June 29, 2018 / 9:41 AM / a year ago

Australia's CBA says manager rewarded with island holiday removed risk alerts

SYDNEY (Reuters) - A Commonwealth Bank of Australia (CBA.AX) branch manager rewarded with an island holiday for beating his sales target had tweaked the company’s risk detection system to remove red flags attached to loans he had written, an inquiry heard on Friday.

FILE PHOTO: A Commonwealth Bank of Australia logo adorns the wall of a branch in Sydney, Australia, May 8, 2017. REUTERS/David Gray/File Photo

The evidence about the manager, who the inquiry heard was sent to tropical Hayman Island for achieving 134 percent of his annual target and was hailed as one of the CEO’s “rural and regional champions”, highlights one of the main themes of the inquiry so far: the link between bonuses and inappropriate conduct in bank sales staff.

Now mid-way through its yearlong timetable, the so-called Royal Commission has heard accusations of widespread misconduct among Australia’s major financial services companies, including charging fees for financial advice to people who have died and board-level deception of a regulator.

CBA, the country’s biggest lender, is already under particular scrutiny because of a string of scandals outside the inquiry including accusations it used outdated medical definitions to deny health insurance customers payouts, and a federal lawsuit accusing it of failing to enact anti-money laundering protocols more than 50,000 times.

At the Royal Commission on Friday, the inquiry’s main lawyer, Rowena Orr, read out a CBA document which said CBA’s risk detection system found that from 2011 “irregular and dishonour behaviors were not appropriately captured which reduced its effectiveness as an early warning system”.

Internal investigations indicated that “the bank manager was using the behavior triggers function in Genesys to reset the dishonors to zero, thereby resulting in non-escalation,” Orr said, reading the undated CBA document. Genesys is a customer support software system.

A day earlier, the inquiry heard the manager, whose name was not given, won his prize that year for writing A$33.5 million worth of loans with 60 new clients, compared to his A$25 million target. The bank had since stopped awarding the holiday prize.

The inquiry also heard the previous day that the branch manager got 57 percent of his base salary as a bonus for exceeding targets. The manager resigned in 2012.

Asked on Friday if changing the risk profile of loans on the software system amounted to misconduct, CBA executive general manager of personal and business banking Sinead Taylor said “yes”.

Orr also attempted to establish whether CBA board member Harrison Young was aware of the branch manager’s misconduct.

CBA’s Taylor told the inquiry she did not know whether Young, who quit in 2017, was briefed about the branch manager’s actions.

CBA declined to comment.

The hearing continues on Monday.

Reporting by Byron Kaye; Editing by Muralikumar Anantharaman

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