and, in particular, it threw out the topic of more credit risk for small businesses. Did you see those comments and would you agree with them?

Mr Comyn : I did see the comments. Certainly, as a financial institution, we are constantly evaluating both the broader economic conditions and any policy changes which might ultimately impact the way we would assess creditworthiness and the risks associated with lending in particular. So we are very cognisant of that in the broader context, but we are also very committed to ensuring that customers have access to, as I said earlier, affordable, fair and timely resolution.

Mr EVANS: So you're cognisant of it, but do you agree with the comments that those impositions would have those credit implications for lenders and small businesses?

Mr Comyn : Again, it will always depend on the exact nature and the details of any policy as to when they are implemented. As it relates to all of those matters that have been canvassed as potential policy areas, we certainly feel that we have some perspectives about how we could work constructively on those. But, of course, at any point in time there is the potential for an individual policy to alter the way a financial institution might consider both the risk or the probability of a customer being able to repay that fund and what would occur in the situation where they were unable to. That can have implications in terms of the availability and the cost of credit. But I'm sure that policymakers are aware of those trade-offs and they will be closely considered.

Mr EVANS: Is there a conflict or a contradiction there in terms of some imposts being mostly met by shareholders and others being mostly borne by lenders?

Mr Comyn : Obviously, the Commonwealth Bank is owned by our shareholders and clearly we want to run the business to deliver better outcomes for our customers but also sustainable returns above the cost of capital for our shareholders. Clearly, we try to make the best decisions overall to be able to accommodate that. One of our primary roles, particularly as the largest financial institution, is to support and facilitate economic growth and to, amongst others, provide financial stability over the long term to ensure that Australia remains a very prosperous country.

Mr EVANS: If we have some extra time I will come back to some additional questions around those outstanding customer cases and the question of litigation and how it's conducted. I just want to ask a couple of quick questions about our government's Banking Executive Accountability Regime. Last time you were here you told us that the BEAR was capturing about 90 senior executives of CBA, and I think it's fair to say that, at the time, you were characterising that as covering a broader number of people than possibly the regime technically required. Now that the Hayne report is out and it has given the government's BEAR a big tick of approval and in fact has suggested that it be extended, in your statement to us here this morning you say that the CBA supports extending the BEAR and that CBA is currently developing accountability statements for its EGM. Does that mean that more people inside CBA are going to be covered and, if so, how many more?

Mr Comyn : Consistent with my comments last time, the legislation certainly requires BEAR accountability statements for most senior executives and directors, so that would be the 13 most senior executives and the nine non-executive directors. That takes it to 22. There are about 80 in the next most senior group of leaders. We refer to those as executive general managers in the context of the bank. We see the value in having very clear accountability statements. We think it has resolved some of the ambiguities which have led to issues in the past, so we continue to roll those out. We felt that the implementation of that framework has been both helpful and appropriate.

Mr EVANS: So the number is increasing following the Hayne recommendation or not changing?

Mr Comyn : It is largely consistent with my comments last time. I think I said approximately 85. Maybe the number is slightly higher than that. One of the recommendations that the commissioner talks to is particularly around product management responsibilities and the end-to-end provision. I think there were a number of cases that highlighted the inability of institutions to demonstrate who had end-to-end accountability, particularly for products that spanned multiple parts of an organisation. That's something that we've certainly already given thought to, but it's one area where, on the back of the royal commission recommendations, we're just going through and making sure we haven't missed anything.

Mr Cohen : Mr Evans, just one point to make sure you are clear on this—the BEAR, as it applies to the 22 people that matter refers to, applies by virtue of accountability statements being registered with APRA for those 22. For the next 80-odd that we are referring to here, we are developing accountability statements for each of those people, but they are not registered with APRA formally as they are for the other 22, just for clarity.

Mr EVANS: So your statement this morning was really just a confirmation of what was already discussed in the last hearing?

Mr Cohen : Yes, that's right.

Mr EVANS: Okay. I understand. I have a couple of quick questions on small business lending. In your statement to us and provided to the ASX this morning, you said that this year the CBA is committed to supporting small businesses even more. Recommendation 1.10 in the Hayne report talks about the definition of small business. Hayne said that the definition of small business in the 2019 banking code is too complicated and too confined in its reach. He preferred the definition advanced in the Khoury review, which talks about employing up to 100 FTEs and loans up to $5 million. What's CBA's position on that definition?

Mr Comyn : Our position is consistent with the industry at the moment in so far as we support the definition as it relates to a total committed exposure of less than $3 million. The industry position also relies on two additional limbs around turnover and number of employees. In the implementation, for us, we practically are only looking at $3 million total committed exposure. My understanding is the Khoury review recommended $5 million total committed exposure. The commissioner actually went further than that and went $5 million loan size.

The position that we have, and this has been a topic that has been discussed at length within our institution, within the industry and with regulators, is that the starting position of $3 million total committed exposure—for simplicity I'll ignore the other limbs, because practically we are not relying on those—report to ASIC on a regular basis and then, certainly, are reviewed over a period of time. I think the period of time that was agreed was 18 months. I suspect the discussion between $3 million and $5 million of total committed exposure will be one that will remain an ongoing line of discussion. Again, as I said, I think that aligns with Khoury. To then go to $5 million loan size would be quite a substantial shift from that position.

Mr EVANS: You spoke earlier about a willingness to review that going forward, but you're saying it's not currently under review?

Mr Comyn : We've agreed the position, and that is what was put forward in the code of conduct—the code for the Banking Association—which becomes effective on 1 July. There's a lot of work that is underway. We're reporting on those numbers to ASIC on an ongoing basis, so I'd say that it's already under review, and we continue to ensure that it's both implemented and reported on a regular basis, and we're very open to further consideration around the total committed exposure.

Mr KEOGH: Thank you, gentlemen. Going back to the royal commission, I gather that, in the course of having to respond to the royal commission and engage with the royal commission over the last little over 12 months, you've had to engage a number of additional professionals in your bank, including around legal, corporate affairs and media. Would that be true?

Mr Comyn : Legal in particular. We went through approximately 16 million documents in response to the royal commission and provided about 300,000 to the commission itself. I think we made approximately 20 submissions and about 70-odd witness statements. So there was an enormous amount of effort, but that was largely within our existing teams and supported particularly by external legal support far more so than corporate affairs.

Mr KEOGH: UBS reported, after the handing down of the royal commission report, that they regarded the recommendations as soft and 'a clear win for the banks'. I understand it's the case that, at the end of the royal commission, some bonuses were handed out to people working in corporate affairs, media and legal within the bank.

Mr Comyn : I do not believe that's the case.

Mr KEOGH: There were no end-of-year bonuses for the work that they did?

Mr Comyn : Our end of year is 30 June. There have certainly been no bonuses paid in advance of that.

Mr KEOGH: So none of those teams received bonuses in relation to royal commission work?

Mr Comyn : Not that I'm aware of, and I'd be very surprised. Some of those teams, who—and I know the commission would have faced a similar workload—have worked seven days a week for 12 months, have been thanked but certainly not in financial terms.

Mr KEOGH: You mentioned before, and it goes back to the UBS report, that UBS said it was a clear win for the banks. You said the share prices are a response to supply and demand. Clearly, there was an increase in demand for bank shares once they saw the recommendations. What does that tell us about how the market received those recommendations?

Mr Comyn : Again, Mr Mott's the author of the UBS report that you're referring to. I'm not exactly sure why he would characterise it in those terms. As I referred to Mr Thistlethwaite, it certainly hasn't felt like that for the chief executive of the Commonwealth Bank and my leadership team over the last 12 months. It's been an extremely difficult and confronting process which has identified a number of failures and issues where we've badly let down our customers and broader stakeholders, and we're very determined to fix that and implement the substantial work.

Mr KEOGH: What recommendation causes you the most concern?

Mr Comyn : There are a number of areas where I think substantial change is required—clearly around the management of wealth and financial advice, in particular. From our perspective, it is making sure that we've really got to the root cause of any of the issues that occurred in the context of misconduct that was identified and ensuring they don't recur. A lot of work, which is adjacent and assumed inside—

Mr KEOGH: That's dealing with the recommendations in generality. I'm asking you which recommendation, or group of recommendations, causes you the most concern.

Mr Comyn : Certainly the key recommendations that deal with either our banking business or our wealth management businesses in the way that we serve our businesses. There are a number, as you'd be aware, of the recommendations that apply directly to regulators. We see the recommendations as very complementary to the work that was identified and is substantial in the prudential inquiry, particularly the improvement and management of non-financial risk. There's a lot of work already underway inside the bank to improve the culture. Clearly, that's one of the elements that the commission—

Mr KEOGH: We're moving away from my question again. What causes you concern? What recommendation causes you the most concern? I think where you're trying to head is that these recommendations in total cause you a lot of work, but what causes you the most concern?

Mr Comyn : I'm resisting identifying—

Mr KEOGH: I got that, yes.

Mr Comyn : a single recommendation as the one that's causing me the most concern, because it's not easy for me, as I sit here today, to identify the one that is far more concerning than others. There are a number that are significant and meaningful and, in aggregate, will lead to—as they should—substantial change in the way we run our business and serve our customers.

Mr KEOGH: Before the report was handed down, what was the recommendation you were most concerned might be made but wasn't?

Mr Comyn : There are a number of areas. If you look at the scope of the commission's work—and particularly as you would appreciate, within our banking businesses, the size of our balance sheet and the extension around responsible lending—I think some of those recommendations were very important in terms of what the commissioner's findings were. They were certainly some of the recommendations that I looked to first after receiving the report.

