By Alice Uribe
SYDNEY--Westpac Banking Corp. will be required to have liquidity risk management reviewed by third parties after Australia's prudential regulator found the lender had breached liquidity standards amid an immature and reactive risk culture.
The Australian Prudential Regulation Authority on Tuesday said it had taken enforcement action against Australia's second largest bank after it materially breached its prudential standards on liquidity in 2019 and 2020.
"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," APRA Deputy Chair John Lonsdale said.
The breaches relate to the incorrect treatment of specific funding and loan products for the purposes of calculating the Liquidity Coverage Ratio and Net Stable Funding Ratio, APRA said. The regulator said the breaches had been rectified, and do not raise concerns about the overall soundness of Westpac's current liquidity position.
In December 2019, APRA commenced a risk governance review into Westpac and applied a 1 billion Australian dollar (US$740 million) capital add-on to Westpac's operational risk capital requirement in response to allegations by AUSTRAC that Westpac had breached anti-money laundering laws.
Westpac said APRA had now notified the bank of its progress, findings, and proposed next steps.
"APRA identified that Westpac has an immature and reactive risk culture, unclear accountabilities, capability shortfalls and inadequate oversight," Westpac said in a statement.
APRA has ruled that Westpac must undertake reviews by independent third parties of its compliance with liquidity reporting requirements, and the remediation of its control framework for liquidity risk management.
APRA said it would also require Westpac to apply a 10% add-on to the net cash outflow component of its LCR calculation, until the findings from independent reviews are addressed.
Westpac said it expected to enter into an enforceable undertaking over risk governance remediation, and said it would update the market when it was finalized.
"We acknowledge the findings of APRA's review and accept the need to work faster to address our shortcomings," Westpac Chief Executive Peter King said.
APRA said the 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."
Write to Alice Uribe at email@example.com
(END) Dow Jones Newswires