Government's banker Westpac warned by Reserve Bank over risk failures

Wednesday, 24 March 2021

Westpac, banker for the government, has been ordered by the Reserve Bank to pay for two independent reports into its risk governance processes.

The Reserve Bank, which is tasked with ensuring the stability of the financial system, said the Australian-owned bank needed to take a “close look” at its risk governance practices.

“We have experienced ongoing compliance issues with Westpac NZ over recent years, most recently involving material failures to report liquidity correctly, in line with the Reserve Bank’s liquidity requirements,” deputy governor Geoff Bascand said.

Bascand said Westpac had continued to operate outside of its own risk settings for technology for a number of years.

Financial Markets Authority chief executive Rob Everett and Reserve Bank governor Adrian Orr deliver the findings of their joint review into the conduct and culture of banks in New Zealand. First published in 2018.

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“Westpac NZ needs to take a close look at its risk governance practices.”

To ensure this happened Westpac NZ must provide an independent report that assesses the bank’s risk governance processes and practices applied by the board and executive management, Bascand said.

Westpac must also to provide a separate independent report to provide assurance that the actions it has taken to improve the management of its liquidity risks, and the culture surrounding it, were effective, Bascand said.

“Until the Reserve Bank is satisfied that Westpac NZ’s remediation work is complete and effective, it is increasing the bank’s required holding of liquid assets – cash or assets that can be easily converted into cash,” Bascand said.

Depositors with Westpac did not need to worry, he said.

“It is important to note that the Reserve Bank is confident that Westpac NZ’s current liquidity and funding positions are sound, and that the bank is well capitalised,” Bascand said.

The breaches of the Reserve Bank’s Liquidity Policy were previously reported to the central bank and the Australian Prudential Regulation Authority (Apra) and also first disclosed in Westpac NZ’s September 2020 Disclosure Statement.

On 1 December Apra announced actions it was taking against Westpac NZ’s parent, Westpac Banking Corporation, as a result of these issues.

Westpac said in a statement that “the Reserve Bank has stated that it is ‘confident that Westpac NZ’s (WNZL) current liquidity and funding positions are sound, and that the bank is well capitalised’.”

“WNZL acknowledges the importance of liquidity and risk governance obligations and will support the independent reviewers to provide the necessary reports to the Reserve Bank. WNZL will also act promptly on any recommendations from the reviews.

“WNZL has taken a number of steps to improve risk governance but recognises more work is required, and supports the additional oversight that the independent reports will provide.”