Westpac outlines strategy to tackle risk governance failures

  • By Christine St Anne

"As one of the country’s largest and most important financial institutions, Westpac should be a leader in risk management," APRA deputy chair John Lonsdale said as the major bank outlined the steps it would take to address risk failures under its enforceable undertaking with the prudential regulator.

The EU was flagged earlier in the week, when the prudential regulator also highlighted emerging governance risk issues including breaches of APRA’s liquidity standard

On Thursday, APRA said the review also found that Westpac’s Customer Outcomes and Risk Excellence (CORE) Program is not “sufficiently far-reaching to address effectively wide-ranging risk governance gaps and carries high execution risk”. 

Under the EU, Westpac will provide APRA with a remediation plan within 90 days that aims to address its risk governance failures as the bank. 

The bank will also boost funding to support its remediation plan, appointing an independent reviewer to provide an update to APRA on the effectiveness of the integrated plan within 15 business days from the end of each quarter

For APRA, Westpac’s “long-standing weaknesses remain unaddressed, and have contributed to new prudential issues and weak execution was a key root cause of the bank’s risk governance issues”. 

“Although the bank has made progress in some areas over the past year, it is not good enough,” Lonsdale said.

“We continue to observe new prudential issues arising while long-standing weaknesses persist, and we believe Westpac’s governance, culture and accountability frameworks and practices are still in need of a substantial uplift.

“APRA’s concerns have been communicated directly to the board and senior management with the clear message that the magnitude of improvements that Westpac needs to deliver requires a deep commitment to change at all levels across the organisation,” he said. 

Lonsdale said the integrated plan required by the EU “must be designed to deliver the sustainable risk governance step-change that APRA requires”.  

Westpac CEO Peter King said the bank has had had constructive discussions with APRA and “know we have to deliver a disciplined step change in our management of financial and non-financial risk.” 

“While we have made progress in improving our standards, we have much more work to do, and this must be done at pace,” King said.