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BOQ Initial Submission Dated 29 January 2018 [RCD.0001.0005.0002]

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BOQ Initial Submission Dated 29 January 2018 [RCD.0001.0005.0002] RCD.0001 .0005.0002 Bank of Queensland Limited IT"> POSSIBlE to Level 6, 100 Skyring Terrace NEWSTEAD QLO 4006 LOVE A6ANk GPO Box 898 BRISBANE QLD 4001 www.boq.com.au 29 January 2018 CONFIDENTIAL BY EMAIL: FSRCSolioitor@roya1comm 1ssion.gov.au ihe HonoL1rable Kenneth Hayne AC QC Dear Commissioner Royal Commission into Miscondu<:t in the Banking, Superannuation and Pihancial Services Industry (Royal G::ommission) We refer to your letter dated 15 December 2017, which was recetyed by the Chief Executive Offii;::er and the General Counsel of Bank of Queensland Lirnited ( BOQ) on 19 December 2017. The letter encloses questions to Which a response was requested by 29 January 2018 (Questions). BOQ wishes to support the Royal Commission in its work and to establish a co-operative and productive rela1ionship w ith it for that purpose. BOQ intends by this letter to provide a response that is thorough and useful to the Royal Commission, haVing regard to the scope of the questions, the time available to prepare the response and the legal constraints and considerations that are relevant to its content We would welcome the opportuhity to meet with the Royal Commission to discuss in more detail any of the matters the subject of this response. Backgro und of BOQ 1. By way of context, we thought it may help to set out a few preliminary details about BOQ. Further useful information can .be found in the latest Annual Report http·//WWW . bog.corn . au/u ploadedFi lestS hareh older/ Ann ua I repo rts/B00-2017- Annual­ Report. pdf. If it would assist the Royal Commission to have further information on the structure of BOO and its operations ahd systems, please let us know. 2. To summarise: (a) BOQ was established in 1874 as the Br isbane Permanent Senefit Building anq Investment society. In 1.887 it converted into a bank but did not become a trading bank until 1942, In 1970 it oJficially became BOQ and was listed on the ASX in 1971. (b) BOQ's primary business is taking deposits and lending to retail and commercial customers. BOQ is not a vertfcally integrated bUs1ness and does not own a mortgag~ broker, operate a wealth divisJon or provide ffnancial planning services. 1 ( c) BOQ is an ASX100 listed company and has a market .share2 of 1.4% ( ca!et1lated by reference to total managed domestic asset balances), BOQ's housing loan book 1 Whne SOQ does not run a financial planning business. there are·eight emp'loyees within the Group Treasury function who are accredited to provide tier 1.actl/lce. This service Is not promoted and i.s used from time to time for certain customers seeking a mo.re sophisticated pack019e of banking products. 2 Market .share refers to tho dome$1io banklng markot shafe detailed in tho Credit Suisse, Bank Market Shares. (4 JanuafY 2018). RCD.0001.0005.0003 CONFIDENTIAL represents 1.8% of the domestic banking housfng loan market.3 As at 24 January 2018, BOQ's market capitalisation was $4.84 billion, making it Australia's ninth largest authorised deposit-taking institution (ADI) by that measure. As at November 2017, BOQ had a Main Financial Institution Net Promoter Score4 of 15, the third highest of any Australian ADI. (d) BOQ's business lines include retail banking 1 business banking, agribusiness and financial markets, equipment, debtor & vendor finance and general insurance and certain 11f€ products. BOQ primarily distributes these products through its corporate and owner"manager {OM) franchised branch network. {e) There are currently 187 BOQ branches and centres across Australia.5 The below table details the number of branches within BOQ's network by State: Transaction State Branches Service Centre Total Centre QLD 104 2 7 113 NSW 27 27 ACT 2 2 VIC 20 20 WA 21 21 TAS 2 2 SA 1 1 NT 1 1 Total 178 2 7 187 (f) More than 3,200 staff work for BOQ.5 The below table sets out the number of BOQ employees and contractors by State/Country: STATE Employee Contractor OM Employees Grand Total. ACT 6 8 14 NSW 473 3 113 589 NT 1 6 7 NZ ·3 3 QLD 1370 117 515 2002 SA 16 16 TAS 1'4 14 VIC 139 86 225 WA 281 68 349 Total 2289 120 810 3219 ~ Credit Suisse, Bank Markel Shares (4 January 2018). 4 The Net Promoter Score is a measu~e of customers' willingness to recommend a bank's products or servfces to others. 5 As at 24 January 2018. 6 As at 24 January 2018. 2 RCD.0001.0005.0004 CONFIDENTIAL (g) A unique feature of BOQ is its OM branch (OMB) model, which comprises around two thirds of BOQ's total branch network. Under this model, an OM enters into an agreement with BOQ to own and operate a BOQ branch as a small business. OMs tend to have strong ties to the local community in which they operate. Experience indicates that the model of having highly-dedicated small business owners with this level of community connection and customer focus is an appealing approach to banking for many customers, and one which they see as an important relationship differentiator from the much larger Australian banks. The average OM tenure is seven years, providing continuity of service and a consistent personal connection for the local community. 