_R CBA.0502.0001.8021 CONFIDENTIAL
Commonwealth Bank of Australia
AGENDA FOR THE 311th MEETING OF THE BOARD TO BE HELD IN SYDNEY ON MONDAY, 11DECEMBER2017 AT 4.25PM AND TUESDAY, 12 DECEMBER 2017 AT 8.00AM
Monday, 11 December 2017 Administration
4.25pm - 4.35pm 1. Non-Executive Director Private Session 10 mins 4.35pm - 4.45pm 2. Board Matters 10 mins 2.1. Minutes of the 31Qth Meeting of the Board held on 13-14 November 2017 2.2. Matters Arising 2.3. Disclosure of Directors' Interests (if any) 2.4. 2017 and 2018 Board Forward Agenda
Business Operations
4.45pm - 5.1 Spm 3. Chief Executive Officer's Report and Board Discussion 30 mins Presented by Ian Narev 5.1Spm - 5.35pm 4. Chief Financial Officer's Report 20 mins Presented by Rob Jesudason with Jean Olivier in attendance 4.1. Investor Relations Presented by Gregg Johnston 4.2. Funding & Liquidity Presented by Paolo Tonucci 4.3. Economic Update (For Noting)
ExCo to join the Meeting
5.35pm -6.15pm 5. Management Reports 40 mins 5.1. Enterprise Services 5.2. Retail Banking Services 5.3. Business & Private Banking 5.4. Bankwest 5.5. Institutional Banking & Markets 5.6. International Financial Services 5.7. Wealth Management* and KordaMentha Report* 5.8. ASB Bank* 5.9. Group Marketing & Strategy .. Group Executive to provide 5 minute update, followed by 5 minute Q&A _R
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6.15pm - 6.25pm 6. India Entity Establishment 10 mins Presented by David Whiteing and Scott Wharton
7. Health, Safety and Wellbeing Report (For Noting)
6.30pm - 9.30pm BOARD AND EXCO DINNER
Tuesday, 12 December 2017
ExCo to join the Meeting
8.00am -12.45pm 8. Group Strategy 2017 Progress Review See separate Strategy Agenda (at end of Agenda)
12.45pm - 1.00pm 9. Mergers & Acquisitions Update 15 mins Presented by Vittoria Shortt, Annabel Spring and Paul Fowler with Anna Lenahan in attendance
1.00pm-1.30pm LUNCH
10. People and Organisation 1.30pm -2.05pm 10.1. Organisational Structure 35 mins Presented by Ian Narev
2.05pm -2.25pm 10.2. Accountability Change Program and Vision & 20 mins Values Presented by Gregg Johnston and Deb Howcroft 2.25pm - 2.35pm 10.3. Remuneration Committee Report and 10 mins Recommendations Report by David Higgins
Risk and Regulatory
2.35pm - 2.45pm 11. Project Management Office Update 10 mins Presented by Philippa Watson and Steve Ellis with Anna Lenahan and Rob Jesudason in attendance
2.45pm - 3.00pm AFTERNOON TEA 12. Regulatory Actions 3.00pm - 3.15pm 12.1 Financial Crimes Review Committee Report 15 mins Report by Mary Padbury
3.1Spm - 3.45pm 12.2 AUSTRAC Proceedings and Program of Action 30 mins Verbal update by Anna Lenahan and David Cohen, with Rob Jesudason, Leif Gamertsfelder and Clive Van Horen in attendance
3.45pm - 4.00pm 12.3 Royal Commission -Financial Services 15 mins Presented by Anna Lenahan _R
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4.00pm - 4.20pm 13. Regulatory Report 20 mins Presented by David Cohen, Peter Taylor and Jane Couchman
14. Risk Reporting 4.20pm -4.30pm 14.1 Risk Committee Report and Recommendations 10 mins Report by Shirish Apte
4.30pm -5.00pm 14.2 IT Risk Rem ediation Program: Quarterly Update 30 mins Presented by David Whiteing, Scott Wharton and James Walker
14.3 Enterprise Services - Strategy Progress and Operational Reporting Presented by David Whiteing, Scott Wharton and James Walker
Financial Controls, Management and Treasury
15. Audit Reporting and Capital Management
5.00pm -5.10pm 15.1 Audit Committee Report and Recommendations 10 mins Report by Brian Long
5.1Opm - 5.20pm 15.2 Proposed Issue of PERLS X 10 mins Presented by Rob Jesuadson and Paolo Tonucci
Policy and Governance
16. Governance Framework 5.20pm - 5.35pm 16.1 Corporate Governance Guidelines 15 mins Presented by Anna Lenahan and Taryn Morton
5.35pm - 5.45pm 17. Nominations Committee Report and Recommendations 10 mins Report by Catherine Livingstone
18. Continuous Disclosure Matters
5.45pm -6.00pm 19. Review of Meeting 15 mins NEXT MEETING Wednesday, 13 December 2017 - Sydney l!N.D·AGENDA
