PARKER, Mr Robert, Chief Risk Officer, Retail Banking Services, Commonwealth Bank of Australia [by video link] RIXON, Ms Kylie, Executive General Manager, Financial Crime Compliance, Commonwealth Bank of Australia [by video link] [09:03] CHAIR: Welcome. I understand that information on parliamentary privilege and the protection of witnesses giving evidence to Senate committees has been provided to you. Do you have a brief opening statement? Mr Parker : Very brief. We welcome the committee's focus on productivity. I would like to offer some very brief opening remarks. Housing is one of Australia's significant challenges. While banks play an important role in financing homes and supporting buyers, the central issue remains housing supply. At CBA, we are supporting construction of new homes and continuing to support homebuyers, including young Australians looking to buy their first home. We see significant opportunities from artificial intelligence. Used responsibly, AI can help improve customer experiences. At CBA, our focus is on using technology to support customers and our people, underpinned by strong governance and human oversight. Finally, economic crime is a major productivity challenge. CBA is investing over $1 billion this year to help protect customers from scams, fraud, cyberthreats and financial crimes. This investment, including AI solutions, helps protect the broader Australian community by disrupting criminal activity, strengthening the integrity of the financial system and reducing harm well beyond our own customer base. We believe continued collaboration between government regulators, industry and law enforcement is critical to staying ahead of increasingly sophisticated threats and building Australia's resilience. Thank you. We welcome the committee's questions. CHAIR: Thanks very much for being here. My first question goes to the issue of productivity in the building and construction sector. What do you think the government could do to help drive productivity in that sector? Ms Rixon : I think there are a number of state and federal government responses already underway in relation to rezoning and planning. One of the things CBA's been doing in recent times, as well as looking at our own credit and policy settings, is lending around $2 billion to the residential construction sector in the last year. We've also done things like decrease the ratio of presale apartments that have been required to fund residential constructions in the past. I think there are a number of factors that make up the economics of the residential construction sector, including the cost of land, construction costs—as we know—and interest rates. I guess every little bit helps. Mr Parker : To add to that, I think modern methods of construction play an emerging role, and that's something that the CBA has adapted our lending policies to, to allow the use of prefabrication for construction loans. It's obviously early days, but we'd see that as an element that can help construction costs. CHAIR: With the presales and the financing of new housing, is there anything else you think that the federal government could do to help? It's good that you've taken your own innovative approach, but are there broader things that the government or APRA could do? Ms Rixon : I think APRA's policy settings have been stable and clear. The appetite for construction really sits with the banks within those parameters. I think that all banks have been taking a close look at those. There's nothing specific that comes to mind in terms of APRA settings. I think they're strong and reflective of the capital environment and strong financial system environment that we want to see and support. In terms of other matters, I think it's a matter for government—both state and federal—as to other additional zoning and planning settings. But I understand and we see that there's quite a lot of that already going on at the local, state and federal levels. CHAIR: To what level will you finance a building based on the number of presales? Is it 20 or 30 per cent? What is the number, usually? Ms Rixon : I have some of those figures in front of me—sorry, I'm just accessing them now. I'll come back to you on that if you want to ask the next question. CHAIR: Okay. Has this SMSF ban come up at all in terms of the presales issue? Mr Parker : I wouldn't say the SMSF issue has come up in terms of presales. We obviously loan to a number of borrower types. SMSFs are no longer an option, but we would say that that's somewhat immaterial to the volume. CHAIR: So it hasn't come up? Mr Parker : No. CHAIR: Have you got the answer now, Ms Rixon? Ms Rixon : Sorry, no. I'll come back to you. We can take that on notice. CHAIR: In terms of the macroprudential arrangements and APRA's mandate generally—and I understand that you of course always want to say good things about the regulator in these parliamentary committees—do you think that those settings are promoting construction of new housing? Mr Parker : I would say that the settings remain appropriate. If we look at a long-running history of both availability of credit and financial resilience, it is a balancing act. We would say that we see credit flowing to the right borrowers with the right level of creditworthiness, and we wouldn't say that the macroprudential framework is inhibiting that. CHAIR: It's an interesting point you make because, if you look at housing completions, we're going backwards in Australia. Despite the government spending more money on housing, we're actually going backwards. We're only going to get 170,000 dwellings this year. We