Mr KEOGH: But I'm asking you: what recommendations were you concerned might've been made but then weren't?

Mr Comyn : Again, I was certainly looking closely at what the commissioner's findings might be around changes to the National Consumer Credit Protection Act; the changes around whether there might be a change to some of the policies within that; anything that would affect the use of the household expenditure model; how that might be applied to—

Mr KEOGH: So are you saying that you were concerned that the commissioner might have gone further or been more prescriptive in that space than what was actually in the recommendation?

Mr Comyn : Some of those areas were given close consideration, certainly, in the earlier rounds. I spent a lot of time preparing for those particular topics for round 7 to be examined. We also provided multiple submissions in and around those areas. So I think that provision of and access to credit for the broader economy is obviously an area that is of vital importance, not just to the financial institutions but to the economy more broadly.

Mr KEOGH: In that sense, how closely are you following the litigation with Westpac in respect of the responsible lending criteria?

Mr Comyn : I'm certainly aware of it. I wouldn't say that I'm following the legal arguments in detail, but I'm certainly familiar with the subject matter.

Mr KEOGH: Going back to the potential criminal referrals that have been made to ASIC—I think you reference something like 28 referrals to ASIC to investigate—Mr Cohen, you said you were aware that ASIC has made requests for information but that you're not aware of any interviews that have been conducted by ASIC, at least with your bank. I take it you're not aware of any claims by employees for legal assistance in their having to deal with ASIC?

Mr Cohen : I'm not aware of claims as such.

Mr KEOGH: When I say claims, I'm asking for the bank to provide a lawyer to—

Mr Cohen : No. That is our standard practice, of course, as you would expect. If an employee, for example, is to be interviewed by ASIC, or any other regulator for that matter, in a formal manner and legal advice is needed, then, yes, as a matter of course we would provide that.

Mr KEOGH: Are you aware of any interviews by ASIC with people who are now former employees of the bank?

Mr Cohen : Not that I can think of at the moment, no.

Mr KEOGH: Mr Comyn?

Mr Comyn : Specifically in relation to the items that were referred as part of the royal commission, no. Not that I'm aware of.

Mr KEOGH: In respect of the documents that have been provided, no doubt your own internal or external legal teams have reviewed those documents before being provided to ASIC. Has that led you to conclude that there are people within the bank that ASIC has a particular interest in?

Mr Comyn : I wouldn't like to speculate on any of the individuals. Certainly, there are a number of matters which ASIC are appropriately investigating. As you mention, we're facilitating and engaging constructively on each of those individual matters. As I said, it's also part of our broader supervisory work as it relates to that close and continuous monitoring, as one example. There is some overlap.

Mr KEOGH: Yes. I'm just interested in the referral matters. Have there been any reports to the board about where those investigations may be focused?

Mr Comyn : There was an update to the board. The board met on the day the royal commission report was issued. We meet in the days in the lead-up to our half-year results. We have a board meeting next week, and I'm sure there'll be some discussion with the board around both the response to the individual recommendations and an update, as there always is, on any regulatory and enforcement matters.

Mr KEOGH: Will these matters be the subject or be included in those reports?

Mr Comyn : I'm sure there will be some discussion around these particular areas, yes.

Mr KEOGH: There are also these matters that refer to Colonial First State in terms of grandfathered commissions, delays in moving people across to MySuper funds and misleading information that was provided. Those are matters of which one is an APRA issue and the other two are ASIC issues. Are they wrapped up into these referrals, or are they additional matters?

Mr Comyn : They would be within the subset that we're referring to.

Mr KEOGH: I just want to turn to the APRA report. Under the enforceable undertaking that you were required to make as a result of that report, you were supposed to report to APRA by 30 June last year on how you were going on implementing some of the findings of that report and a time line for implementing some others. Was that 30 June deadline met?

Mr Comyn : Yes. There's a reporting obligation for us to APRA and for us to the independent expert, which is Promontory Financial Group. Promontory also provide that report to APRA and then we provide that report publicly. It typically also goes through and is presented to the board, but, of course, it's an independent report and it's usually released just after the board has met, which is why it would have been released just before our August results, the day after the board had met to discuss it. Similarly, in February, it was released at that point in time.

Mr KEOGH: What has the bank done around tying accountability through remediation to remuneration for executives? How is that practically implemented?

Mr Comyn : A lot of work was done in the lead-up to last financial year, so for the year ending 30 June. Obviously the results and the implications and consequences are set out in the annual report, totalling more than $100 million of consequences. There are a number of those matters, as we've just been discussing, which remain ongoing and will certainly be considered as part of the full-year remuneration review which, again, will take place.

Mr KEOGH: I want to get a sense of the practical effects. We just heard 97 per cent of stopping some of these fees for no service have been implemented. There is another three per cent to go, then there's the process of reimbursing fees where they shouldn't have been charged. How does that actually materialise in the remuneration that's, say, going into this financial year? What sorts of executives are going to be affected? Is this a 10 per cent hit? Is this going to affect all of their long-term deferred remuneration? What's the actual, practical, bottom line effect?

Mr Comyn : A number of the examples you have provided are certainly options. The process is there's a very rigorous both quantitative and qualitative assessment that's provided as information for individual senior executives. Obviously for me and for all of my direct reports that is ultimately approved by the board, so they see all of the information and some of those incidents. But a broad range of factors are considered, and we've strengthened quite considerably the reporting around performance against risk and the matters that we have been discussing. That process is similar and has cascaded through the organisation several levels below my senior executive team.

Mr KEOGH: I'm hearing, 'It's broad, detailed and vague and I don't have a specific answer, but trust us—it's in there.'

Mr Comyn : I wouldn't characterise it in that way at all. I'd say it's certainly a robust process. There are a number of factors which were taken into account, and consequences can range from everything from an impact on remuneration to termination of employment. Clearly there's a spectrum, depending on the nature of the conduct that's been identified and reviewed.

Mr Cohen : Mr Keogh, just to set the timing for you, those matters will be considered as part of the remuneration and performance review that occurs after 30 June, given that's the end of our performance year. The risk assessment process that Matt has just described takes place during July and is considered by management for lower levels and by the board for senior levels in July and in August.

Mr KEOGH: Is there a ramping-up of the impact such that there's effectively an encouragement to try to get remediation done more quickly so that the impact on remuneration will be more significant the longer remediation is left unresolved?

Mr Comyn : Certainly there's a great deal of urgency to ensure that we're compensating customers in full as quickly as possible. There's a lot of effort and a lot of people working to ensure that that's delivered. One of the elements that we are tracking and will continue to track is the time that it takes to identify an issue, fix that issue and compensate customers appropriately.

Mr KEOGH: What has been done by the bank to avoid what I'll call a David Turner type situation in the future?

Mr Comyn : Can you be more specific?

Mr KEOGH: In a situation where the board clearly took the view that a substantial part of remuneration should be clawed back from an outgoing director and that director has refused to do that, what has the board done, or the bank more generally, to avoid that sort of circumstance in the future?

Mr Comyn : As you'd appreciate, the remuneration practices have changed quite substantially in the last 12 to 18 months in particular. It remains a topic—

Mr KEOGH: A lot of that discussion has been about people who work for the bank—

Mr Comyn : Correct.

Mr KEOGH: but this is about a director.

Mr Comyn : And one of the elements of that is for both executives—obviously for directors it's different insofar as they're paid a fixed compensation; they don't have deferral. So it's not as easy, either via malice or clawback, to recover.

Mr KEOGH: That's what I'm asking about: what's been done to fix that so that there is some capability where the bank says, 'Clearly, there was a problem not just at the senior management level but at the board level that should be reflected in some sort of clawback opportunity?'

Mr Comyn : Remuneration practices at all levels are a topic of discussion. They are one of the items on the agenda for next week. We note that one of the recommendations from the royal commission is for APRA to provide guidance—I'm sure they will do—in terms of what they expect to be good guidelines. I think it will address some of the issues and at least touch on some of the subjects that you're referring to.

Mr KEOGH: So, at this stage, nothing has been done to change the remuneration mechanism for directors so that the bank can claw back remuneration where there's been an identified failure at the director level in governing the bank?

Mr Comyn : The time to make those changes and therefore to disclose them would also be at the end of the financial year as part of the annual report process.

Mr KEOGH: But nothing's been changed from a policy sense or in terms of what's been engaged from the rem committee with how they're going to be remunerating themselves, but there may be some changes in the future?

Mr Comyn : At this stage, that's correct.

Mr KEOGH: You spoke before about how there had clearly been past deficiencies in being sufficiently open and providing sufficient material to AFCA but mainly to FOS before it. Why?

Mr Comyn : I think in some examples where we've reviewed the matters in detail—and one of those was examined in the royal commission—there's simply no good explanation.

Mr KEOGH: Was there a policy in place to actively discourage assisting in cases? This is pretty widespread, and not just with your bank—I'm sure many of the people sitting here—but across the board, and many people who've contacted me have said, 'I've taken my matter to FOS; the bank refused to provide documentation.' It sounds more like a policy than a couple of accidents because the particular person dealing with the matter in the bank was like, 'No, I'm not going to provide those documents.' This sounds like if not a written policy then an effectual culture of not assisting FOS in trying to resolve matters.