6.00p.m _.. 7.30pm CC1CKTAIL FU,NC110~ (Le.vet 1.9) _R
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Commonwealth Bank of Australia
STRATEGY AGENDA TUESDAY, 12 DECEMBER 2017
ExCo to join the Meeting
8. Group Strategy 2017 Progress Review
8.00am -10.45am 8.1 Corporate Strategy Performance 165 mins Presented by Vittoria Shortt and Jason Miller
8.2 Operating Flexibly Deep Dive
8.3 FY18-FY20 Group Business Plan
ExCo to leave the Meeting
10.45am - 11.00am MORNING TEA
Business Unit Strategy 11.00am - 11.15am 8.4 Business Banking Strategy 15 minutes Presented by Adam Bennett
11 .15am - 12.45pm 8.5 Retail Banking Services Strategy 90 minutes Presented by Matt Comyn, Dan Huggins, Sian Lewis Stuart Munro and Angus Sullivan
RETURN TO ITEM 9 ON MAIN AGENDA
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Commonwealth Bank of Australia Paper No. 5.2
Board 11-12 December 2017
Retail Banking Services Management Report 1. External market environment 1.1. In November the Australian Bankers' Association held an Open Banking symposium attended by banks, consumer groups and regulators. Data security was a key focus of the forum, particularly in light of major data breaches including Equifax, Yahoo and most recently Uber. 1.1.1 . CBA supports a model that provides safe data exchange where the customer initiates data transfers via Netbank, rather than third parties linking to CBA systems to 'pull' customer data. Under this model, 'screen-scraping' which involves customers disclosing their passwords and putting themselves at high risk, should no longer be justified. 1.2. Apple Pay has launched a trial in the U.S that enables customers to send and receive payments using Apple Pay over iMessage. Sim ilarly, Facebook Messenger has launched a Peer-to-Peer payment feature in the U.K. This functionality will be in direct competition with Beem, the CBA led industry digital wallet solution for the Australian market.
2. Vision and Values 2.1. In October we announced the removal of fees for electronic transactions for Streamline transaction accounts. Previous charges included $0.30 for transfers, payments or direct debits; and $0.50 for purchase transactions above a volume based threshold. Also removed were monthly account fees for our Equity Unlock for Seniors (EQFS) product, a type of reverse mortgage; while fees for International Money Transfers (IMTs) below $1000, processed through NetBank or the Comm Bank app, were reduced from $22 to $6. 2.2. From January 2018, schools participating in our School Banking program will receive fundraising support under a revised payment structure. Schools will receive an annual contribution each calendar year when the first School Banking deposit is processed, based on the number of participating students alongside a Regular Savers Contribution of $5 for every 10 deposits processed per student. This new structure aligns closely with the program's value of teaching kids the importance of regular savings behaviour. 2.3. Progressively since October 2017, credit card customers using the CommBank app have been alerted in real-time that when they make a high cost credit card transaction (such as an ATM cash advance or online gambling) that these transactions incur cash advance fees and interest. 2.3.1. CBA has commenced working with expert researchers in the field of gambling and gambling related behaviour from the University of Sydney. This partnership will help the Bank make informed decisions on the courses of action to take with the development of digital tools aimed to help our customers better manage their financial wellbeing. 2.4. From November 2017, customers received real-time alerts, reminding them their credit card payment is due. If their payment becomes overdue, _R CBA.0502.0001.802 1_0094
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customers will receive an additional alert advising them if they make their payment by midnight the following day, they will not incur a late payment fee.
