Poor Risk Culture Leads to Largest Corporate Fine in Australia’s History

I had an interesting conversation a few months ago with a risk professional in Australia who told me about a scandal involving his country’s largest bank, the Commonwealth Bank of Australia (CBA). CBA not only operates in Australia, but also New Zealand, Asia, the U.S. and the U.K.

Unlike banks in the U.S. and Europe, Australian banks emerged from the 2008-09 financial crisis relatively unscathed.

At one time, CBA was considered an industry icon because of its long history, its financial success, and its technological innovations for customers.

After a series of scandals culminating in a record fine by Australia’s financial regulators ($734 million Australian dollars, or $521 million USD), the bank’s reputation has taken a serious hit with the public. You can learn more about CBA’s multitude of scandals here, here, and here.

Image courtesy of Maksym Koslenko via Wikimedia Commons

The Australian Prudential Regulation Authority (APRA) placed much of the blame for CBA’s woes on poor risk culture.

The report issued by the APRA explained how CBA focused a lot of risk-related attention on financial risks but was grossly ineffective at addressing operational and reputational risks.

APRA’s report identified four factors that contributed to a poor risk culture and the scandals.

  1. Complacency – Because of its robust profits and consistently high rankings on various financial measures, complacency took root throughout all levels of the company. This complacency meant non-financial risks were being missed. Also, the bank focused more on processes (as is the case with its Intelligent ATMs) rather than outcomes.
  1. Reactive – Another misstep by CBA was how it would handle operational risks and compliance issues that came up. Instead of being proactive and handling issues before they arise, the bank would only address something when ramifications became apparent, which as I explain here, leads to a host of consequences. (Being proactive instead of reactive is one key difference between traditional and enterprise risk management.)
  1. Poor reflection – APRA’s report also explains how CBA’s Board, executive leaders, managers, and employees did not take steps to learn from mistakes. Lessons were not documented and shared across the company. By not taking a “big picture” view of risk issues, the company was unable to learn, anticipate, and adapt. (More on this topic at a later date.)
  1. Placing too high of a value on consensus – CBA’s casual work atmosphere was identified as another contributing factor to the emergence of the scandals. The emphasis on consensus translated to less constructive criticism, slower decision-making, and a lack of ownership of risks. Overall, consensus leadership sounds great but leads to mostly bad outcomes.

APRA’s report made a series of recommendations and benchmarks aimed at helping CBA improve its governance, accountability, and poor risk culture. You can check out the report to learn about these recommendations and more details about CBA’s conduct.

Addressing risk and organizational culture is vital to ensuring situations do not erupt into damaging scandals.

My conversation and research about CBA brought to mind other scandals connected to risk and organizational culture.

Wells Fargo for example is still trying to recover following a scandal involving employees creating fraudulent accounts. Uber is another company attempting to deal with the reputational fallout from sexual harassment scandals.

Even back in 2006, a survey by Standard & Poor determined that companies in Australia and New Zealand were more advanced as a whole with ERM. But even then, unless the risk mindset is embedded throughout the organization, scandals like this can still happen.

At the foundation of the CBA scandal, its executives, managers, and employees were not approaching projects and outcomes with a risk mindset.

When the bank launched its intelligent deposit machines in 2012 that allowed anonymous cash deposits, no one considered risks associated with this new technology. Did anyone stop to ask if there were any regulatory requirements CBA needed to satisfy as part of this project? What about security protocols to prevent hackers or misuse of the technology?

Due to the lax culture around risk, crime syndicates and other nefarious actors were able to use the new ATM technology to launder money. By not reporting certain transactions based on dollar thresholds as required, huge fines were levied against CBA, not to mention the damage to its reputation.

Conduct risk, which is closely tied to reputational risk, has become an increasingly significant consideration, especially for financial institutions. Bad or negligent conduct on the part of executives and employees carries a much higher cost in today’s business climate.

Addressing conduct risk at your company can be complex because of what it implies – that someone is behaving inappropriately. It’s important for you, the risk professional, to be careful to not bring up past instances or to use a tone that could be interpreted as aggressive or judgmental. Rather, you are wanting your organization to be proactive about this topic and help avoid it occurring in the first place,

To learn more about how you can understand the significance of reputational risk and how to address it, I urge you to check out our previous article 5 Ways to Better Understand and Quantify Reputational Risk.

