Commonwealth Bank CEO Matt Comyn has shifted responsibility for the delay to stop selling dud insurance policies to the former CEO Ian Narev and former head of wealth management Annabel Spring, the Hayne royal commission has heard.
Mr Comyn said he had been aware the controversial insurance products could pose a big problem for the bank for years through engagement with ASIC and conversations with CBA’s former head of retail banking Ross McEwan, who oversaw growth of the product in Australia.
“I am not trying to be flippant … his advice to myself as I recall, Mr Narev, Ms Spring, is quite clear – stop” Mr Comyn said.
Mr McEwan left CBA to run Royal Bank of Scotland. RBS was one of a number of banks caught up in the misselling of Payment Protection Insurance that is set to cost the UK banking industry £40 million ($70 million) in compensation to customers who were sold insurance they could never claim.
Mr Comyn, who was appearing before the commission for the first time, said he expressed concerns about the products with Mr Narev a number of times between 2015 and 2016, but Mr Narev “had a differing view”. He said there was little appetite for action on the subject and “I took that indecision to be the decision”.
Mr Comyn also had to fend off CBA’s head of wealth Ms Spring in 2015 when she emailed him raising concerns about stopping the product sales.
When contacted by Ms Spring about rumours the products would be withdrawn from sale Mr Comyn asked his team “not to provide a running commentary” about the products which were under review and were making the bank around $150 million a year.
Harmful to customers
The bank announced that it would repay 65,000 customers who had been sold unsuitable consumer credit insurance $10 million in August 2017. But the bank would not pull the products from the shelves until just days before the royal commission began its hearings in March.
The episode was one of many examples explored during the first day of a week of hearings at the Lionel Bowen Building in Sydney where it emerged that the bank had ample evidence its products or practices were harmful to customers but did nothing about them.
Mr Comyn will return to the witness box today and will be followed by CBA chairman Catherine Livingstone as the seventh round of royal commission hearings focuses on the causes of misconduct and potential solutions.
Mr Comyn also revealed that the bank was days away from pulling the trigger on a plan to scrap outsized commissions for mortgage brokers and replacing them with a flat fee last April but blinked at the last minute.
“It would have been certainly a high-risk move to try and reshape the industry by ourselves,” Mr Comyn said. “Nobody likes to have their income reduced.”
The abandoned plot to do away with some of the $2.5 billion commissions paid to mortgage brokers each year was explored in some detail by senior counsel assisting the commission Rowena Orr, QC, who made a link between trailing commissions for brokers and the fees-for-no-service scandal that has rocked AMP.
Years of internal documents
Ms Orr took Mr Comyn through years of internal documents that showed the bank knew loans from the broker channel were bigger, riskier and more expensive, leading it to consider “the Netherlands option” to delink broker pay from the size of the loan once and for all.
The bank had also modelled that if it moved to a flat fee and the other banks followed it would be $197 million better off.
CBA’s then CEO Ian Narev had expressed doubt about the project, writing to Mr Comyn on March 10, 2017, and telling him “history is littered with banks, even big ones, who try and take on the broker channel or lose”.
On April 12, 2017, Mr Comyn would write back saying he was ready to introduce a flat fee for mortgage brokers effective February 2018 and would push the button the following week after feedback from communications firm Newgate and Aussie Home Loans founder John Symond.
Mr Comyn said the bank was swamped by developments such as an industry-wide approach to the issue and the plan to strip commissions from brokers never happened.
When Ms Orr asked if the bank needed regulatory reform before it acted on the issue Mr Comyn said: “I think some degree of regulatory reform to ensure that there were no distortions created would be good.”
Mr Comyn put in a solid performance in the witness box over six hours with a detailed recall of many of the meetings, documents and chronology of events.
During the hearings it was revealed that he had spent considerable time analysing the impact of bonuses on customer outcomes which included meetings with former executives from US bank Wells Fargo.
Wells Fargo was fined $1 billion for a range of misconduct that has been sheeted back to employees chasing cash bonuses.
Mr Comyn said the bank preferred the variable remuneration over the word bonuses because it “sent the wrong message”. Only 3000 of the bank’s 43,771 staff members have been placed on packages which eliminate cash bonuses entirely.
Mr Comyn said he had “not observed any deterioration in their performance to date” and was considering placing more employees on similar arrangements.