Mr Comyn : It's certainly not a policy, and I'd even extend your question further. From my perspective, it's often where there's an individual matter and some specific circumstances. There have been examples where the bank hasn't provided all of the necessary documentation. One of the other observations I've made from reviewing the cases that I've had is: it's not sufficient to only look at the areas that the customer has identified; you actually need to look much broader than that. Sometimes the customer has not identified the real or the broader issue—

Mr KEOGH: Because often they don't understand it.

Mr Comyn : Correct. So we need to be prepared—which is one of the things we've been doing with these external reviews, and it's been incorporated into David's team with a specialist function to look at it end to end—to look at all of the documentation, well beyond the scope—

Mr KEOGH: If there was no policy—

CHAIR: Mr Keogh, I've already told you: your final question was before, so—

Mr KEOGH: I need to get the end of this issue—

CHAIR: I would just like you to keep it brief. According to the rules, you're supposed to get 15 minutes and then hand over to the next member.

Mr KEOGH: If there was no policy, what was the cultural problem in the bank that led to that? Whoever was responding to a FOS request for information, wherever they were in the bank, was taking an approach of, 'We're not going to provide information; we're not going to try and be open and accountable; we're going to keep everything back as much as possible.' Why was that culture there if it wasn't a policy? And what's been done to change that cultural practice?

Mr Cohen : As has been identified previously, it would be fair to say that, at times—and this is an example—the bank adopted a defensive and legalistic approach. We've acknowledged that, and we're certainly very determined to change it.

CHAIR: Thanks, Mr Keogh. Next—

Mr KEOGH: I think Mr Cohen wanted to add to that answer.

CHAIR: Sorry, Mr Cohen. My apologies.

Mr Cohen : I was only going to add, briefly, Mr Keogh, that I don't think there's a 'culture', as you've described it. There were certainly instances. I don't think those instances were, in any case, the majority. That said, we did have those instances, and the engagement principles with AFCA that I mentioned earlier today are seeking to address that, to ensure that the information that we do provide to AFCA is fulsome.

Mr KEOGH: Thank you.

CHAIR: Mr Kelly.

Mr CRAIG KELLY: Mr Comyn, you said in your opening statement that you'd suspended or you'd permanently banned default interest on agricultural loans?

Mr Comyn : Yes, that's right.

Mr CRAIG KELLY: Is that all agricultural loans? I think the royal commission recommendation was for only agricultural loans to be declared in a drought area or where there's another natural disaster.

Mr Comyn : Yes, certainly—that's the approach that we've adopted, obviously in circumstances that are well beyond our customers' control, to ensure that we're working closely and constructively and avoiding the charging of default interest. It's not to say that, for other agricultural customers, there won't be times when the interest rate that they're paying is increased, but certainly we're very conscious of being able to support our customers through very difficult circumstances.

Mr CRAIG KELLY: So it's not to all agricultural loans? To make sure it's clarified: you did say it was default interest to agricultural loans, but it's not all agricultural loans; it's only loans in areas that are drought declared or where there has been a natural disaster declared? Where do you draw the line? Is it arbitrary, or is it something you have written down in regulations?

Mr Comyn : It would apply to all loans for those who are facing those circumstances. We have seen that most recently in North Queensland and in other areas. We are adopting that posture. Where there are natural disasters and, as I said, issues, that would then apply to the book but under those particular sets of circumstances.

Mr CRAIG KELLY: Let's take North Queensland, for example, there. Would that be declared a disaster? Do you declare that or do you go by some government or state government sort of declaration?

Mr Comyn : We typically work very closely with—

Mr CRAIG KELLY: What's the parameter where you would say, 'Okay, now we're going to apply the standard that we are not going to apply default interest'?

Mr Comyn : Where we and other parties would determine that there had been a significant event and whether there had been, obviously, areas that are heavily impacted by drought and by flood and, in previous times, also in areas impacted by bushfires et cetera. We have a variety of emergency assistance packages that—

Mr CRAIG KELLY: Maybe a government declares that drought occurs on one particular day. We say, 'This is now a drought affected area,' when it hits some standard, but drought doesn't have a line in time where it is drought this day and not drought the next day. What parameter do you use to make that decision? Is it at the bank's discretion or do you rely on a declaration from a government or from the Bureau of Meteorology that says this is drought declared? Where do you make that decision?

Mr Comyn : Certainly, we would be influenced by the government or other third parties, but you are quite right that there is some subjective nature about not just the area—

Mr CRAIG KELLY: Right, so it's a subjective—

Mr Comyn : but also the boundary. At some point, what is the perimeter of that particular area? If you are supporting the broader communities as well, it's not just necessarily the farming customers who are impacted. It can also be some of the small businesses in those particular areas that are also impacted. It does require a degree of judgement. We rely upon both feedback from third parties as well as our teams that are on the ground and in close contact with customers.

Mr CRAIG KELLY: Are you applying it wider than agriculturally? Take for example, as we're in North Queensland, there is a transport business in North Queensland that transports agricultural products or moves cattle around. That's not necessarily an agricultural business, but it's a transport business. Does this suspension of default interest also apply to them as well or is it only for the agricultural sector?

Mr Comyn : No, we have applied it more broadly. It is not just the lack of application of default interest; it has also been concessional facilities and other hardship assistance that has been provided, such as deferrals of payments and suspensions. As you're highlighting, there are individual circumstances which you need to deal with in a case-by-case manner, which has certainly been broader than particular areas or industries. We try to support customers as best we can. There can always be some subjective elements to that determination.

Mr CRAIG KELLY: It is more a principle of, as you said, subjective guidelines rather than the hard and fast rules that you have in this case?

Mr Comyn : We try not to apply it rigidly. We want to be able to apply it with some degree of flexibility.

Mr CRAIG KELLY: What would a default interest, if you applied it, actually look like? An agricultural customer, a small business customer or a medium-sized business customer may have a loan rate of six, seven or eight per cent. What would a default interest rate look like for them?

Mr Comyn : The default interest rate is actually a prescribed rate, which is set and transparent within the contract. I believe it is 13.81 per cent. To give you an example of why a financial institution might apply a default interest rate or an increasing interest rate, when a customer is falling behind and looks less likely to be able to continue to make their repayments, we are forced to downgrade the customer and they are considered to be a troublesome or impaired asset. That's not relevant from a customer's perspective; it's relevant from a financial institution's perspective, because you need to hold more capital against that customer. That's somewhere in the order of between three times or eight times more capital.

Mr CRAIG KELLY: Just on that, does that vary on the amount of equity that you would hold? Does it change the amount of security that you would hold?

Mr Comyn : It does. It depends on both the probability of the customer being able to repay and what the exposure might be if they're unable to. Depending on what their rating was prior to that versus to where they have moved, that also impacts the level of capital. It's not possible for a financial institution, when a customer has moved to that extent, to be recovering anything like that. Clearly, banks need to be very cognisant of the way interest rates are applied. For a customer who is struggling, paying more in interest is also very difficult. There are circumstances where the interest rate is also seen as a way to encourage customers to provide updated financial information, potentially to take action insofar as the selldown of securities. That's obviously a very difficult process, and it needs to be very carefully managed by the individual bankers. That's one of the areas where I would say some of the cases I have looked at in the past haven't always been applied as consistently as we would have liked.

Mr CRAIG KELLY: Let's take a theoretical example. Let's say you have a loan outstanding to a customer of a million dollars. That may be secured by residential property worth, say, $1.5 million. On that million-dollar loan, would they be paying six, seven or eight per cent?

Mr Comyn : It would depend on the nature of the facilities over a period.

Mr CRAIG KELLY: Is seven per cent reasonable?

Mr Comyn : Let's say something in that order.

Mr CRAIG KELLY: So they would be paying $70,000 a year in interest. If they then went into default and paid default interest, they would be paying 13.81 per cent?

Mr Comyn : That's my understanding.

Mr CRAIG KELLY: So they'd be paying $138,000. So they would pay $68,000 in additional interest. Is my maths approximately right?

Mr Comyn : It's approximately right, yes.

Mr CRAIG KELLY: So where is the extra $68,000 in cost that would come to the bank from being in so-called default?

Mr Comyn : It comes from the increase in capital. The capital that's set aside by a financial institution that then needs to be held against that loan is a substantial increase in the cost. If you're holding somewhere between three times and eight times as much capital, even those interest rate calculations—

Mr CRAIG KELLY: Let's take this example: there's a million-dollar loan to a particular company or business. You're holding $1.5 million in security. Can you give me some numbers on what that additional cost would be? What does it look like from your perspective? You have to hold additional capital. How much would it be for that million-dollar loan?

Mr Comyn : There is where it may get complicated—I'm happy to provide some of the workings afterwards. Banks apply what is known as the probability of default or the loss given default. Depending on both of those factors, that will apply an amount of capital. Depending on the extent of the downgrade into a troublesome and impaired asset, that will also increase the amount of the capital—it can be very substantial. It also depends on the sector, and it can depend on the security type. It can become relatively complicated. I will happily, on notice, give you a couple of examples.

Mr CRAIG KELLY: So it could be a different cost for different customers?

Mr Comyn : Yes.

Mr CRAIG KELLY: But you have that 13.81 per cent irrespective of what type of customer it is? You have that across the board?

Mr Comyn : That's why it's applied very sparingly. I remember in October last year we looked at, I think, 130 facilities, and there was more than $400 million of exposure. From memory there was only one customer paying the default interest rate, and that was a specific set of circumstances. That's why the default rate is used very sparingly. Often, where the increase in the interest rate is applied, it's far more modest, for the reasons that you're outlining, because at the worst time it would be increasing the interest burden for a customer.