3. Customer satisfaction performance 3.1. CBA leads the major banks for the Retail MFI Net Promoter Score (NPS) in October despite declining 0.2 to +1 .1. NAB improved to second place on +0.2, Westpac declined to third place on -1.1 and ANZ remains in fourth place on -4.6. 3.2. CBA continues in first place for overall Digital NPS, up 0.4 to +27.8. CBA's mobile app achieved a record high score of +34.5 and has margin of 10 points over NAB in second place.
4. Talent development and people engagement 4.1. In September we launched a new employee offer that will enable spouses of retired CBA employees to apply for a Low Fee Credit Card with no annual fee for the life of the card. This will help our customers during the estate planning process and in the unfortunate event where the retired officer passes away to provide the spouse with the financial means to continue to meet their day-to-day living expenses while the estate is finalised. 4.1 .1. We are also reviewing our employee benefits for both our current and former employees and will be making some improvements in the new year.
5. Other business achievements for the period 5.1 . In September Daily IQ was rolled out to our Small Business customers. Daily IQ is a free business toolkit which provides insights to optimise cash flow, enhance performance and grow customers. Since launch we have had over 15,000 first time small business users visit the Daily IQ page in NetBank. 5.2. Investor Home Loan growth is now tracking well below APRA's 10% benchmark at 4.49% in October. Interest Only lending was also well below APRA's 30% limit at 20.6% in October. 5.3. In September CBA continues to lead the major banks on Products Per Customer, on 3.1O (up 0.03 over the quarter). Westpac remained in second place on 2.94.
6. Main areas of Group Executive concern 6.1. ASIC has outlined plans for an extensive review of the sale of Consumer Credit Insurance (CCI) by ADls. This is likely to include an independent audit into ADI responses to issues identified by ASIC; data requests covering the 2011-2017 period; a post-sale audit of customer product understanding; and observation of online customer behaviour. The review findings will inform ASIC's future approach to CCI including the potential for ASIC to use its product intervention powers once these are granted. Matt Comyn Group Executive Retail Banking Services
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Commonwealth Bank of Australia Paper No. 5.7
Board 11-12 December 2017
Management Report - Wealth Management
1. External market environment 1.1 . Netwealth, a wealth management platform with $15 bill ion in funds under administration was floated on the ASX with an initial market capitalisation over $1 billion, a PE multiple of 67x. 1.2. BT announced it will expand its life insurance approved product list (APL) beyond the in-house Westpac Life offer, am id a class action alleging BT charged customers higher premiums than if they had sourced policies elsewhere, as well as ASIC's industry-wide focus on the breadth of APLs. 1.3. The Wealth businesses of ANZ, NAB and Westpac all saw cash earnings fall in the year to 30 September 2017, with ANZ down 23%, Westpac 11 % and NAB 11 %, compared to a 1% drop for WM over the same period. 1.4. Market speculation suggests that AMP is now also in a sale process for its life insurance business, whilst concerns with the adequacy of reserving for disability claims may have stalled the ANZ Insurance sale to MetLife. 1.5. Northill Capital has agreed to buy Hasting Fund Management from Westpac, acknowledging that some clients of the fund remain uneasy about the sale.
2. Customer satisfaction performance 2.1. Colonial First State (CFS) continued to meet Grade of Service (GOS) and Customer Experience Survey (CES) targets in October. Complaints have also fallen. Comm Insure met its GOS targets and CES for life offers. The General Insurance CES was below target, but improved to highest levels achieved this financial year. 3. Talent development: issues to note 3.1. Streamlining of support functions has led to two GMs being made redundant, while two additional GMs resigned and left the Group in November. The departing GMs held roles in regulatory reform, projects and strategy. 3.2. Staff retention across WM remains a focus, given the combined impact of the Comm Insure sale, the CFSGAM strategic review, the departure of several key leaders and the staff impact of ongoing regulatory investigations. 3.3. 25 high potential staff completed the WM Future Leaders Program, and will receive a nationally recognised Diploma of Leadership and Management. 3.4. In November WM launched 'Wellbeing reCharge', providing staff tools to set achievable wellbeing goals and weekly challenges to raise awareness.
