A new report has been released by the prudential regulator that analyses how major banks view their own actions, and there’s certainly room for improvement.
APRA has revealed a report after requesting numerous banks and financial institutions – which include the National Bank of Australia (NAB), Australia and New Zealand Banking Group (ANZ) and Westpac – to undergo a self-assessment.
This report follows one made at the end of April 2018, which looked into the Commonwealth Bank of Australia (CBA) and found that “continued financial success dulled the bank’s senses”. The prudential regulator then requested the financial institutions to see if similar faults were found in their own business practices.
The findings found that there is a need to improve non-financial risk management, there is a case of accountability not being clear, some of the weaknesses found have been around for a long time and risk culture is not understood
These findings point to the fact that the issues found in CBA are not exclusive to them and can be found in other banks and financial institutions.
“Although the self-assessments raised no concerns about financial soundness, they confirmed our observation that industry is grappling to manage non-financial risks, such as culture and accountability,” Mr Lonsdale said.
“The self-assessments provided valuable insights into the depth and totality of issues and how institutions were addressing them. It was also interesting to observe the generally positive assessments boards and senior leadership teams had of their own performance, even when they had identified serious weaknesses in their institutions.
“It was not always evident that institutions clearly understood the drivers of their findings. Therefore, there is a risk that any planned action to address weaknesses may not be effective or sustainable.”
In order to ensure that the banks and other financial institutions follow up on their self-assessments, APRA is considering further action against them.
“APRA will shortly write to the boards of all participating institutions providing tailored observations on their self-assessments. Boards should expect increased supervisory scrutiny of their institutions as they implement remediation actions,” Mr Lonsdale said.
“Also, in a number of cases, the weaknesses identified in the self-assessment were sufficiently material that APRA is considering stronger supervisory responses, including the application of an operational risk capital overlay.
“Boards must be committed to uplifting governance and management of non-financial risks. Where this commitment is not forthcoming, APRA will consider the need for further regulatory action. We also continue to encourage those institutions that have not yet done a self-assessment to do so as a valuable means of identifying and addressing weaknesses in their business.”