RBA governor Philip Lowe attacked the banking sector on Friday. Credit:Paul Jeffers While Dr Lowe did not comment specifically on the allegations against CBA, he said there needed to be accountability in the sector, and highlighted concerns about a sales culture. "Service has taken a back seat to sales," he told the Senate economics committee in Melbourne on Friday. "The desire for short-term profit has meant not enough attention is being paid to risk management, trust has been strained, banks know that." CBA has been embroiled by claims from Austrac, the government's financial intelligence agency, that it failed to properly alert authorities about more than 50,000 large cash transactions, and that criminal gangs laundered money through the bank.

ASIC chairman Greg Medcraft says it was "quite surprising" CBA did not inform the regulator about Austrac's investigation. Credit:Jessica Hromas Dr Lowe said money laundering was "very serious" and banks needed to know the customers who were opening accounts. "If shortcomings are identified then there needs to be accountability, through the court and internally through the organisation." Criticism has been levelled at those pursuing class action against the Commonwealth Bank. Credit:Bloomberg He said the banking system does an "incredibly important job" and the Australian economy has benefited through jobs and wealth creation but that it needed to address these cultural issues. ​

After a week of fierce public pressure on CBA, Mr Medcraft on Friday revealed the watchdog was probing key legal questions raised by Austrac's allegations. CBA chair Catherine Livingstone has quickly shaken up the board. Credit:Brook Mitchell Mr Medcraft told a parliamentary committee in Sydney that ASIC would look at questions including whether bank staff and directors had breached their duties under the Corporations Act, and whether it had properly disclosed material information to investors. The regulator would also be looking at whether the bank complied with licensing obligations to act efficiently, honestly and fairly, and its financial reporting duties, including whether the potential fine should have been treated as a contingent liability in the CBA's accounts. Mr Medcraft said ASIC did not find out CBA was under investigation until the civil action was filed last Thursday, even though he met chairman Catherine Livingstone two days earlier to discuss risks facing the bank.

"That's why I must say when I saw Thursday's announcement I was, you can imagine, a little stunned." Mr Medcraft said he was disappointed, and Ms Livingstone had called and apologised on Wednesday this week. "I must say I was quite disappointed. I was also disappointed that I finally got a call from Catherine Livingstone from Wednesday, a week later, apologising," Mr Medcraft said. While banks are not required to report to ASIC on the compliance with anti-money laundering laws, they must report financial service licence breaches to the watchdog, and they also have an obligation to disclose material information to investors. "There was nothing legally stopping CBA from telling us that they had these breaches and it is quite surprising that they didn't," Mr Medcraft said.

CBA's chief executive, Ian Narev, this week said the senior ranks of the bank became aware of Austrac breaches in late 2015, but a key question emerging is when it became aware there was an Austrac investigation into the bank. CBA has defended its disclosure of the Austrac action this week, and pointed out the potential fine it may face is uncertain. A CBA spokeswoman noted the comments from Mr Medcraft. Loading "We respect ASIC and will always work with the regulator to assist it with any inquiries it may have in relation to our business," she said. Speaking more broadly about the banking sector, Mr Medcraft said there was a "serious cultural problem" in how the Australian banks dealt with regulators, saying they were "far too legalistic" and did not give enough attention non-legal risks such as the hit to corporate reputations.