Mr CRAIG KELLY: Of your loans to the small- and medium-sized-business sector, how many would have the default rate applied to them—what percentage?

Mr Comyn : It would be very, very small. I would have to take that on notice. In the agricultural review I did last year, it was one out of 130. We're talking a very small proportion.

Mr CRAIG KELLY: Maybe you can come back to us on that one.

Mr Comyn : Sure.

Mr CRAIG KELLY: My other question goes to the mortgage brokers sector and the discussion about banning trailing commissions and up-front fees. What's the Commonwealth Bank's position on that?

Mr Comyn : I was cross-examined extensively on this topic during my evidence to the royal commission. The commissioner and counsel assisting referred to a number of documents I had authored around my view as it relates to those recommendations. Clearly, we acknowledge and support the recommendations. I'd separate those in the context of both impacts around trail and changes to the up-front commissions, and also to the introduction of a best-interest duty.

We also absolutely recognise the importance of the mortgage-broking industry. Their viability is critical. They provide a very important service to customers. Of course, they increase competition by providing access to distribution from smaller customers. We of course are supportive of improving customer outcomes and we believe that the recommendations, and the consideration that's been given by both sides of politics, are appropriate and well considered.

Mr CRAIG KELLY: When you are negotiating with a mortgage broker you set up some type of up-front fee; some type of provision for a clawback, I think you called it, if the loan only goes for a short period of time; and then a trailing commission. Are you negotiating those things separately with thousands of brokers across the country, or do you have standard terms and conditions that you give to mortgage brokers?

Mr Comyn : It's very much standard. The industry broadly works on approximately 65 basis points up-front and about a 15- or 20-basis-point trail, and then that's applied. We've improved the disclosure to make it very clear, in the borrowing amount, what the mortgage broker is earning from the facilitation of that loan. There doesn't tend to be a lot of individual negotiation—certainly not with us and not, I believe, within other financial institutions.

Mr CRAIG KELLY: So there's no way that the mortgage brokers have any market power over the banks to try to get some deal that's advantageous to them?

Mr Comyn : There have been examples—and I know the commission examined a couple of them—where, say, financial institutions have run specials where they provide, at various points in time, increased commission on their particular products. That's not something that I've observed more recently.

Mr CRAIG KELLY: If I'm looking at this from a theoretical point of view, I see that there are the mortgage brokers in their thousands and I see the banks and financial institutions that are able to negotiate freely and come to what agreed terms are. I'm struggling to see why the government should step in and regulate it.

Mr Comyn : The changes to the mortgage-broking industry that were outlined are substantial. We deal with more than 11,000 accredited mortgage brokers, but the size of the industry is probably closer to 20,000. Clearly, there are a number of small businesses that are impacted. The reforms that are set out, which I think are consistent with delivering better customer outcomes, do have an impact on the individuals. I think it's appropriate that both the nature and the timing of each of those recommendations are closely considered. Yes, you're right: one alternative is to allow the market to set the rate over time. Another way would be to determine it, for it to be set. There are of course pros and cons with both of those approaches. Clearly, those particular recommendations have been the more controversial of the 76. In my view, ensuring that the mortgage-broking industry remains viable and is able to provide access and increased competition, as well as ensuring that collectively we're delivering better customer outcomes that are free of conflicts of interest, is an appropriate policy.

Mr CRAIG KELLY: If, say, these changes resulted in mortgage broking becoming less viable or in a reduced number of mortgage brokers in the market, would that be more advantageous to the larger banks than it would be to, say, the smaller lenders?

Mr Comyn : Yes. Many smaller financial institutions rely almost solely on the mortgage-broking industry for their distribution. We have the largest physical branch network. Of course, there are costs associated with that. We have the largest number of proprietary lenders, the largest number of lenders who are working for a financial institution. So there are multiple ways for us to service our customers. But the mortgage-broking channel is a very important channel for all financial institutions.

Mr CRAIG KELLY: Thank you.

CHAIR: Just before we go to a break, I want to follow up a quick question from Mr Keogh when we were talking about financial incentives within the banks. Mr Comyn, have you forgone any bonuses as part of a consequence of behaviour within the bank?

Mr Comyn : My short-term variable reward last year, which I volunteered to be zero, was for the year ending last financial year.

CHAIR: So that would be a yes?

Mr Comyn : The last two years, yes.

CHAIR: Okay. Thank you very much. We'll take a recess now.

Proceedings suspended from 10:59 to 11:16

CHAIR: We shall resume this hearing and begin with my long-distant cousin the member for Fremantle, Josh Wilson.

Mr JOSH WILSON: Thank you, Chair. I think I am no relation, but you never know in the great tribe of Wilsons back in the past! Thank you, Mr Comyn and Mr Cohen. Mr Comyn, you were aware in your previous role that the Commonwealth Bank was ripping off customers by putting them into insurance products that they couldn't benefit from. You raised that with the CEO and you were rebuffed, essentially. Should you have done more when you were rebuffed?

Mr Comyn : That is a very similar question to the one that I was asked during the royal commission. As you would know, I was extensively examined on this topic and went through the issues and how I raised them. Of course, we now have the benefit of hindsight. We ceased offering those products in approximately March last year. I certainly took a number of steps. It's probably best left to others to determine whether they were sufficient and adequate at the time. But, ultimately, we made the right decision, albeit later than we should have.

Mr JOSH WILSON: If the same scenario arose now—that a senior executive realised that the bank was doing something improper and providing products to people and deriving a financial benefit for the bank when there was no benefit for the customer—how would it be handled differently in the CBA today?

Mr Comyn : There is a lot of work that has been underway for some time reviewing each of the products and services that we offer and going through a thorough review process, both at the point when those products are offered and on an ongoing basis. I think specifically what you're getting to and the heart of your question is: how are issues and concerns being escalated inside the organisation? That is an area of critical importance. When there is a concern in any individual staff member's mind, we're making sure that they've got lots of different avenues to be able to raise that ultimately with me. I consider it to be a key part of my role to hear concerns and differing points of view from my direct reports and others and ultimately to make decisions.

Mr JOSH WILSON: I understand that, but that's not really answering my question. Say an equivalent circumstance arises now where a senior person in your bank realises the bank is doing something seriously wrong and they raise it with you or their superior and are rebuffed, what has changed at the bank to ensure that what happened in your experience and more importantly for all of those people who were pushed wrongly into those insurance products doesn't happen again?

Mr Comyn : I think a lot has changed. Clearly the organisation has learned a number of important lessons, but the only way we can actually demonstrate that over time is through appropriate actions.

Mr JOSH WILSON: What kinds of actions? Let's use exactly that scenario. Someone comes to you and they say, 'We're doing something wrong.' You say, 'Temper your sense of justice.' What does that person do? How has the bank changed structurally so that that doesn't occur?

Mr Comyn : It's structured very differently insofar as the way that that matter would then be reviewed.

Mr JOSH WILSON: How?

Mr Comyn : In that case it would be reviewed by me. I would bring together the two—let's say in the particular products or the circumstance that you're suggesting—people involved in that. I would make sure that I apprised myself of all the relevant information, and if it were a clear decision, certainly in the way that you're framing it, it would be a very obvious course of action.

Mr JOSH WILSON: But aren't you just saying that you personally would behave differently from the former CEO? There is no structural change. You're just saying that the answer is that what happened previously wouldn't happen again. Has the CBA changed anything structurally to enable a senior person in a position such as you were in formerly, who is rebuffed by the CEO, to have some other avenue to see that wrong addressed?

Mr Comyn : A number of important steps: perhaps I can step through each of those. First of all, there is a very clear code of conduct: a very clear set of values and expectations for all our people. One of the key elements of that is a question: should we? This is really framed around trying to identify exactly issues such as those. They're things that are repeatedly instilled across all levels of the organisation. There are dedicated forums to review all of our products and services on an ongoing basis so it is not even reliant on a particular incident being escalated. Of course, with some elements that are also driven by culture it's making sure that we're really clear about the things that we will accept and tolerate as an organisation and others that we will not. It is being prepared to talk about the examples where we've identified something that we shouldn't have been providing or doing, making sure that we make that necessary change and giving people the confidence to raise any of the issues and concerns on their mind, and, at all levels inside the organisation, structurally ensuring that they're going back and responding to those concerns.

Mr Cohen : Part of the structure that Matt is referring to there is that, within each business, we have a product governance committee that looks at products that exist today as well as new products that are going to be brought online. Part of that product governance committee has within it the customer advocate that I referred to earlier today. The customer advocate is there specifically to look at issues from the customer's viewpoint. There is also a non-financial risk committee at each business unit level and also at the group level. So not only would the sort of matter that you're referring to here as the example come up in a direct conversation with Matt but the particular executive would be airing that matter as well at either the product governance committee or the lower non-financial risk committee, but certainly at the group non-financial risk committee. It would also be dealt with through an improved compliance incident management standard that we have introduced. That is to ensure that across the group we have a consistent method of looking at compliance issues and that they also get raised through the mechanisms that I have just described. There would be a number of formal mechanisms for issues now to be raised that previously we haven't had.

Mr JOSH WILSON: I guess ultimately the difficulty the community has is that it seems still to come down to decisions that are made by very senior people, and, if the most senior people are prepared to make a decision like the one Mr «Narev previously made, it is hard to have much faith in some of those things you have mentioned.

