RBNZ takes action over weaknesses in Westpac NZ’s risk governance
The Reserve Bank of New Zealand - Te Pūtea Matua has raised concerns around Westpac New Zealand’s risk governance processes and has instructed the bank to commission two independent reports to address them.
“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. Furthermore, the bank has continued to operate outside of its own risk settings for technology for a number of years,” Deputy Governor and General Manager of Financial Stability Geoff Bascand says.
“Westpac NZ needs to take a close look at its risk governance practices. To ensure this happens we are requiring them to provide an independent report that assesses Westpac NZ’s risk governance processes and practices applied by the Westpac NZ Board and executive management.”
The Reserve Bank has also required that Westpac NZ provides a separate independent report to provide assurance that the actions they have taken to improve the management of their liquidity risks, and the culture surrounding it, are effective. 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).
The independent reviews come under Section 95 of the Reserve Bank of New Zealand Act 1989. This gives the Reserve Bank the power to require a bank to provide a report by a Reserve Bank-approved, independent person. The Reserve Bank will work with Westpac NZ to implement the findings.
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. The reviews outlined today are to ensure this remains the situation on an ongoing basis.
- Westpac NZ was found to be in breach of the requirements of the Reserve Bank’s Liquidity Policy (BS13), which includes compliance with minimum mismatch ratios. The mismatch ratio is a measure of a bank’s liquid assets, adjusted for expected cash inflows and outflows to mitigate risk during a period of stress.
- Westpac NZ was non-compliant with its liquidity requirements because it was not calculating its mismatch ratios correctly. This had a material impact on the bank’s mismatch ratios with the non-compliance occurring from 2012 to 2020. The calculations have since been corrected and Westpac NZ has progressed a programme of remediation to address the root causes of the non-compliance.
- Until the Reserve Bank is satisfied that Westpac NZ’s remediation work is effective, Westpac NZ’s required holding of liquid assets will be increased via an overlay on their mismatch ratios.