On Wednesday (22 May), APRA released its report entitled Self-assessments of Governance, Accountability and Culture following the release of its damning report on the CBA 12 months ago. That report identified major operational and governance shortcomings at Australia’s biggest bank.
Following the release of the CBA report in May 2018, APRA wrote to the boards of 36 banks, insurers and superannuation funds asking them to conduct a self-assessment and provide that assessment to APRA. The regulator has since examined these self-assessments to assess their quality, identify common themes, and, where necessary, challenge institutions’ findings.
“Overall, it is clear that the weaknesses identified in the [Hayne] final report of the Prudential Inquiry are not unique to CBA,” the regulator said.
“A number of common themes have emerged from the self-assessments, including:
• non-financial risk management requires improvement;
• accountabilities are not always clear, cascaded and effectively enforced;
• acknowledged weaknesses are well-known and some have been long-standing; and
• risk culture is not well understood, and therefore may not be reinforcing the desired behaviours.”
APRA noted that most institutions critically examined their organisation and have committed to a considerable list of actions.
“They have, however, generally rejected the notion that the cultural traits of complacency, insularity and collegiality underpinning the Prudential Inquiry findings are prevalent,” the regulator said.
“Significant uplift is required across industries to bring governance and the management of non-financial risks to an appropriate standard. This includes embedding robust frameworks that incentivise delivery of sound outcomes, proactive management of issues and consistent application of rewards and consequences.
“Boards and management are ultimately responsible for addressing weaknesses in their institution, and APRA will be holding them to account.”
Over the next 12 months, APRA will strengthen prudential expectations and increase supervisory intensity for governance, accountability and culture for all regulated institutions.
For some institutions, the issues identified in the self-assessment are material, and the changes required to address them are significant. APRA is now considering applying an additional operational risk capital requirement to reflect the higher risk profile of these institutions.
“To incentivise effective and timely rectification by institutions, this requirement would likely remain in place until issues are fully addressed,” the regulator said.
