Commonwealth Bank is being investigated by the corporate watchdog over how it responded to allegations it had violated money laundering and terrorism financing laws and breached the Corporations Act.
Australian Securities and Investments Commission chairman Greg Medcraft told a parliamentary committee on Friday that ASIC was looking at issues including whether CBA complied with its duties under the Corporations Act and whether it had met its continuous disclosure obligations.
Mr Medcraft said Australia's largest bank should have alerted ASIC in 2015 when it first learnt of a problem in its cash deposit machines that led to the money laundering case filed last week by AUSTRAC.
He slammed what he said was an industry-wide culture of silence.
"We never want to take legal action: it's expensive and I wish that Australians, particularly the banks, would get the message that the people who deal with us - particularly the overseas banks - (find) we co-operate, we settle quickly, we enter into enforceable undertakings and we move on," Mr Medcraft said.
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"We have a serious cultural problem in this country."
Mr Medcraft indicated CBA could have avoided a lot of problems had it come to ASIC two years ago when, alerted by initial AUSTRAC inquiries about two transactions, it told Australia's financial intelligence agency of 51,000 transactions of $10,000 or more that were missing necessary on-time reports.
That number has since grown to 53,506.
"That's what's disappointing: there was no legal barrier to them telling us that and, frankly, I would have thought it would be a very good thing to tell us," Mr Medcraft said.
"Anything they tell us is in confidence as a regulator and, if they had have told us, we might have said: 'Have you perhaps thought you might do a bit more telling about that?'"
Mr Medcraft said it was too early to speculate about possible penalties should CBA be in breach of its obligations but said all options were on the table.
He said Australian banks still failed to understand how the public sees such high-profile cases.
"You've got to think about legal (consequences) but also about broader risks: the reputational risk and the risk of your relationship with your regulator," Mr Medcraft said.
Mr Medcraft said he held Commonwealth Bank chief executive Ian Narev and chairman Catherine Livingstone in high esteem, but that ASIC had nonetheless started investigations.
ASIC will also look at whether CBA complied with financial licensing obligations - including the requirement to act efficiently, honestly and fairly - and whether the lender complied with financial reporting obligations including the reporting of liabilities.
At 1256 AEST, CBA shares were down 99 cents, or 1.2 per cent, at $80.06 amid a broad sell-off on the Australian market on fears of rising US-North Korea tensions.
CBA shares have lost about five per cent of their value since Thursday, when AUSTRAC launched civil penalty proceedings in the Federal Court, accusing CBA of systemic failure.
