It is about time New Zealand regulators adopted the hard-nosed approach their Australian counterparts are taking to curbing malfeasance in the financial sector.

Commonwealth Bank's deal to pay the biggest corporate penalty in Australian history — A$700 million ($760m) — to settle a case brought by the regulator over a breach of money-laundering laws is a wake-up call.

Not just for Australia, but also here in New Zealand where regulators have far too often been too spineless to play the legal hand they are dealt.

The CBA settlement — which still has to be approved by the courts — is the largest ever civil penalty in Australia.

Advertisement

It's also a serious nail in the record of former chief executive and Kiwi Ian Narev — a protege of his predecessor Sir Ralph Norris — who presided over Australia's largest bank during the period when its newly rolled out intelligent deposit machines essentially became a vehicle for money to be washed through smart ATMs by criminal syndicates and terrorists.

The settlement — which was announced by current CBA boss Matt Comyn on Monday — effectively forced Narev's early retirement as CEO. It also resulted in a shakeup of the CBA board and played a huge role in persuading the Turnbull Government to launch the public inquiry into misconduct in the financial sector, which has uncovered widespread wrongdoing.

What's notable about the CBA settlement is that it has not been made "without an admission of liability".

This is quite foreign to New Zealand where high-profile actions involving "blue chip" financial institutions (of all stripes) have historically tended to be settled with hefty financial sums and a reputation-saving comment that the settlements have been made "without admission of liability". The Australians are made of tougher stuff.

The CBA settlement has resulted in the bank admitting to breaching the law 53,750 times — essentially through its failure to provide a report to Austrac and act on a risk assessment of the introduction of the smart machines. Austrac — the Australian Transaction Reports and Analysis Centre — is the relevant regulator when it comes to protecting the system from money laundering.

Reports say that in May 2012, the five intelligent deposit machines attracted just A$868,000 in deposits. Five years later the bank had 805 machines taking A$1.7 billion in deposits a month. The West Australian reported that between March and late May last year, 100 deposits totalling A$650,000 were made in suburban Perth branches. The money was supposedly from a "tradesman" who moved A$640,000 into another CBA account. It was not until Austrac started legal action against the CBA last year that the bank introduced an A$20,000 daily limit on deposits through its machines. In April, a A$10,000 cap was imposed.

Last October, Narev — who would have been constrained by circumstances — told investors he was "sorry" for letting shareholders down over the bank's involvement in alleged money laundering. "We let down our shareholders and I am sorry for that. I take accountability for it and can assure you we are taking it seriously," Narev told a Sydney investment conference. On Monday, Comyn also apologised to the Australian community.

CBA has a strong Kiwi connection.

On this side of the Tasman, it owns ASB — a bank that prides itself on technical innovation.

Sir Ralph Norris was CEO from mid-2005 until November 30, 2011 — a period when the bank's share price boomed on the back of strong results; although Sir Ralph came under political fire for the largesse of his salary package.

Narev took a 55 per cent pay cut in his last full year in the job: his total remuneration was A$5.5m for the June 30, 2017 year — down from A$12.3m the prior year.

Nearly a decade ago, New Zealand basked in the comfort that the Australian banks, which dominated our market, were the envy of the world.

The global financial earthquake — which shook the foundations of many so-called financial blue chips taking institutions like Merrill Lynch to the point where they had to be "rescued" to stave off bankruptcy — largely passed Australasia by.

But a reputational cloud now hangs over the sector where a picture has been painted of excessive greed overriding prudential realities.

The danger is that this translates into a credit crunch where banks respond to the inquiry's revelations by dramatically tightening lending standards. Australian Treasury Secretary John Fraser underlined that by saying there is a risk that there is an unanticipated tightening in financial conditions through reactions to the royal commission.

If a credit crunch does result it is hard to see New Zealand would be immune.