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Andrea Beatty

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27 Aug 2019

APRA applies additional requirements to three major banks in response to self-assessments

APRA has reported that they have ordered major banks to put aside additional capital in response to the self-assessments they produced.

Partner, Andrea Beatty, Lawyer, Chelsea Payne and Law Clerk, Chloe Kim discuss the bank’s self-assessments and their implications. 

On 11 July 2019 APRA reported that they have ordered Westpac, ANZ and National Australia Bank to put aside an additional $500 million of capital to address major flaws in their culture and governance.[1] APRA wrote to each of the banks to advise them that the capital add-on will apply

until the banks complete their remediation process, strengthen risk management and close the gaps identified in their self-assessments.[2]

These self-assessments follow the APRA-initiated Prudential Inquiry into CBA which saw them apply a $1 billion dollar capital add-on to the bank.[3] The inquiry was in response to a series of shortcomings that damaged CBA’s reputation and found non-financial problems being operational, compliance and conduct problems to be the bank’s biggest issues. The Inquiry’s Final Report found great complexity, weak incentives and long-standing gaps in the bank’s culture. APRA acknowledged that such issues are not unique to CBA and therefore, asked other ADIs, insurers and superannuation licensees to conduct their own-self assessment.

The Final Report identified 35 recommendations based upon five pillars of change:

  • more rigorous board and executive committee governance of non-financial risks;
  • exacting accountability standards reinforced by remuneration practices;
  • a substantial upgrading of the authority and capability of the operational risk management and compliance functions;
  • injection of the “should we” question in relation to all dealings with and decisions on customers; and
  • cultural change that moves the dial from reactive and complacent to empowered, challenging and striving for best practice in risk identification and remediation. [4]

As a result of the inquiry into CBA, APRA ordered three banks and 33 other financial institutions to submit their detailed self-assessments regarding their management governance and culture.[5] The inquiry resulted in Westpac, ANZ and NAB having to hold additional capital and complete customer remediation programs and fix the problems identified in their self-assessments.[6] After the self-assessment, Westpac admitted to the culture issues existent within the company as multiple failures in the inner-workings of the bank was uncovered.[7] Hence, they addressed their need to improve non-financial risk management and oversight. Although some banks chose to publish their self-assessments, an APRA spokeswoman said they would not be publishing them as they were commissioned on a confidential basis.

[1] APRA, ‘APRA applies additional requirements to three major banks in response to self-assessments’ (Media release, 11 July 2019) https://www.apra.gov.au/media-centre/media-releases/apra-applies-additional-capital-requirements-three-major-banks-response.

[2] Ibid.

[3] APRA, ‘Information Paper – Self-assessments of governance, accountability and culture’ (22 May 2019) 4.

[4] Ibid 7.

[5] Ibid 4.

[6] Above n 1.

[7] James Fernyhough and James Thomson, ‘Culture to cost big three banks $500m’ (Australian Financial Review, 11 July 2019) https://www.afr.com/business/banking-and-finance/apra-s-capital-hits-to-westpac-anz-and-nab-over-culture-20190711-p52666.


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