3. BOQ is a bank that is evolving in its systems and practices to meet the growing challenges of modern banking and to improve customer interactions, security and the quality of its services. BOQ's strategy has four strategic pillars, including "Customer in Charge", which focuses on meeting its customers' needs and delivering a seamless customer experience. 4. As the issues of focus for the Royal Commission include conduct, practices, behaviours, activities, culture and governance of entities and the industry, we have provided a high level summary of the systems and processes that help BOQ identify, remedy and prevent misconduct or performance that are or may be inconsistent with professional or community standards and expectations: (a) The board of BOQ operates in an oversight capacity to assist BOQ to achieve its strategic objectives while complying with regulatory and ethical standards. As part of its oversight role, the board monitors the effectiveness of the BOQ Group's governance practices, oversees regulatory compliance, ensures that the BOQ Group observes appropriate ethical standards and monitors and influences the BOQ Group's values to maintain a culture that supports the BOQ Group's ability to operate consistently within its risk appetite and to deliver fair and balanced outcomes. The majority of the board of BOQ, and the Chairman of BOQ, are independent. (b) The BOQ Group has a Risk Management Strategy (RMS) which guides the Bank's approach to risk and compliance management, and its approach to monitoring and supervision (M&S) activities. BOQ regularly reviews and tests the design adequacy and operational effectiveness of its risk and compliance frameworks to ensure they remain fit for purpose and are appropriate for the Bank's operating environment. (c) BOQ's M&S framework includes business-unit plans (detailing monitoring and supervision activities and legal and regulatory requirements), a first line of defence risk manager within each major business line, system generated reporting to monitor completion and trend results of monitoring and supervision activities and ongoing coaching, training and consequence management processes. The M&S framework also provides a control structure to assess BOQ's compliance with its obligations and to manage any key operational and compliance risks. The control structure also includes a second line of defence conducted by internal Group Risk teams including Group Compliance and Group Operational Risk. It also includes the third line of defence of Group Assurance which undertakes internal audits and reviews. (d) BOQ continues to embed the M&S framework and maintains executive oversight of the framework's operating effectiveness. Initiatives to enhance risk and compliance awareness and promote risk conscious behaviours continue. BOQ also adopts management review and challenge of the M&S framework and deploys ongoing training and coaching for management and staff on their roles and responsibilities in relation to the control environment. (e) BOQ has established a close working relationship with all key regulators and law enforcement authorities. In recent years BOQ has proactively sought to advise key regulators in a timely, transparent and open manner of any material issues that arise, whether reportable or not. This a key feature of the culture within BOQ today. 3 RCD.0001.0005.0005 CONFIDENTIAL 5. We enclose a list of entities comprising the BOQ Group as at 25 January 2018 at Annexure A. Scope of the BOQ response 6. The Questions seek information in relation to "misconduct", which is a defined term in the Terms of Reference dated 14 December 2017, as well as details of any conduct, practice, behaviour or business activity that has fallen below community standards or expectations over the past ten years. 7. The records set to be reviewed to respond to the Questions is vast. At a practical level, BOQ's records are not set up in a manner that readily allows searches to be undertaken that match all elements of the criteria that the Questions would require BOQ to apply in order to provide a full and accurate response for the ten year period without very considerable record collation, conversion and review work that would require a far longer period to complete than the time available. By way of example, to check all of the past and current employee files for the personnel who have worked for the various BOQ Group entities over the past ten years for instances where any of them may have breached a community standard or expectation has simply not been possible in the time available.
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