used to get more than 200,000. I hear you say that, but clearly we're not going in the right direction. So what do you think is going wrong? If your answer is that you're getting the money out the door to the builders and the developers and you're helping finance construction of housing, then why aren't we getting more houses or enough houses to house the population at a reasonable price? Mr Parker : I would say that there are obviously a number of factors that that play into that. Interest rates, construction costs and general sentiment all play into the housing market. We would say that we would support any measures that can broadly increase supply because we see that as the most important aspect of affordability. CHAIR: I mean, everyone agrees with that. It's like saying, 'Do you like to have Christmas?' Of course, everyone likes that. My question is: what are the things that might be able to be done to help finance wholesale-style credit to housing and building developers? Do you have any ideas there? Ms Rixon : I think we mentioned some of those. Minimum presale requirements have moved from 75 to 100 per cent for certain loan-to-value ratio projects down to 30 per cent. So that's something, from a risk appetite perspective, that banks can do. We've talked about zoning laws and other types of planning administration that, as I said, local, state and federal governments have actually made changes to. They all help. You also can't get away from some of the broader economic impacts like interest rates or land values for a residential construction developer. They really need to see the economics stack up. Cost of labour and construction costs, we know, have increased over the past few years—particularly construction costs—at a fairly rapid rate for a number of reasons. There's no one silver bullet, unfortunately. CHAIR: I understand that, but we're talking about the financing of housing here, so I'm trying to zero in on whether there's anything that can be done in terms of presales or other things. I think your answer is that you think it's just a judgement for the bank. Is that right? Ms Rixon : Yes, and I think many banks, including our own, have taken those broader appetite decisions. CHAIR: What about on the retail side and mortgage innovation? We have a highly concentrated banking system, as you know. What are your thoughts on the position of innovation in mortgages in Australia? Mr Parker : We obviously continually focus on ensuring that we can make it as timely and easy as possible for consumers to apply and be approved for housing credit. We focus on removing pain points. We utilise technology to speed up time to approval. That's an area that we continue to invest in. There's no big individual leap; it's a continuous journey. CHAIR: So the CBA's position is that there's no policy change or legal change that could help in the financing of housing in relation to prudential and banking policy in Australia? Mr Parker : I would say that there's no one big-ticket item that you could point to. If I reflect on smaller changes that have been made more recently, APRA allows us to use exceptions for, say, borrowers with HELP debt. We implemented that last year, and that allows younger Australians to access housing. Those are examples where I would say we continually adapt, as opposed to one individual silver bullet. CHAIR: We're in a very bad position on housing in Australia, so I'm a bit surprised you don't have more ideas about what could be done to move the place forward. I guess your position is that you think that the bank can do a lot of these things without any policy change, which is a reasonable position for you to take. What about the National Construction Code then? That's something that's within the purview of the Commonwealth government. Do you have any views on how that could be streamlined and how that could drive productivity? Mr Parker : Ultimately, that that is a matter for parliament. Insofar as the Construction Code is contributing towards a higher increase in construction costs, we would support measures that can ultimately bring down construction costs and speed up time to construction. CHAIR: Yes, anyone would agree with that statement. What are the opportunities to reduce costs in the building sector and to drive productivity? Ms Rixon : As we've said, there are a number of factors that are underway that we see at the local, state and federal government levels. What the policy settings should be is really a matter for government. We will work within those policy settings to set an appropriate risk appetite and to provide credit in the most efficient way we can to residential construction developers. CHAIR: What is the CBA's position on the NCC? Ms Rixon : I'm not aware that we have a firm position on that. It's not my area of expertise. I can't comment on any— CHAIR: But you're here to represent the bank, so you have to take it on notice if you don't know. Ms Rixon : That's fine. CHAIR: What about productivity fraud issues inside the banking system? I've read a lot about fraudulent loans and all that sort of stuff. What's your take on that? Ms Rixon : Economic crime is a material productivity drain on the Australian economy. It was over $80 billion in 2023-24. There are a number of impacts, most of all on victims, who we see every day. They are people we all know. Secondly, it's a drain on productive capital that could be spent elsewhere. In CBA we're spending nearly $1 billion in this financial year on the prevention of fraud scams, economic crime and related capability. The third thing is that we know is