4. Vision and Values 4.1. An all WM staff briefing was held on 24 November, where Group values, particularly the importance of integrity and accountability, were reinforced. _R
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4.2. As part of the launch of the Accountability e-Jearning module, the WM GE's weekly note highlighted the importance of taking ownership and following up.
5. Technology and Innovation 5.1 . CFS 's FirstChoice Managed Account Service is now in market, providing members more choice and improving advice efficiency and risk controls. 5.2. A CFS Wrap pilot of the Managed Accounts solution validated the process for origination, trading and closure. The next step is a controlled soft launch.
6. Business achievements for the period 6.1. In November APRA advised the outcomes of both its annual Prudential Consultation with WM and the IT Risk Prudential Review of WM, noting that significant progress has been made, imposing no new requirements, and leaving its supervisory stance for WM unchanged. 6.2. Home and Contents new business volumes rebounded strongly through a series of targeted initiatives that have previously been outlined to the Board. 6.3. The separation of Commlnsure Life continues to progress, with transferring employees being issued with letters of offer. 6.4. Agreement has been reached to transfer Finconnect, Count Financial Limited's wholly owned mortgage aggregator, from WM to RBS. 6.5. CFSGAM has agreed to sell its 46% stake in Beijing-based investment manager First State Cinda to Cinda Securities, Baoxiniao, and has also transferred its Indonesian asset management business to IFS. 6.6. Rice Warner confirmed that CFS remains Australia's largest private provider of pensions, paying $3 billion in pensions last year to 165,000 members. 6.7. CFSGAM's Dawn Kanelleas received positive publicity for investment insights shared at the CSA-sponsored Sohn Australia Hearts and Minds Investment Leaders Conference, an event raising funds for various charities. 6.8. Financial Wisdom's Patricia Garcia won the Financial Planning Association's Financial Planner AFP of the Year Award in November.
7. Main areas of Group Executive concern 7.1. New business volumes for consumer credit offers remain subdued in light of the evolving regulatory focus and the Comm!nsure separation process. 7.2. The parameters of the distinction between personal advice and general advice remain a point of contention for CBA and ASIC, with the future Essential Super sales process dependent upon this being resolved. 7.3. To address ASIC concerns with advertising of trauma products from 2013 to 2016, Comm Insure will make a $300,000 community benefit payment. 7.4. Retention of Commlnsure Group Insurance schemes during separation is a key focus, with competitors pricing aggressively for schemes up for tender.
Annabel Spring Group Executive Wealth Management
29 November 2017 _R
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Annexure A: Advice Review and Service Delivery Review update
1. Open Advice Review program (OARp) 1.1. As at 22 November 2017, over 97% of cases are closed or settled in principle, with 182 cases remaining. OARp is working with customers and their Independent Customer Advocates (ICAs) to close all remaining cases as soon as possible. 1.2. Compensation offered as at 22 November 2017 is $35.5m (28.7% of cases, i.e. 2,486 cases). Refer to Annexure B for further details.
