Westpac culture not improving fast enough post-AUSTRAC

The big four bank revealed the findings of APRA’s review into its risk governance on Tuesday, after the investigation was first commenced in December last year.

Using the same language as an independent review into the bank following its AUSTRAC reporting scandal, the APRA inquiry has ruled Westpac has an “immature and reactive risk culture”, as well as unclear accountabilities, capability shortfalls and inadequate oversight.

Westpac has commenced risk programs to address the issues it conceded it had in its July culture, governance and accountability reassessment report, but APRA has reported the bank has not shown enough improvements.

A more holistic and integrated program is now being required of the bank, addressing the full scope of its financial and non-financial risk issues and their root causes. APRA also wants stronger assurance over its delivery.

Westpac chief executive Peter King commented, “We acknowledge the findings of APRA’s review and accept the need to work faster to address our shortcomings.”

And as indicated by the regulator on Tuesday, APRA will be taking action against the big four bank for breaches of its liquidity requirements, predominantly relating to the New Zealand business.

Westpac New Zealand’s liquidity coverage ratio (LCR) was below 100 per cent for much of 2019, breaking its requirement as a material offshore subsidiary.

Although the bank has since rectified its breaches, APRA has ruled that Westpac has material weakness in its liquidity processes and control framework.

As part of the enforceable undertaking, the prudential watchdog is requiring the bank to enact an external review of its liquidity compliance arrangements and the effectiveness of its implementation of the recommendations from APRA’s compliance plan review.

Westpac will also cop on overlay on its liquidity requirements, by applying a 10 per cent increase to its net cash outflows. The overlay, which will take effect from 1 January, will be in place until APRA is satisfied the shortcomings have been rectified.

If applied today, the overlay would reduce the group’s LCR by around 10-15 percentage points. Westpac’s LCR for the September quarter this year was 151 per cent.

Further, Westpac is being required to undertake an accountability review.