APRA is the latest regulator to take action against the Commonwealth Bank following a series of scandals and lapses at Australia's largest bank.
Commonwealth Bank will face an inquiry by the prudential regulator after a series of issues at the country's largest bank prompted concerns about its governance, culture and accountability.
APRA chairman Wayne Byres on Monday said the inquiry by an independent APRA-appointed panel follows damage to the bank's reputation and public standing by a range of issues, most recently allegations it breached laws against money laundering and terrorism funding.
"The Australian community's trust in the banking system has been damaged in recent years, and CBA in particular has been negatively impacted by a number of issues that have affected the reputation of the bank," Mr Byres said in a statement.
"Given its position in the Australian financial system, it is critical that community trust is strengthened."
Treasurer Scott Morrison welcomed the inquiry and said there had been too many occasions on which the bank's conduct had damaged public trust.
"In the case of CBA, more than a dozen compliance issues have arisen since 2008," Mr Morrison said.
"While the bank's board and management have talked about the importance of culture and accountability, the continuing occurrence of these types of issues demonstrate that their actions have so far failed to meet customer and investor expectations."
Shares in CBA closed down $1.04, or 1.3 per cent, at $76.68 - their lowest level since November, 2016.
The lender's market capitalisation has now fallen nine per cent - about $13 billion - since August 3, when the federal government's financial intelligence unit launched civil proceedings in Federal Court accusing the lender of breaching anti money laundering and counter terrorism financing laws.
The Australia Securities and Investments Commission is studying whether CBA complied with its duties under the Corporations Act and had met its continuous disclosure obligations, while a shareholder class action is also on the cards.
Commonwealth Bank, whose chief executive Ian Narev last week announced his retirement, said it supports the inquiry.
Mr Narev - whose tenure has included a series of issues such as questionable conduct at CommInsure, a first strike against executive remuneration, compensation over poor financial advice, and mis-sold credit card insurance - said the inquiry would strengthen the bank's own reforms.
"We are confident that our 50,000 people come to work each day to give their best, for the benefit of our customers," said Mr Narev, who will leave before the end of the current financial year.
"At the same time, we know that our mistakes have hurt our reputation."
The probe into CBA, the largest company listed on the Australian Securities Exchange, is expected to run for six months and will be funded by the bank.
"The overarching goal of the prudential inquiry is to identify any core organisational and cultural drivers at the heart of these issues and to provide the community with confidence that any shortcomings identified are promptly and adequately addressed," Mr Byres said.
The Treasurer welcomed the fact that the inquiry findings will be made public given how damaged trust in CBA had become.
"Dramatic action and accountability to restore this trust must be the focus of the CBA's board and management," Mr Morrison said.