2. Licence Conditions (LC2) 2.1. All assessments have progressed with Assessment Outcome Letters (AOLs) on schedule to meet ASIC commitment dates. Refer to Annexure C for details. 2.2. ASIC intends to publish KordaMentha Forensic's (KMF) Compliance Report (Part 3) (Report) in November/early December, and has provided the final Report to CBA. In its Report KMF concludes that the Licensees took appropriate action to review client files for the 17 advisers so as to satisfy the requirements of the Additional Processes, and agrees with CBA's find ing that five advisers should proceed to the Remediation Phase. The licence conditions requ ire the Report to be included in the CBA Board papers. A copy of the Report appears at Annexure D. 2.3. For the non-LC cases, ASIC wrote to MLC Life and OnePath requesting they cooperate with our request for customer data on --MLC Life declined to provide further data unless we obtain consent forms from customers. We have written to 155 customers requesting their signed consent. If customers do not provide consent or additional documents, we will have exhausted available avenues to obtain information regarding any advice - might have provided to them . We can then engage with ASIC about what further steps are required. For , a decision was made to remediate all 45 customers. Assessment and approval is underway. 2.4. ASIC requested information on - in relation to the Review Phase file selection and number of advised customers. - is a Potentially at Risk Representative (PARR) reviewed as part of the Review Phase, who did not meet the criteria to move into the Remediation Phase. We will continue to engage with ASIC as appropriate. 2.5. Commonwealth Financial Planning Limited (CFPL) has received notice from ASIC requesting information about OAR outcomes, Service Delivery Review (SOR) outcomes and any document tampering or signature irregularities. Responses are due to ASIC by 20 January 2018. 2.6. As at 22 November 2017, $891,704 in compensation has been offered to customers. Refer to Annexure C for further details.
3. Service Delivery Review 3.1. All CFPL and BW Financial Advice Limited (BWFA) assessments have been completed. All customers with adequate address details have been advised in writing of the outcome of their review. _R
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3.2. As at 22 November 2017, 29,546 customers have been paid over $113.3m. The program continues to attempt to contact the remaining 1,996 customers where we do not have va lid bank account details, to pay $3.4m. 3.3. ASIC issued CFPL with a 912C Notice (direction to provide a statement) regarding the remediation program, with an accompanying Ernst & Young opinion. CFPL's response is due to ASIC on 15 December 2017. We have received a similar notice for BWFA 3.4. Discussions with ASIC are ongoing in relation to the proposed $3m community benefit payment (CBP) and the terms of the EU for CFPL and BWFA. The CBP has been provisioned for in th is financial year. ASIC is still continuing its investigations.
4. BAU Remediation (BAU) 4.1 . AOLs for adviser book-continue to be sent. As at 22 November 2017, 714 AOLs were sent, with 3 AOLs still to be issued to customers. 4.2. CFPL has indicated to ASIC that it will conduct further remedial activity in relation to - and - CFPL has issued AOLs to all customers who received inappropriate advice from - CFPL will now issue AOLs to customers whose advice was assessed as appropriate. CFPL will also offer complimentary advice to all customers of and who remain inappropriately invested. 4.3. Activities to confirm the potential flow of advisers from OARp into ongoing investigations are well progressed. Subject to final governance steps, it is anticipated that two advisers with emerging concerns will be scoped for further review and remediation. An investigation is underway in relation to a third adviser for whom further review and remediation may be required, subject to the results of the investigation and lega l advice. 4.4. Separately, we are reviewing other advisers where there were potential concerns regarding possible document irregularities based on the conservative approach taken in OARp. Work is progressing to plan, with these reviews to be completed by mid-December 2017. This work may identify potential misconduct concerns requiring further investigation and remediation. 4.5. In the period 1 July 2017 to 22 November 2017, $2.1 m has been offered as compensation. _R CBA.0502.0001 .8021 _01 15
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5. Program Compensation 5.1. As at 22 November, over $210m in compensation has been offered to customers of CBA financial advice businesses. ~·n "Jrnm Evl:nts ' 1ffl:rl:1 I ($m) St:'ltus N1•tl:S Baringa I 2003- $52.0m Completed • Baringa: 16 advisers in the Past Hartnett 2012 Business Review (including , plus 3 additional CFPL and 6 FWL advisers • Hartnett: Former CFPL Advisers 'N' and 'A1' Licence 2003- $5.0m Completed • Includes FLR and Conditions 1 2012 Reassessments (excludes
OARp 2003- $35.5m 97% complete • Working with customers and 2012 Independent Customer Advocates on 189 cases Service 2007- $116.7m 97% complete • Awaiting customer banking Delivery 2015 details on remaining cases Review • $105m plus interest (Fee-for-no· projected/reported in ASIC service) media release Licence 2003- $0.9m AOL issuance in • On track to meet ASIC Conditions 2 20121 progress for 4 of commitments the 5 advisers BAU On oin • Amount is FY18 YTD onl
6. People 6.1. As at 10 November 2017, ARp headcount was 257, including 137 permanent staff. An additional 73 managed service staff (primarily Deloitte Australia) took the total to 330, down from a peak of 679 in October 2016. 6.2. Activities continue to support ARp talent mobility, ba lanced with the need to retain staff to meet program deliverables. 213 ARp staff have transferred to other roles within CBA since October 2016.