Just to come to the cultural issue: we have talked about culture a lot in broad terms and the kinds of cultural problems within banks and within the CBA. Clearly you have many, many people in your bank and many of them are good people and work hard and give good service. I think we all know that. But there was a cultural problem that included the lack of a moral compass, greed, disregard for the wellbeing of others, laziness, immorality and so on. What are the drivers or the root causes of those moral qualities within banks?

Mr Comyn : You've outlined a number of issues, and the financial inquiry also announced specific cases and identified some factors outside of that. I think at the heart of that question is that we haven't consistently prioritised customers' interests above those of other stakeholders. That's something that goes to the heart of, as you would expect, all elements of the way that we operate as an organisation, from the people that we recruit, the way we reward our people, exactly how they're trained against very clear standards, codes of conduct and the way issues and matters are resolved and dealt with. There are also other elements around reinforcement of the right levels of policies and processes that support ensuring that we are delivering good customer outcomes. Clearly, it is an area that needs to be an enormous focus, as it is within our institution. It will remain so, and we need to be ever vigilant to ensure that we are delivering on our promises to customers and are delivering better customer outcomes.

Mr JOSH WILSON: But cultural problems do tend to run deeply. If you are talking about banks—and I presume there hasn't been significant change or turnover in the leadership of the CBA—while there have been some key appointments at the very top of the banks, it seems from the evidence that we have seen that the leadership group broadly across the banks hasn't changed. How are the cultural issues being addressed? In your own experience, you knew something was wrong and you raised it with the CEO. The CEO said, 'Don't worry about it; temper your sense of justice,' and you took it no further. To some degree—and this is not a personal criticism—you were captive to that cultural problem. How is that really being changed other than the waffle about returning to prioritising the customer? Cultural problems run deep. What actually is happening to address that?

Mr Comyn : In addition to all of the things that we have discussed, and to your point about if there have been substantial changes, there have been inside the organisation. To your earlier point as well, the vast majority of our people have had nothing to do with the issues that have been identified in the misconduct. We are very fortunate to have such committed and determined people. Clearly, there have been some issues that have been completely unacceptable, and elements of that require changes in personnel. There also has to be clear accountability and consequences. I think that is an area that we have previously agreed on; it has not been something that has been sufficient in the past for the most senior leaders inside the organisation.

There have been substantial changes, for example, to remuneration, the way people are rewarded, the way performance management routines are set inside the organisation, the way people are led and what things are focused on. There are a number of, as you said, elements and overall drivers of culture. It has to be aligned to a very clear sense of purpose, which for us is to improve the financial wellbeing of our customers. We have to be ever vigilant and never complacent that we are making enough progress in ensuring that over a period of time. Not only is it something that I am speaking about here; it has actually been the lived experience of the customers who we serve.

Mr Cohen : Some of the work that we are doing on culture is far-reaching. As you rightly say, it takes a significant period to embed. That work involves not just a code of conduct, which we introduced late last year and which embodies the purpose and the values of the matters just spoken of, but also taking our managers at executive manager level and above—so that is three to four levels below Matt—through workshops where we are actually taking them through five key values and behaviours that we want people to adopt. One of those is really asking the 'should we' question. It is 'Should we do this?', not just 'Can we do it?' Another is the value of self-reflection, which the prudential inquiry report drew out. It is the importance of actually stepping back and reflecting on issues. We are trying to ingrain that in people so that people do actually stop, think and ask the relevant questions rather than proceeding without thinking of all the relevant aspects.

Mr JOSH WILSON: I will jump around and pick up a few things that others have talked about. One is in regard to the way in which banks approach dispute resolution. We know that ANZ has committed to being a model litigant in future. Is the Commonwealth Bank Group prepared to make that same commitment?

Mr Comyn : Yes, we are.

Mr JOSH WILSON: In relation to the questions that Mr Kelly was asking about farmers, I think there was a cohort of 130 agriculture cases and you were talking about higher interest and penalty or default interest, which can go as high as 13.8 per cent. But, of those 130 cases, are you able to say now or to provide on notice how many of them had some penalty interest applied?

Mr Comyn : Yes, I would distinguish again that it would be penalty interest. It is more an application or change of an interest rate over that period of time. I'm happy to take that on notice. I specifically looked at the application of the default interest rate, but I am happy to do so on that too.

Mr JOSH WILSON: Through the royal commission and the general focus on bank conduct and a range of cases, there's been the opportunity to sort of go and look at some legacy cases. I know Commonwealth Bank has applied itself to some of those that have been raised, and some through this committee. You'd be aware that Labor has put forward the proposal of an independent retrospective compensation scheme. Do you support that scheme? Is the bank continuing to be open to those kinds of legacy cases and trying to resolve them with a little bit of renewed purpose?

Mr Comyn : We are certainly putting a lot of effort against looking at a number of those legacy cases. As I said earlier, we are very committed to ensuring that all customers have access to a fair, timely and cost-effective way to their complaint being heard. We are aware of the policy that has been put forward. As I've mentioned, I've spent a substantial amount of time working on a number of individual cases, some dating back to the early 2000s. I feel that we have some good practical experience and firsthand observations that hopefully would be of some use in the application of how that policy may be implemented.

Mr JOSH WILSON: I'm aware that there is a case—I think it has been raised with you, Mr Comyn, and certainly with the bank—of a Mr Craig Perry. He is a farmer in Victoria, in Wycheproof—I'm from Western Australia, so I am at risk of getting that pronunciation wrong. They have been on the land for 100 years and they have faced some difficult circumstances as a result of adverse weather events. They have been unable to sow a crop, due to lack of available finance and various other circumstances. I'm aware that the bank has been working with Mr Perry, but, as I understand it, the current state of play is still that the bank is suggesting that the farm be sold out from under that family. Are you able to say anything about that case, or at least commit to continuing to review it?

Mr Comyn : Yes, I have met with Mr and Mrs Perry and their two sons, one of whom is here today in the gallery. I have reviewed the case in detail. We have provided, I think, an approximately 15-page response to all of the individual issues that have been raised by the Perrys. With their consent I would be happy to share that with you, but I think it would be unfair of me to comment further on the individual case. Forming some sort of resolution would be our preference, and we will continue to do so.

Mr JOSH WILSON: Sure, thank you. You referred earlier to the Commonwealth Bank's royal commission implementation task force and the importance of action and not words. Has the Commonwealth allocated additional or specific resources either internally or externally to advertising and marketing as part of a program of reputational repair?

Mr Comyn : We are regularly investing in marketing and advertising. In my opening address I talked about the fact that we were focused on making sure that each week we were bringing an improvement that was to the benefit of our customers. We continue to do so. There is certainly a broad program of work over and above implementing the royal commission recommendations, which I have asked David to oversee, but from our perspective there is certainly a lot of work still to be done. One element of that is, of course, being prepared to communicate the changes that we are making.

Mr JOSH WILSON: Just one last question; I think the Chair is going to wind me up. The royal commission looked at the interaction between the banking and financial sector and the regulators and acknowledged a sort of difference between compliance in all good faith and organisations that sort of seek to manage regulatory requirements or burdens with a view to minimising the impact on their operations and, presumably, their profit-making ability. Can you address two things. First, do you think, as part of the cultural issues in the NAB, that the NAB has been guilty of the latter—of managing regulatory or compliance requirements rather than pursuing them in all good faith? That is the first question. Specifically, to your knowledge, has it ever been part of the way the Commonwealth Bank approaches its staffing and human resources that it has actively sought to employ or headhunt regulatory staff?

Mr Comyn : On the first point, I would never comment on a competitor, and I certainly wouldn't like to about NAB. I would say certainly our approach and posture around compliance is that it's not a choice or something that's managed, of course. One of the key observations from the commissioner was, as you would expect, irrespective of the complexity that's required, financial institutions need to obey the law—and therefore we need to be compliant. I would suggest that one of the areas where there is the greatest demand for resources in financial services at the moment would be people with compliance and operational risk, financial crimes risk. I know those resources are in great demand from all financial institutions. We certainly don't target any particular employer, but I think people with those requisite skills and experience are very valuable to financial institutions at this point in time.

CHAIR: Going back to a point that was raised by Mr Evans following on from questions I asked: $1.4 billion has already been allocated for compensation and there's a proposal on the table for a new $640 million fairer banking fund. If the $1.4 billion is funded by shareholders then presumably, it is a fair conclusion to make, any new fund would be funded, or predominantly funded, by shareholders as well?

Mr Comyn : Yes.

CHAIR: In relation to mortgage brokers—I know this question was asked by Mr Kelly—you said that the responses from both sides of politics, or from the government and the opposition, were deemed to be reasonable or acceptable or appropriate from the CBA's perspective.

Mr Comyn : Yes. Predominantly both sides are giving the reform and the changes a lot of consideration, which I think is appropriate.

CHAIR: How do you feel about fee structures for mortgage brokers and whether flat fee structures are appropriate for encouraging competition in the marketplace and as a relationship between a bank and mortgage brokers?

Mr Comyn : I think flat fees are appropriate to remove conflicts of interest as they relate to the loan size. There are, of course, lots of different ways to design the fee structure. We've given a lot of thought to this particular topic in the past, and it was one of the areas that I was examined on. There are pros and cons with any fee structure.

CHAIR: I accept that. There are always pros and cons in any model. In terms of fee structures, is there a preferred model that the CBA would recommend based on its past experience or recognise would be of more value to customers?

