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. 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.
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. 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. 
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. 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. 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. 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.
 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.
 APRA, ‘Information Paper – Self-assessments of governance, accountability and culture’ (22 May 2019) 4.
 Ibid 7.
 Ibid 4.
 Above n 1.
 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.