The Australian Prudential Regulation Authority (APRA) has confirmed it has now removed the remaining $500 million capital add-on applied to the Commonwealth Bank (CBA).
APRA originally imposed a $1 billion add-on to CBA’s operational risk capital requirement in 2018, forming part of its response to the final report of the prudential inquiry into the bank.
According to the inquiry, CBA’s “continued financial success dulled the senses of the institution”, particularly in relation to the management of non-financial risks, and weaknesses were identified in its governance, accountability and risk culture frameworks and practices.
CBA had given APRA an enforceable undertaking (EU) committing to addressing the findings of the inquiry’s final report and an extensive remediation plan was established.
At the time, APRA said that the remainder would stay in place until CBA completed its full program of remediation, including addressing all recommendations from the final report, and validation work confirmed that the remediations were sustainable and well-embedded.
“Satisfied that the above has been completed, APRA has removed the remaining capital add-on, effective 30 September 2022,” the prudential regulator said in a statement on Friday.
CBA said that the release of the operational risk capital overlay represented an increase in Common Equity Tier 1 capital of 15 basis points.
“We are committed to ensuring the improvements we’ve made to our governance, culture and risk management practices are continuously improved and sustained,” CBA CEO Matt Comyn said in a separate statement.
The bank completed its prudential inquiry remedial action plan in September of last year, with all milestones being assessed as complete and effective, and all recommendations closed.
“There is now clear and committed leadership from the top in managing non-financial risk,” independent reviewer Promontory Australia said.
“The shift in CBA’s thinking on customer outcomes was little short of transformative.”
Jon Bragg is a journalist for Momentum Media's Investor Daily, nestegg and ifa. He enjoys writing about a wide variety of financial topics and issues and exploring the many implications they have on all aspects of life.