Mr Comyn : The principles that we've given a lot of thought to, as I mentioned earlier, were in ensuring that the mortgage-broking industry remains viable and is able to provide access and distribution particularly to meet customer needs but also to facilitate competition. We think it important that, as part of improving customer outcomes, the remuneration be free of, or at least seek to manage or reduce, potential conflicts of interest. We had given previous consideration to flat fees as a way to do that. Of course how and where to set the flat fee is an important consideration. I think the materials that we had prepared on this particular topic are a matter for the public record and were examined as part of round 7 as part of my evidence. We gave the topic a lot of thought, and from my view there is some complexity and a lot of consideration that needs to be given to exactly how to set and design that.

CHAIR: How many shareholders does the CBA have?

Mr Comyn : We have approximately 800,000 Australian households who hold shares directly—obviously millions more through their superannuation. We have approximately just over 50 per cent direct retail shareholder base, another I think it's 28 per cent through domestic institutions, which gets us to 80 per cent, then we would have 11 per cent in the US and approximately nine per cent in Europe.

CHAIR: How many of those, are you aware, are held in people's self-managed super funds?

Mr Comyn : I'd have to take that on notice in terms of the exact numbers.

CHAIR: I'd appreciate that. There are many people who hold self-managed superannuation funds who are interested in holding bank shares because of their capacity for stability and reliable dividends; would that be fair, based on your experience?

Mr Comyn : Yes.

CHAIR: Included in that would be franking credits as passed through by banks to shareholders, particularly self-funded superannuants.

Mr Comyn : Yes.

CHAIR: If there were a change to remove refundable franking credits, what would the consequence be in terms of people's choice to invest in a bank like the Commonwealth Bank?

Mr Comyn : It is very hard to speculate—

CHAIR: Have you done any modelling?

Mr Comyn : No, we have not. To the best of my knowledge we have not. It's very hard to determine what the impact might be on a share price or an individual investor's preference for a particular share or asset class. Clearly, as you would expect, a number of our shareholders have written to us around this particular topic. It's clearly a subject of ongoing debate more broadly, and we recognise that, but from our perspective it's very difficult to tie a course—

CHAIR: But would you accept that the attractiveness of holding CBA shares could decline, particularly for self-funded superannuants, if there were a change in refundable franking credits law?

Mr Comyn : I think there's the potential for that impact in isolation, but it depends on a broad range of factors. But, yes.

CHAIR: I accept that. Yes, they'd be less attractive, which means it'd be less likely that people would choose to invest in the CBA in the future, or, equally, people who have currently invested may choose to divest for other options on a range of factors.

Mr Comyn : It's obviously very difficult to speculate precisely what the outcomes are, but there are a range of outcomes of which they may be a couple.

CHAIR: So that's a realistic possibility?

Mr Comyn : There's a possibility that people may alter their investment preferences, as they would at any particular point in time as it relates to their outlook on the banking sector; the Australian domestic equities; changes to taxation, as you are outlining; broader changes to their asset allocation; and changes to their lifestyle.

CHAIR: But would the CBA be worried about the impact it would have on the capitalisation of the bank if they were to see people either not choosing to invest in the future or choosing to reduce their risk profile associated with the CBA or other banks?

Mr Comyn : From our perspective it's not something that we can control. Clearly, our focus is on making sure that we're dealing with a number of the issues that we've discussed today, running the business as best we can over the long term to deliver better outcomes for our customers and sustainable results for our shareholders.

CHAIR: That's an opaque answer.

Mr Comyn : Yes, it probably is.

Mr THISTLETHWAITE: I just want to ask you a few questions about your Home Loan Referral Source Program. Do you still have a program for home loan referrals?

Mr Comyn : Yes, I believe we do.

Mr THISTLETHWAITE: When you look at the program on your website, you see it lists eligible businesses that can take part as 'accountants, solicitors, lawyers, conveyancers, real estate agents, financial planners and migration agents'. Is that right?

Mr Comyn : Yes. I think that's broadly right, yes

Mr THISTLETHWAITE: What qualifications do these referrers need in order to provide advice on choice of home loans?

Mr Comyn : They need to go through a thorough accreditation process. The referral program is very small in the context of our overall loan volumes. In terms of the detailed accreditation requirements and the ongoing review, I'd probably need to check some of the specifics, but there would definitely be standards on an up-front accreditation as well as on an ongoing basis.

Mr THISTLETHWAITE: Do they need to do a course? Do they have to have a particular qualification? Do you give them that? Is it something that they get from a body?

Mr Comyn : I'd need to double-check. They tend to be very much at arm's length. They have no role from a referral perspective. It's quite different to a mortgage broker where, in that situation, the mortgage broker is acting for the customer and completing the application process. It tends to be professionals who are otherwise dealing with customers who may have a home loan need. It's a simple referral. They have no ongoing role or obligation as part of the application process.

Mr THISTLETHWAITE: But if they refer someone they receive a fee, don't they?

Mr Comyn : Yes. A small fee, yes.

Mr THISTLETHWAITE: What is the fee?

Mr Comyn : I'd have to double-check. I don't recall specifically. I'm happy to take that on notice.

Mr THISTLETHWAITE: Do CBA disclose to the customer the relationship between the referrer and the bank and the fees that are paid?

Mr Comyn : Yes, I believe we do. Again, I'm happy to double-check that. One of the areas that we have improved in is ensuring that all of the disclosure, including around any commissions or payments that have been made, is clearer in our loan documentation.

Mr THISTLETHWAITE: Don't you think that that relationship is really pushing the boundaries of trust that a person has with, say, a lawyer, an accountant or a conveyancer?

If you're going to someone for legal advice about a particular matter—let's say it relates to a property—to then be referred to a mortgage broker or a bank, in the context of trying to get a loan, pushes the boundaries of trust between the person that's supposed to be providing another professional service, namely legal advice in the case of a lawyer or accounting advice in the case of an accountant. Doesn't it blur the line of trust there? It sounds a bit dodgy.

Mr Comyn : The thrust of your question—and this is something that the commission focused on a lot—is around conflicts of interest. They are things that, of course, are preferable to avoid but need to be very carefully managed. I think at the heart of your question is making sure that there's adequate transparency. If you can't avoid a conflict of interest, it is best to ensure there is absolute transparency. As I said, it's a very small proportion. I accept the thrust of your question. I believe that those potential conflicts are transparent and clearly managed, but I'm happy to double-check that on notice. But I do think the management of conflicts is something that was very clearly highlighted in the commission's work and has led to a number of changes on both a current and ongoing basis.

Mr THISTLETHWAITE: Why are migration agents specifically included in your program? I would've thought they'd have nothing at all to do with home loans and referrals to banks.

Mr Comyn : Of the list that you read out to me, that would be the one that I'd want to double-check. Typically, in the international context—in our London office we do work closely with the department there. For any residents who are relocating to Australia, it wouldn't be unusual, in the course of setting up their banking arrangements in Australia, to facilitate a home loan. I suspect that is a very, very small proportion of any referrals. But I'm happy to take a greater look at some of the detail around this matter.

Mr THISTLETHWAITE: I'll move on to another issue: the unquestionably strong basis for banking in Australia that's being introduced. The common equity tier 1 requirement—I think it's APRA's requirement—is 10.5 per cent for Australian banks moving forward; is that correct?

Mr Comyn : Yes, that's correct.

Mr THISTLETHWAITE: I also understand that New Zealand's common equity requirement is going to be 14½ per cent; is that correct?

Mr Comyn : Yes.

Mr THISTLETHWAITE: So there's a clear difference between Australia and New Zealand. Do you own a business that operates in New Zealand?

Mr Comyn : Yes, we do. We own the ASB Bank. It's worthwhile saying that the increased capital requirements are specifically related to a paper that the Reserve Bank of New Zealand put out. There is a consultation period. It would be premature to say that it's finalised, but clearly there's been a lot of discussion. I believe the consultation period extends to May this year. It would see a substantial increase in the capital that is required to be held in New Zealand financial institutions. There is a five-year implementation period beyond that. It is certainly one of the issues that we are turning our minds to.

Mr THISTLETHWAITE: If New Zealand does go down that track—and it appears it's headed that way—is the difference between Australia and New Zealand going to be a problem for your bank in that, if you continue to pay dividends in the way that you do, you're going to be squeezed to find that capital requirement in New Zealand and will potentially have to look at selling some of those businesses?

Mr Comyn : I think it would be premature to go down that path. What it would simply mean is that the New Zealand banks, including the one that we own that is a wholly owned subsidiary, would hold substantially more capital. The potential impact of that is a dilution on the returns in that particular business. There's also the potential that that will have an impact on both the availability and the pricing of credit in the New Zealand market. There typically tends to be some degree of effect across all of those stakeholders.

Mr Cohen : One of the impacts that could potentially arise, if the proposal does proceed, is the impact on lending that requires higher capital to be set aside. Obviously, lending that requires higher capital becomes more expensive in the context of holding additional capital. That's one of the considerations that the industry as a whole in New Zealand is considering at the moment.

Mr THISTLETHWAITE: Thank you.

Mr EVANS: Going back to some of our first hearings, I think the basic point was concluded by this committee early on—and it's a point that has been made by many other authorities as well—that it's an effective lack of competition that has possibly enabled or exacerbated many of the issues that we're talking about here in these hearings and many of the issues that were covered in the Hayne report. The point is that, fundamentally, if we were talking about many other industries, if there were the sort of breakdown between customers and business that the major banks have admitted to, customers would have voted with their feet and the offending entities would have lost business. You said earlier very clearly that you believe mortgage brokers promote or enhance competition. Approximately what market share do CBA have in the home mortgage market, including your subsidiaries and other brands?

