APRA has taken enforcement action against Westpac in response to material breaches of prudential standards around liquidity.
The breaches, which were identified during 2019 and 2020, relate to the incorrect treatment of specific funding and loan products for the purposes of calculating the Liquidity Coverage Ratio (LCR) and Net Stable Funding Ratio (NSFR).
While the breaches have been rectified, and have not raised concerns about the overall soundness of Westpac’s current liquidity position, APRA believes they demonstrate weaknesses in risk management and oversight, risk control frameworks and risk culture.
As a result, the regulator will now require Westpac’s compliance with its liquidity reporting requirements and the remediation of its control framework for liquidity risk management to be reviewed by independent third parties.
APRA deputy chair John Lonsdale said the action, while ensuring Westpac complies with its standards, will send a message to the broader industry.
“While Westpac’s LCR and NSFR are comfortably above regulatory minimums, APRA’s actions reflect how seriously we view breaches of our prudential requirements,” Mr Lonsdale said.
“In taking these actions, our objective is to obtain assurance that Westpac is complying with APRA’s liquidity requirements. It also sends a message to the wider banking industry that breaches of prudential standards are not acceptable, and APRA will respond as appropriate, including by imposing penalties.”
In December last year, APRA commenced a risk governance review into Westpac and applied a $1 billion capital add-on to Westpac’s operational risk capital requirement in response to allegations by AUSTRAC that Westpac had breached anti-money laundering laws.
The watchdog’s review is ongoing, and the capital add-on will remain in place until APRA is satisfied that deficiencies in risk governance have been adequately remediated.
Sarah Simpkins is a journalist at Momentum Media, reporting primarily on banking, financial services and wealth.
Prior to joining the team in 2018, Sarah worked in trade media and produced stories for a current affairs program on community radio.
You can contact her on [email protected].