Has your company dealt with ramifications of a poor risk culture?

What does your company do to address risks surrounding compliance, reputation, and more?

I’m interested to hear your thoughts about CBA and poor risk culture in general. Leave a comment below or join the conversation on LinkedIn.

And if your company is struggling to articulate its policies around conduct or address poor risk culture in general, contact me to discuss your specific situation, or complete this form to be notified when availability opens on my calendar.

Featured image courtesy of David Iliff via Wikimedia Commons

Sign Up For Our Newsletter

Sign Up For Our Newsletter


Meet Carol

Helping companies achieve their vision and strategy, and succeeding in today's turbulent world, is something I'm honored to be a part of. Whether you're an occasional blog visitor or a long-term client, thank you for letting us be a part of your journey.

Most Recent Posts

The 12 Days of ERM Christmas

Without a doubt, one of my family’s favorite holidays is Christmas. Part of the fun, especially for our son, is seeing what “Santa” brought, but most importantly, we treasure the spirit of peace and goodwill the season brings. And after what seemed to be a never-ending warm spell, the weather is expected to be good…

Read More

Don’t Let Goals and Initiatives Be Blindsided by External Events

As the end of the year draws near, I think we’d all agree that while it wasn’t without its challenges, this year also wasn’t quite as turbulent as the previous two. While a lot of people are juggling company parties, shopping for friends and family, and special activities for the kids, most companies are putting…

Read More

Going the Distance: Ensuring Successful Execution of Strategic and Annual Initiatives

Strategic planning is a challenge – of all people, I understand… After all the meetings, risk and data analysis, and brainstorming of the preceding months, it’s tempting to think this is the end of the road and you can relax. Contrary to this common perception though, this is exactly not the time to relax, but…

Read More

Avoid Rookie Mistakes and Protect your Internal Reputation

Be honest – have you ever done something that you soon realized was a real rookie mistake? Me raising my hand… Considering the nature of ERM’s role to ask questions and challenge assumptions (often during conversations with executives), it can be argued that, in at least some cases, the expectations bar for risk professionals is…

Read More

ERM at Thanksgiving – An Illustration of Risk Management in Action

On occasion, I like to take some of the concepts we risk professionals think about in our jobs and apply them to different personal situations…take some of the same concepts we use when working with executives to develop corporate strategy and manage risks or uncertainty around that strategy. It’s Thanksgiving week in the U.S. –…

Read More

Why Quantitative Risk Assessment is Not Just the Best But the Only Option – A Conversation

Periodically, I have the pleasure of speaking one-on-one with Hans Læssøe on a variety of topics around ERM, strategic risk, and other issues and trends. As you know from my previous conversations (here, here) and posts featuring his work, Hans was formerly a practitioner at the iconic LEGO Company, but even more notably, is a…

Read More

The Three Lines Model – 3 Reasons Why I Don’t Like It

Everyone likes a clear-cut template that offers an easy way to create or manage something…I mean what’s not to like about a step-by-step process for accomplishing what you want? Sometimes this can work without any issues, such as the case with the Project Management Book of Knowledge (PMBOK), ISO 9001 standard, or a new cooking…

Read More

5 Avenues for Expanding your ERM Knowledge

One thing I was taught to appreciate from a young age was the value of education and knowledge. It didn’t necessarily matter what the subject was, just that I always maintain a learning or growth mindset regardless of my current status in life. This mindset has served me well over the years, and it’s a…

Read More

Storytelling and Risk Management – Developing Skills that Technology Cannot Replace

It’s amazing how technology has developed and changed our working world over time. Imagine trying to run my risk and strategy consulting firm without tools like Zoom, Box, Slack, and other ERM-specific technology tools. There is no way we would be able to serve our clients the way that we do. Just consider how the…

Read More

3 Phases to Creating and Launching an ERM Program Focused on Organizational Success

If you’ve been handed the task of creating an ERM program for your organization, let me first offer my congratulations quickly followed by my empathy for the task ahead of you. I don’t say that to scare you but to provide a small dose of reality. Building, launching, and refining an ERM program that is…

Read More