Mr Comyn : Approximately 25 per cent.

Mr EVANS: That's the biggest share of any of the entities in Australia?

Mr Comyn : Yes, it is.

Mr EVANS: And it's growing?

Mr Comyn : I think we would be flat to slightly down on market share over the last couple of years. Probably, actually, we would be down on market share over the last few years.

Mr EVANS: You said earlier that you've got the biggest branch network in Australia, over 1,000 branches, I think.

Mr Comyn : That's correct.

Mr EVANS: You said you employ the most lenders, which I took to mean employees or officers of the bank who are performing some of the same tasks as mortgage lenders in facilitating loans to mortgagors. Is that right?

Mr Comyn : Yes, that's right—approximately 1,400.

Mr EVANS: And you get less than half of your new mortgages through brokers and therefore more than half through your own branch networks and internally?

Mr Comyn : That's right. Approximately 60 per cent of our loans are sourced directly, and approximately 40 per cent come through the mortgage-broking market.

Mr EVANS: If Australia's 17,000 mortgage brokers disappeared overnight for some reason or the mortgage-broking model in Australia fundamentally broke down in some way, what do you predict would be the consequences? What would happen thereafter?

Mr Comyn : First of all, I would like to say I think that's extremely unlikely. I think it's a very well established intermediary channel that is clearly popular with customers, given the proportion of loans that they write. It's closer to 60 per cent across the broader market. I acknowledge the structural changes and the changes that are proposed around remuneration, but it would seem that both sides are very focused on ensuring mortgage broker viability, so I think it's extremely unlikely that mortgage brokers aren't playing a very important role in meeting customers' home-buying needs now and into the future. Of course, at some point in time, technology is also likely to provide an important role in helping more customers, rather than the predominance of home loans today which are still met via a face-to-face relationship.

Mr EVANS: Turning it back, maybe, from a doomsday scenario, if there were a situation where mortgage broking substantially altered or reduced, what would the impact be, do you think?

Mr Comyn : To?

Mr EVANS: Well, mortgage broking is the biggest part of your banking business. It's important to you. I would be very surprised to hear that there weren't discussions about what would happen next. Would it be a net benefit or a net negative for your business? Would you expect your market share to increase? Would you expect your margins in that market to increase?

Mr Comyn : It's very hard—particularly around things such as margins. Margins are of course a function of multiple dynamics, as I'm sure you would appreciate. Clearly we have the capacity to originate loans directly, but the mortgage-broking channel is very important. It's a higher cost and slightly higher risk channel. Otherwise, there are a number of factors that would be influenced. It would also most likely be replaced by another channel. It's very hard to see that the structure of and level of competition for home loans will do anything other than increase into the future.

Mr EVANS: I've just been told to wrap it up. One last question: from CBA's point of view, is mortgage lending in Australia more attractive than small-business lending?

Mr Comyn : They're very different markets and sectors. Mortgage broking is an essential channel within meeting our customers' home-buying needs. Small business is the lifeblood of the Australian economy. We lend $580 million every week. We think it's very important that we're able to expand that in support of greater economic growth in the Australian economy.

Mr EVANS: Thank you. I'll put further questions on notice.

Mr KEOGH: The banking fairness fund levy that's been discussed already would be used to fund community organisations to provide support to your and other banks' customers, including in particular to help in resolving disputes more efficiently and also to provide help with financial counsellors and community lawyers. You mentioned before some of the difficulties that have previously been experienced with responding to disputes through FOS have been because of an inability of customers on their own to properly identify the full extent of issues. Do you foresee more customers having access to this sort of support in resolving disputes will create some efficiencies for the bank in getting to the nub of what the issue is, having those resolved and moving on?

Mr Comyn : We're very supportive of the Financial Counsellors Association. We've done a lot of work directly with them. We've funded them directly—for example, we've funded domestic violence training for all of the financial counsellors around Australia. We've also done substantial work in and around domestic violence. We've helped more than 6,000 customers and funded in the order of $18 million around financial assistance for customers who have been victims of domestic and family violence. Again, I hope this is an area where our practical experience may be of benefit to any of those particular policies.

Mr KEOGH: Do you think having this sort of assistance for customers will also assist the bank in preventing the sort of systemic misconduct that we've seen in the past in that there would be greater support for customers in being able to identify issues and bring them forward to the bank to have them resolved—keep you honest, in a sense?

Mr Comyn : The primary focus and the root of the misconduct need to be placed on the institutions. It's up to us to ensure that it doesn't reoccur. There are of course a number of important stakeholders outside of that but, first and foremost, it's our responsibility and obligation clearly to resolve any outstanding issues and deliver the highest possible service to our customers.

Mr KEOGH: And making sure your customers are supported in dealing with complaints or concerns would assist you as an external check and balance on ensuring that there's no deviation from the new level of commitment to making sure there's no further misconduct? Sorry, David, did you want to say something?

Mr Cohen : I was only going to say, Mr Keogh, from our point of view, we think financial counsellors play a valuable role. Steps that enable them to represent customers, I think, are positive. If it helps lead to timely, fair and cost-effective resolution of outcomes for customers, that's all positive.

Mr KEOGH: One of your other competitors, NAB, has said in a statement back in February that it'll engage constructively with the proposed levy to support the banking fairness fund. It also said that it supports the role of financial counsellors in assisting vulnerable Australians, and you've just made effectively the same comment, Mr Cohen. I assume, therefore, that you would support the objectives of the banking fairness fund in increasing the number of financial counsellors available to support Australian banking customers and also community lawyers in dealing with these sorts of complaints and making sure these issues can be resolved swiftly.

Mr Cohen : Steps that help customers are positive in our eyes, particularly if they lead to fair and swift outcomes. On a cost-effective basis, that must be better for everyone.

Mr KEOGH: Thanks. Just from a Western Australia point of view, the legislated guarantee of management positions and bank branches for BankWest has now come to an end. There's been a lot of movement of branches in Western Australia for BankWest. Have we seen any reduction in the total number of branches for BankWest in Western Australia?

Mr Cohen : We've seen a reduction of branches on the east coast for the BankWest brand. I'm not aware of any in Western Australia.

Mr KEOGH: But you can't definitively say there hasn't been.

Mr Cohen : I'd need to double-check that there hasn't been. But it would be, if any, a very small number. There have been a number of branches impacted on the east coast but not, as I understand it, in Western Australia.

Mr KEOGH: If you could confirm that for the committee, that would be much appreciated. Has there been any reduction—sorry?

Mr Comyn : I was only going to say what has happened in Western Australia. There has been some change in the mix of the type of branches—for example, instead of a full branch, sometimes there has been the establishment of more of a kiosk-style smaller branch. So, footprint in terms of square metres—yes, there has been some alteration in the mix.

Mr KEOGH: In terms of senior management related to BankWest located in Western Australia, has there been any reduction in that?

Mr Comyn : No, the managing director and the directors are still based and live in Western Australia.

Mr KEOGH: Thank you. I just want to take you to a policy position from the UK, which is about having the publication of CEO single figure remuneration published as a ratio against the median remuneration for full-time employees within large organisations. Deloitte in the UK said that they were very supportive of this move to ensure that in fact the remuneration committees of boards take account of these sorts of remuneration levels in the wider workforce and how the ratio moves over time. They saw it as a very positive move. Do you have any comments on there being an introduction of such a policy here on keeping track of the ratio of say, your pay, Mr Comyn, as a gross figure as against, say, the median pay or the 25th percentile of employees in your bank?

Mr Comyn : Ultimately that decision would be one for the remuneration committee. I personally have no objection to something like that. This is an area in remuneration more broadly where there is a substantial amount of reform and work that's underway. The prudential regulator have a recommendation from the royal commission to provide greater specificity about some of the things that they would like to see, so I suspect that that and a number of other changes will be contemplated over the coming time.

Mr CRAIG KELLY: Mr Comyn, I want to go on to the new tribunal that's been established, the Australian Financial Complaints Authority. Are you aware of many complaints involving your bank being lodged with that authority to date?

Mr Comyn : Yes. I'll hand over to David, who is charged with this and also done a lot of work on it.

Mr Cohen : Currently, there are almost 990 complaints concerning the Commonwealth Bank sitting with AFCA. We have been working through—

Mr CRAIG KELLY: When were they? What period were they lodged over? Are they under the new tribunal?

Mr Cohen : Yes. AFCA, as you know, conglomerated three previous ombudsman services.

Mr CRAIG KELLY: Have these 900 cases been lodged since the—

Mr Cohen : No. We had some that were already sitting with the previous three ombudsman services that were combined into one when—

Mr CRAIG KELLY: Of that 900, how many have been new since AFCA?

Mr Cohen : The rough numbers are that, as at the date AFCA started on 1 November 2018, we had just over 800 cases sitting with the three ombudsmen. So an aggregate—

Mr CRAIG KELLY: They were existing cases?

Mr Cohen : They were existing. We have worked that 800 down to just over 100 at the moment. So it's a reduction. But, since AFCA has been formed, there has also been lodgement of further complaints. The current number is approximately 990. There has been an increase—

Mr CRAIG KELLY: That's just with your bank?

Mr Cohen : That's Commonwealth Bank issues, correct.

