APRA orders financial institutions conduct culture reviews

Australia’s biggest ­financial institutions and super funds have been ordered to conduct in-depth culture and governance reviews.

Former APRA chairman John Laker. Picture: James Croucher

A horde of Australia’s biggest ­financial institutions and super­annuation funds have been forced by the prudential regulator to ram through an in-depth review of their culture and governance before the royal commission ends next year.

After copping heavy criticism over the course of Kenneth Hayne’s royal commission over a lack of enforcement in the financial sector, the Australian Prudential Regulation Authority has demanded Westpac, ANZ and National Australia Bank mimic the landmark cultural investigation of Commonwealth Bank the regulator launched late last year.

Along with the major banks, some of the nation’s biggest union and employer-backed super funds — such as the $40 billion Hostplus, $35bn fund Cbus and $50bn REST super fund — have also been asked by APRA to review their culture.

Insurers have also been tapped to conduct an audit, including Insurance Australia Group, Brisbane-based Suncorp, Allianz and health insurer NIB.

Under-strain wealth management giant AMP has also been roped in to review its culture.

APRA in May punished CBA with a $1bn capital penalty after the damning review — led by former APRA chairman John Laker, company director Jillian Broadbent and former competition tsar Graeme Samuel — found the bank guilty of “complacency”, having a “reactive stance”, as well as being insular and not learning from experiences and mistakes.

At the time of the review, APRA said all regulated financial groups “will benefit from conducting a self-assessment” to find out whether they suffered from the same issues as CBA. However, the regulator then followed up in recent months demanding certain companies representing “the largest financial institutions” in the nation complete a board-­endorsed group-wide assessment of culture, governance and accountability.

The royal commission will release its interim report today, when a list of potential policy solutions and tentative findings are expected to be aired.

While the Hayne royal commission is due to hand down its final report in February, APRA has demanded its cultural reviews be completed by November 30.

The companies involved in the review, which are generally being steered by group chief risk officers, have engaged external consultants to help them compile the ­reports.

Australia’s largest global insurer, QBE, refused to comment on whether it was involved in APRA’s review process.

The Australian yesterday revealed that Mark Baxter, QBE’s chief risk officer of its Australia & New Zealand division, resigned suddenly after less than two years in the role and after representing the group on a workplace panel on Tuesday. QBE declined to comment as to whether the two events were linked.

The nation’s second-largest bank, Westpac, said it was taking the review “very seriously” and had contracted an independent firm to ensure its “depth and ­rigour”.

“We see this as an opportunity to gain insight into strengths, shortcomings and opportunities in relation to Westpac’s ­frameworks and practices,” the bank said.

David Elia, the chief executive of Hostplus, which manages the savings of hospitality and tourism workers, said APRA wrote to most large super funds requesting they comb over their governance.

“Ostensibly, what the regulator is saying to the boards is that given the nature of the (CBA) findings, we’re asking boards to consider the outcomes and apply the learnings to their own organisations,” Mr Elia said.

NAB chief risk officer David Gall said his bank did not wait for APRA to demand it complete the review, and contracted PwC for the self-assessment.

“We want to understand whether there is anything we can learn from the matters raised in relation to CBA,” Mr Gall said. NAB would be handing its report and a series of “associated ­actions” to APRA by the end of November.

ANZ said it had engaged external experts. “Our board expects this to be a robust review seeking to identify areas where we can further improve,” an ANZ spokesman said.

Cbus executive Robbie Campo said the fund was deploying a level of depth, introspection and challenge to its review to “provide a meaningful response that demonstrates how we put our members’ interests at the heart of our decision-making”.

“The key message from the CBA report is that no organisation can afford to let success blind it to potential weaknesses,” Ms Campo said.

While Medibank said it was not asked to conduct a review, rival health insurer NIB has contracted KPMG to assist it with its cultural assessment. A NIB spokesman said it would be making its recommendations of any further action to APRA and was “closely monitoring” developments at the royal commission.

An IAG spokeswoman said it had hired an external consultancy to help with its review. “We believe APRA’s request for self-assessments across the sector will ultimately improve consumer outcomes,” IAG said.

Suncorp said it was “committed to continuous improvement” and that its response would “be provided to APRA in the first ­instance”.

REST, which looks after the savings of retail industry workers, said it had appointed KPMG for its own review. “We are due to respond to APRA in accordance with their agreed timetable,” REST said.

Macquarie Group declined to comment.

At the royal commission earlier this month, Allianz’s chief risk officer, Lori Callahan, conceded that the company would be forced to make mention of the fact to APRA that it recently pressured Deloitte to withdraw its review of the insurance group’s governance, culture and accountability after it was unhappy with the findings.

Allianz also had consultants Ernst & Young “rewrite with a more balanced view” a separate independent risk report that had to be provided to APRA and that EY changed some of its ratings to be more positive, the royal commission was told.

An EY spokeswoman said the risk management review -- the APRA report -- was not changed at the request of the client and the separate compliance board report was updated during the drafting process to reflect new information and data provided during the engagement.

“Some ratings and recommendations were changed as a result of this. Reports like this go through several drafts as more information is provided by the client. Client comments, feedback and supporting materials are considered during the review process. This does not necessarily mean they are incorporated into the final report.”