APRA sanctions spark repercussions at major bank
A key Westpac executive has stepped down following an internal probe into liquidity reporting failings in New Zealand according to a report by The Australian.
An accounting firm was reportedly involved in the investigation into how Westpac’s liquidity rations were incorrectly calculated. The investigation scrutinized Westpac’s treasury and finance functions.
Westpac’s head office in Australia initially identified errors in the way products in New Zealand were classified, The Australian reported. The bank self-reported the issue to the banking regulator. However, the compliance issue is the latest in a string of bad news for Westpac, including a record $1.3 billion penalty paid to financial crimes regulator Austrac for millions of violations of anti-money laundering laws.
Westpac has now entered into an enforceable undertaking over risk governance remediation. APRA said in a statement this morning (Thursday) that it had concerns with the bank’s progress in remediating weaknesses including an immature and reactive risk culture, unclear accountabilities, capability shortfalls, and inadequate oversight.
The undertaking requires that Westpac develops an integrated plan that incorporates all its major risk governance remediation programs, covering both financial and non-financial risks; obtains independent assurance over the implementation of the plan with direct reporting to APRA, and; assigns accountabilities for delivery of the plan to named executives and Board members and incorporate outcomes into remuneration decisions.
Westpac Group CEO, Peter King, said Westpac acknowledges the findings of the APRA review and is determined to deliver on its risk remediation activities.
“My top priority is to ensure the bank’s risk culture and management of risk meet the high standards expected of us," King said in a statement. “We have had constructive discussions with APRA and know we have to deliver a disciplined step change in our management of financial and non-financial risk. While we have made progress in improving our standards, we have much more work to do, and this must be done at pace.”
Read more: Westpac hit by APRA sanctions
The uproar prompted by the bank’s anti-money laundering violations prompted its board to conduct another self-assessment, in addition to one timed to coincide with the Hayne royal commission, according to The Australian. It is expected Westpac will use IBM subsidiary Promontory as an independent reviewer of the undertaking: Promontory provided independent assurance in Westpac’s most recent assessment.
Commonwealth Bank also brought Promontory in as a reviewer on its APRA enforceable undertaking. That undertaking has been going on for more than two years, and is set to continue into 2021. Last month, APRA cut the capital charge imposed on CBA for governance and compliance failures in half, saying the bank had made “significant progress” in its plan to rectify the issues.
“Recent work by APRA to validate CBA’s progress against the RAP (remedial action plan) … in areas such as risk management and compliance, remuneration and risk culture, supports that assessment, although a substantial body of work is needed to ensure the improvements are fully embedded,” APRA said.
The regulator said Tuesday that Westpac’s liquidity breaches were related to incorrect treatment of specific funding and loan products for calculating the bank’s Liquidity Coverage Ratio and Net Stable Funding Ratio, The Australian reported. Banks are required to hold highly liquid assets in order to cover short-term cash outflows. Those levels are set by regulators.
An unnamed New Zealand Westpac executive linked to the reporting failures has left the company, according to The Australian.
As a result of the issue, APRA will require Westpac to undergo an accountability review and an external review of liquidity compliance, as well as implement the recommendations of its compliance review. The regulator has also slapped the bank with a stricter liquidity ratio calculation, with a 10% overlay on Westpac’s net cash outflows, The Australian reported. Westpac said the more stringent liquidity ratio calculation would remain in place until the shortcomings were rectified.
The Reserve Bank of New Zealand is also considering regulatory action against Westpac, according to The Australian.
