Westpac exec exits after probe into NZ liquidity reporting failings

Westpac has conducted an internal probe into liquidity reporting failings in New Zealand, leading to the departure of a key executive.

APRA has heavily criticised Westpac’s risk culture. Picture: James Gourley

Westpac has conducted an internal probe into liquidity reporting failings in New Zealand, leading to the departure of a key treasury executive across the Tasman, ­according to sources.

The Australian understands an accounting firm was involved in the investigation — which spanned Westpac’s treasury and finance functions — delving into how the bank’s liquidity ratios were incorrectly calculated.

Errors in the way products were classified in New Zealand were initially identified by Westpac’s head office in Australia last year, and were self-reported to the banking regulator.

But the bank’s latest compliance shortcomings have added to its many woes this year, including a record $1.3bn penalty being paid to financial crimes regulator Austrac for millions of breaches of anti-money-laundering laws.

On Tuesday, Westpac said it expected to enter an enforceable undertaking over risk remediation, given the Australian Prudential Regulation Authority found it had an “immature and reactive risk culture, unclear accountabilities” and was plagued by issues.

Sources said Westpac was working with APRA on the undertaking’s final details and structure, including an assurance program around it, and an agreed version would be made public in coming days.

Westpac is expected to use IBM-owned Promontory as an independent reviewer of the undertaking, although a decision is said to be pending.

The furore over Westpac’s anti-money-laundering breaches prompted the board to conduct another governance self-assessment, in addition to one conducted to coincide with the Hayne royal commission. Promontory provided independent assurance over Westpac’s latest assessment.

Commonwealth Bank also used Promontory as a reviewer on its APRA enforceable undertaking, which has been going for more than two years and continues into next year.

Last month, APRA halved the capital charge imposed on CBA for governance and compliance failures, citing “significant progress” in the bank’s action plan to fix the issues. It cut the $1bn capital add-on applied to CBA by $500m, but the bank was not given a complete clean bill of health given a remaining $500m add-on stayed in place.

“Recent work by APRA to validate CBA’s progress against the RAP (remedial action plan) … in areas such as risk management and compliance, remuneration and risk culture, supports that assessment, although a substantial body of work is needed to ensure the improvements are fully embedded,” the regulator added.

APRA on Tuesday said Westpac’s liquidity breaches related to the incorrect treatment of specific funding and loan products for calculating the bank’s Liquidity Coverage Ratio and Net Stable Funding Ratio.

Banks need to hold highly liquid assets to be able to fund short-term cash outflows, and these levels are stipulated by regulators.

On the exit of an NZ executive linked to the liquidity reporting failures, a Westpac spokesman said the bank didn’t discuss individual staff members.

APRA’s requirements on Westpac include an accountability review, external review of liquidity compliance and implementing recommendations of its compliance review.

The regulator is also imposing a more onerous liquidity ratio calculation, with a 10 per cent overlay on the bank’s net cash outflows, which Westpac said would be in place until the shortcomings were rectified.

The Reserve Bank of New Zealand is also considering its own regulatory action against Westpac.

A spokesman said the central bank became aware of an initial compliance issue with Westpac NZ’s liquidity requirements in July 2019 following discussions with APRA, ahead of another lapse being identified this year.