APRA's inquiry into the Commonwealth Bank reinforces an urgent need for a banking Royal Commission, according to Labor and the Finance Sector Union of Australia.
If there are doubts about the need for a Royal Commission a year ago, there can be no doubts today, FSU national secretary Julia Angrisano said. She added APRA's inquiry will not go far enough and may not have the power to compel witnesses and subpoena documents.
The terms of reference aren't yet clear; they should be framed to examine the actions of CBA chief executive Ian Narev, his executive team and the board, she added.
Angrisano called on APRA to ensure the terms of reference are not framed in a way to allow the bank's management to escape responsibility by 'scapegoating' individual employees or groups of employees.
"We need to have a close look at all the banks because FSU members report concerns about culture and governance issues across the industry," she said.
Senator Katy Gallagher said while Labor welcomes APRA's independent inquiry, the serious allegations of corporate failings against CBA reinforces the need of a banking Royal Commission.
The past 18 months have seen more than $300 million in fines or compensation paid from across the banking and financial services sector, she said in a statement.
But not even the serious allegations of breaches of anti-money laundering and anti-terrorism funding laws by Australia's largest bank are enough to convince the Prime Minister Malcolm Turnbull to establish a Royal Commission, Gallagher added.
Credit rating agency Moody's announced APRA's concerns over the culture and practices at CBA are a "credit negative for the bank." CBA currently holds a high-quality rating of Aa2 with relatively low credit risk.
"In addition to potential fines imposed domestically, CBA is also potentially exposed to further action from offshore regulatory bodies, given that a number of these suspicious transactions involved a transfer of funds to overseas accounts," a Moody's report said.
Operational and compliance problems of this nature highlight the challenges of maintaining tight controls at large and complex institutions, Moody's added.
The entrenched profitability of Australia's major banks' domestic franchises and the low credit costs due to an extended period of unusually low interest rates elevate the risks of complacency in the way banks approach operational and governance risks.