1 LC2 Review Phases reviewed financial advice provided by Potentially at Risk Representatives (PARRs) up to July 2012. Based on areas of concern identified, further reviews and remediation are being conducted on all advice provided by the 5 advisers during their period of authorisation. Three advisers departed before July 2012 and one departed in May 2015. Advice was provided by the remaining adviser up to January 2017. R
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Annexure B - OAR program - 22 November 2017
Case closure Open cases: 336 Commentary A tot.11of 164 «>unter otters received to d:ite on open cases. 2 3 21 64 8.658 registrations received for lhe Open Advice Review tor $11.611.548 85 program (OARp). 4 3 129 $ Ori9in.1l offer 8$00 6,6581 Compens:ition offered: 25 (# of cases) - Total - 2,486 (28 T-/o) cases, ($35 54M): S Counter otter 8.322 -1.242 (143%) inappr & suffere
Contested 227
6 / 219
Closed 1,910 5,366 8.322
• With customer Engaged/engaging ICA lnappropnate • Appropriate Patel orrerea Total • No evidence or acMce to date to date" compensation • 'Otfereo' inCllJdes $21.494 to be pai CBA.0502.0001.8021_01 17 CONFIDENTIAL Annexure C - Licence Conditions 2 - 22 November 2017 CFP vn 7'33 100.00'> 23/11/2017 7'93 4-0 $274.587 2 $14))97 - CFP Vt>$ 410 99.~ 31/01/2018 180 - O:P y~ 159 96.~. 28/02/2018 9' - fWl Yes l,Hi6 98.6% 31/03/2018 -TOTAL 3,637'4 2,073 138 $~1.704 47 S15S,4S8 ·~ bOOlr 11'1~ ll$AS!lt'O lot'~•-~ to~ordLf>/IOMe ~' Oellltfl/ld dtnt(J - •ea-_,, CQM moi ""~ - l'Pt!I ~.,.,, - ro ~eo.n.-1« .,,,,,(Nftl ·~IS St.ii~ OyCS.4. llOs llftn ~ rrom "'.l'r s.ncie J-r m1 •lt!dut»t ~ &~t:smelt~! (""8) ""~ d~ 17 p~ ~ .,,,,.._ 2dl..0Mel! ~ .- ..~ Assessments done in parallel to Licence Conditions FWl f8( 216 T8C -TOTAl 2151 '""-e.oo.I' Siltt ectusfed fOI easies doffd doe to~ or~ ce.1>es ~ drn1Q &~ ' CBA.0502.0001 .8021 _01 18 CON Fl DENTIAL Annexure D - KordaMentha Forensic Compliance Report (Part 3) (refer to separate document) R 1 of 4 ICommonwealth Bank 1 Confidential R R R R R R R R R R R R R R R R R R R R R R R R R R R R R R R R R R R R R R R R R R R R R R R R R R R R R R R R R R R R R R R R R R R R R R R R R R R R R R R R R R R R R R R R R R R R R R R R R R R R R R R R R R R R R R R R R R R R R R R R R R R R R R R R R R R R R R R R R R R R R R R R R R R R R R R R R R R R R R R R R R R R R R R R R R R R R R R R R R R R R R R R R R R R R R R R R R R R R R R R R R R R R R R R R R R R R R R R R R R R R R R R R R R R R R R R R R R R R R R R R R R R R R R R R R R R R R R R R R R