Mr CRAIG KELLY: Are you aware of how many have been lodged about the other banks?

Mr Cohen : No, I'm not.

Mr CRAIG KELLY: Is that information you're not privy to?

Mr Cohen : I don't have that information. That's not information that's made available to us.

Mr CRAIG KELLY: That seems to be a very large number just with the Commonwealth Bank that AFCA's going to have to work through.

Mr Cohen : It is a significant number. AFCA has done a very good job of publicising the fact that it exists both prior to and since 1 November last year. That in itself, I think, has encouraged people to come forward. I think that is, therefore, living out the purpose of AFCA, which is a good thing. But, yes, the number is significant. On the positive side, AFCA has appointed someone to head the small business disputes. That is going to help with the flow. I understand they're building a team.

Mr CRAIG KELLY: Of the 990 cases at the moment, do you have different categories that they're in? Do you have, say, small business cases or—

Mr Cohen : No, I don't have that breakdown. I'm happy to take it on notice and then give you that breakdown.

Mr CRAIG KELLY: Okay. What resources is the bank putting in to handle those disputes? I would imagine a lot of these cases are these new disputes that you were never aware of in the past. Or are they disputes that have been raised that haven't been finalised through your internal mechanisms?

Mr Cohen : Many are new. So we have increased our resources and we're still going through that process to increase resources in order to deal with both complaints that come directly to the bank and are dealt with internally as well as those complaints that are dealt with and have been raised with AFCA.

Mr CRAIG KELLY: Has AFCA set any time frame for the hearing of these 900 cases? This could take several years.

Mr Cohen : No, it's on a case-by-case basis. Obviously there is a workflow involved as cases come in. It depends on their complexity, number one. It obviously depends on AFCA resources as well. In the engagement principles that we have agreed with AFCA we are seeking to ensure that we can maintain a proper flow rate of those cases so that there aren't delays. That's why we're resourcing up.

Mr CRAIG KELLY: Separate to AFCA, how many disputes do you currently have on hand, say, involving the Supreme Court?

Mr Cohen : I'd have to take on notice actual matters in court at the moment.

Mr CRAIG KELLY: Is that where the bank is being sued by a private entity, so it's outside the AFCA limits?

Mr Cohen : Yes, that's correct, so that would be separate from AFCA.

Mr CRAIG KELLY: I have one final question. Do you think, given the fact that there are 990 cases of someone outside that limit, that there would be substantially more cases if that limit had been increased?

Mr Cohen : That's very hard to say. I think one of the drivers of the increased flow of complaints to AFCA has definitely been the highlighting of issues through the royal commission process. There is no doubt that has brought to life a number of customers who felt that they should raise their issue. In terms of the limits, my understanding, generally speaking, is that many people who do go to AFCA are not necessarily highly aware of the limit and therefore are applying anyway. They are subsequently told whether they are within the limit or not. Naturally, if limits are changed, that would alter the flow.

Mr CRAIG KELLY: Thank you very much.

Mr JOSH WILSON: I want to come back to a couple of things around remuneration. I know you have talked about some of those things with the committee before, so, if I ask something that has been asked before, you'll have to forgive me. Do you disclose the balance between variable and non-variable remuneration across different sorts of tiers of the bank?

Mr Comyn : The composition of both the fixed remuneration and the variable remuneration is disclosed for what is known as key management personnel, which is typically me and my direct reports.

Mr JOSH WILSON: Has the balance changed notably in recent times?

Mr Comyn : Certainly the totality of it has come down substantially.

Mr JOSH WILSON: Sorry, the totality of the variable component?

Mr Comyn : Yes, and in some cases in the fixed remuneration as well. In terms of the mix, it has been broadly stable for several years. There have been changes, particularly to some elements of the way the variable remuneration can be awarded.

Mr JOSH WILSON: Have those changes been even across the hierarchy? I assume that the more senior you are the higher the proportion of variable remuneration, potentially.

Mr Comyn : Broadly that's correct. There are differences. I would say one of the other key differences at all levels of the organisation has been the reduction of the relationship between the financial performance of the institution and the variable reward. It has been completely removed for some roles, but in all roles it has been reduced. In a role like mine, that's broadly half what it was a couple of years ago.

Mr JOSH WILSON: I think you mentioned last time that the financial aspect of your variable remuneration is 30 per cent of the calculus, as opposed to 50 per cent or 60 per cent previously. I think one of the challenges when it comes to variable remuneration and the split between the financial and the non-financial is that the financial is quantifiable and the non-financial is less so. Do you have ways of looking at how the adjustment of that mix really flows into different outcomes? I would assume that, even though you would have a calculus with different elements in it, there is the potential for the financial element to still be the dominant one and the more subjective or less quantifiable elements to more or less end up correlating with that.

Mr Comyn : The most dominant aspect of a variable remuneration reward for me and for roles inside the organisation is actually performance against risk. That can have 100 per cent forfeiture, depending on the assessment of an individual's performance in risk management, which, as you would appreciate, is a huge focus for the organisation at the moment. Typically the make-up beyond that 30 per cent financial—the other elements of my scorecard, for example—are customer satisfaction, which is metricated as well, and an element around people and leadership, and there's a combination of both subjective and objective measures there. Then, for example, I've got a 30 per cent weighting against ensuring the delivery of the response to the prudential inquiry report, which again is something that can be measured. Over the long term, the variable reward is determined with other factors, including total shareholder return. I think there is certainly a quantitative assessment of all elements of that. Then, for my role, that's also provided by way of disclosure in the annual report.

Mr JOSH WILSON: As part of the cultural changes that you're making, you've changed the mix and the calculus with respect to variable remuneration. Has that enabled you to identify people within the organisation who were clearly only focused on maximising financial returns and were poor performers when it came to things like customer service, integrity and other important measures?

Mr Comyn : Certainly remuneration and incentives, where they've been poorly designed, can lead to the wrong behaviours, and we've seen that causal effect. We've made substantial changes across a number of roles. Obviously the Sedgwick review into banking operations and all of those recommendations which we've implemented in full have made substantial changes. I think remuneration and incentives are very important. I think the other elements which are also important tend to be around things such as target setting—the way they're set—and performance management routines, the way our leaders lead and the way they manage performance. They can also, if not done well, drive the wrong sorts of behaviours and consequences. From my perspective, certainly remuneration and incentives are an important part of it, but it needs to be thought of holistically as well.

Mr JOSH WILSON: Have the CBA brought in external culture-change experts? Have they taken them on, and will you keep on that kind of external expertise and oversight with respect to the cultural change program?

Mr Comyn : Yes. We think it's important that cultural change is led from within, but of course we have people assisting and overseeing some of the elements of the culture change program that's underway. It's also part of the role of Promontory as the independent expert, as it relates to the remedial action plans, to assess that. I know that's a key area of focus for Promontory this year.

CHAIR: Mr Comyn, I want to return to a question that I asked before. You gave an opaque answer in which you accepted that there was going to be an impact on your market capitalisation as a consequence of effects on tax rates. Do you normally take opaque perspectives on issues that affect market capitalisation?

Mr Comyn : I think I accepted that it may have an impact on market capitalisation. I don't think I accepted that it would, because there are a number of other factors that, at any point in time, would affect market capitalisation.

CHAIR: That's right, and that was built into my earlier question as well. But, when it comes down to an impact on the market capitalisation of a bank, have there been times in the past when the bank has taken a perspective on an issue like changes to tax rates which may have a direct impact on it?

Mr Comyn : Taxation itself, of course, is a very important topic and needs to be broad ranging. As you would appreciate, we tend to focus more on the elements that we can control. At the moment, there are a number of issues that we're working through, and we feel like our efforts and activities are best deployed against ensuring that we can deliver those as best we can. We're obviously cognisant of the broader debate and discussions around tax reform in a number of different areas. We've been happy to participate in that, but we're also aware that it's a subject of substantial debate between both political parties, and in the broader external context.

CHAIR: If there is a change in law on something like refundable franking credits and we accept that it may have an impact on the market capitalisation of the bank, would you expect a similar consequence for other banks in Australia?

Mr Comyn : Potentially.

CHAIR: Would that have any impact on the viability or stability of the banking sector?

Mr Comyn : Not per se. Things that impact on the viability and performance of the banking sector tend to be far more so around the broader policy debate and the performance the Australian economy. The Commonwealth Bank is predominantly tied and leveraged to the performance of Australia. Nobody is more incentivised to long-term economic stability and growth, as an institution, than we are. We recognise the importance of the debate, so my opaqueness in the answer is probably more of a reluctance to get too involved in the political debate at this points in time, as opposed to—

CHAIR: That's why I'm not asking you to comment on the individual policy around its consequences. My question is about the impact on the bank and whether it's going to have any impact. From your answer, you've accepted that there may be a consequence to the bank and the amount of shares that are held in it, particularly those held by self-funded superannuants?

Mr Comyn : It may influence an individual investor's preference for which shares they may hold over another or for which asset classes et cetera, as opposed to the underlying performance or stability of the bank.

CHAIR: But you're going to provide on notice the information you have about the shareholdings that you're aware of?

Mr Comyn : To the extent that we can, I would be happy to do so.

CHAIR: Thank you very much. Thank you for your attendance here today. The committee secretariat will be in touch with you in relation to any matters arising out of today's hearings. You will be sent a copy of the transcript of your evidence to which you can make corrections of grammar and fact. Thank you very much for coming.

Proceedings suspended from 12 : 15 to 13 : 18