it erodes trust in institutions and digital assets. I think there are a number of things we can be doing there. First, there are the partnerships that institutions like banks can have and do have with law enforcement agencies and regulators like AUSTRAC and the AFP through things like the Fintel Alliance; the joint cybercrime commission, or the JPC3; and the Australian Financial Crimes Exchange, which helps us to share intelligence on bad actors. They are all things that are working well and have much more opportunity to do things to combat and prevent crime. CHAIR: How much of that $80 goes to mortgages? Ms Rixon : I don't have a figure to hand on that, but what I would say is that I think the articles that you're referring to around recent mortgage fraud is something that the Fintel Alliance has actually been working actively on. It is a blight on our society and it is where criminal syndicates exploit vulnerability. CHAIR: What do you think needs to be done? Ms Rixon : Good question. There are probably a couple of really clear things. First of all, it was mentioned earlier, in the ANZ session, that the consumer data right could be used to help customers to safely share data in relation to income verification, which would help us go to the source like—for example, ATO portals. One of the risk vectors or vulnerabilities that have been exposed by trusted professionals like accountants has been that issue of the banks not being able to go to the source of truth, which is income verification, so the industry is working with the ATO and government on that. The second thing is continuing to invest in productive intelligence sharing, peer to peer and peer to regulator and law enforcement, through Fintel Alliance and the Australian Financial Crimes Exchange. The best defence we've got is actually disruption and prevention. CHAIR: Senator Darmanin. Senator DARMANIN: I'd like to follow on from that line of questioning. The ABA submission talked about the problem of fraud loan documentation being used to obtain larger loans. You've talked through a few actions that are occurring around this. In your opening statement, you talked about the use of AI and productivity, and the ABA's submission talked about the use of AI making this phenomenon worse. From CBA's point of view, do you see that? If so, how are you ensuring that implementing automated processes is keeping up with the fraudulent actors in our system? Ms Rixon : I think AI works on both sides of the fence. It clearly makes bad actors have a more scalable, efficient way to find and exploit attack vectors, but at CBA we also are using AI to our benefit in relation to prevention instruction. That is for things like scanning millions of transactions a day and sending more than 40,000 alerts to customers where we think there is suspicious activity or we are unsure and want to check that it is actually them—and blocking suspicious transactions as well. The recent industry issue of mortgage fraud, which has been reported in the papers, was picked up by one of our fraud models initially. So I think it is a double-edged sword. There are tremendous amounts of it we can use to fight this kind of crime. On the other side of the fence, it's a strong attack vector that allows them to scale. Senator DARMANIN: You said your fraud detector has picked up what some of that recent reporting has come up with. Are you seeing an increase in that sort of fraudulent activity attempt? How many customers have you intervened to save through that process? Are you seeing the systems being used to get through changing? Ms Rixon : I think the latest figures we have show that, since about 2023, we have reduced customer losses on fraud and scams by about 70 per cent, so we're making inroads into that. But, as you would be well aware, this type of activity is rising, and it is very hard to combat it on all levels every day, all the time. The best we can do is to just keep investing in really multifaceted ways. So there's education to customers. There's helping customers, when they are a victim of a crime, to try to recover the losses. And we try to wrap our arms around them from an extra-care perspective. There are various things we can do there. We're very supportive of the scam prevention framework. It is an excellent lever to create a whole-of-ecosystem response, which is what needs to happen. The banks can't do it alone. Many of these scams originate on platforms like Facebook. We're really conscious that every player in that ecosystem needs to play a role in both disruption and prevention and has responsibility for roles they play in that. Senator DARMANIN: Mr Parker, in your opening statement, you talked about the increasing adoption of AI. During the economic roundtable, we know that, for white-collar jobs in particular—I'm switching to productivity with within the bank itself. There were calls for a just transition to protect white-collar workers being replaced by AI. I wondered if you could talk a bit about how the CBA has approached capturing the productivity benefits of AI while continuing to look after your workforce and help them transition and for customers to receive high-quality service. Mr Parker : The use of AI, we believe—and we're on the public record saying this—will have a profound impact. We think that we need to be cautious, maintain a high degree of human oversight and engage with a variety of stakeholders—and that would include both employees and government and regulators—on how we look to adopt and utilise AI. We do believe that it is a productivity opportunity that is substantial, so therefore we would want to continue to evaluate that across those dimensions. Ms Rixon : CBA has also been made some statements in relation to the $90 million we're spending over three years to support our staff to upskill in relation to AI, but we also acknowledge that some of those jobs that exist, both at CBA and elsewhere in the economy, are going to morph, change and potentially disappear over what is an uncertain time horizon. So it's really important for us that we help our staff to retrain and, in the best-case scenarios, to be able to move into a different and AI enabled area somewhere else in the bank or somewhere with great skills externally to CBA. Senator DARMANIN: In terms of staff and productivity, I understand that you've recently announced the offshoring of hundreds of jobs to India. Is that right? Ms Rixon : I don't know the specific quote that you're referring to. We do have a hub in India. I wouldn't characterise it by saying we're offshoring jobs to India. We look very carefully both at all roles that we employ in India and at the roles that are no longer required in CBA, whether that's in India or elsewhere. There are a number of processes that we go through, including consultation with our union, the FSU, so that we can ensure that we're taking all the right steps to protect our staff. Senator DARMANIN: When you make those decisions, to what extent are you thinking about the productivity benefits internally and then more broadly for the Australian economy, if you think about those things at all? Ms Rixon : I think we have turned our minds to productivity in a broad sense in CBA, and that sits squarely in that question of how AI is going to change the focus, the activities and therefore the role that our staff play. We've implemented AI use cases—fairly material ones—in different parts of the organisation. One thing I would say, having been involved closely in some of those, is that there's absolutely no doubt that humans still need to be at the helm in terms of those AI use cases. What we've discovered is that what happens is that the roles of the humans actually don't go away. They often change and morph. I would say it's really difficult—and I think our CEO is on record on this as well—to be able to measure the productivity specifically of AI and the benefits and trade-offs. But we are turning our minds to looking at how our roles and the productivity of different parts of the bank change over time. Senator DARMANIN: Yes, I think that's the critical question about how you measure those benefits, so any further information that you can perhaps provide on notice about how you're thinking about that would be very useful to us, I think. CHAIR: We just have one quick one from Senator Ananda-Rajah, and then we'll let you go. Senator ANANDA-RAJAH: I will just follow on from that. I understand that CBA is looking at doing, or has perhaps already done, a deal with a US AI company. How do you protect yourselves going into the future—say, five, 10, 15 or 20 years from now—from companies like this ratcheting up their costs? Once you are enmeshed in them and they have their tendrils well and truly into an organisation like CBA, what stops them from ratcheting up their prices and then that being passed on to the Australian people? How are you diversifying your risk? A follow-on question is: are you looking to procure this kind of capability from Australian companies? Ms Rixon : It's a very good question. We partner with a number of different organisations in this sector. You may be referring to one of those, but we have partnering and collaboration agreements with a number of them, including OpenAI, Anthropic and Microsoft. We use a number of vendors. I think one of the key ways that we—organisations and the broader Australian economy—can protect ourselves from that risk is with that very factor of making sure that we have a diversified group of partners, vendors et cetera that we collaborate with. That issue, by the way, is not necessarily a new issue. Going all in with a single vendor, cloud provider et cetera increases concentration risk, and that's something that CBA and all organisations need to be thinking about. That's why we definitely are diversifying in this area of AI technology, in terms of who we work with, and also with other technology vendors and other suppliers as well. That's going to be a really important factor going forward. Senator ANANDA-RAJAH: You mentioned three US companies. Microsoft has a big stake in OpenAI. What is stopping these three US tech companies, the ones that you have worked with or are considering working with, from colluding on price? Yes, you've diversified on paper with procurement from three US companies, but Microsoft has a big stake in OpenAI, and these are US tech giants. What is stopping them from colluding on price going forward? I don't actually see that as diversification. Ms Rixon : I think there are a number of players that are evolving in this market, not just with foundational models but with products that will sit over the top of those foundational models. I think that it's uncertain as to how this will play out, but there's no doubt that there's going to be a relatively competitive landscape going forward in this space. There's a huge amount of investment capital going into that space. As I said, they're not the only companies that CBA are working with in that space. I named a few of them. We'll continue to look at how we make sure that we don't have concentration risk that we feel is inappropriate. Senator ANANDA-RAJAH: Okay. CHAIR: Thanks very much to you..