APRA acts against Macquarie on breaches

The Australian Prudential Regulation Authority (APRA) has increased Macquarie Bank Ltd’s liquidity and operational risk capital requirements in response to what it said were “multiple material” breaches of APRA’s prudential and reporting standards.

According to APRA, the enforcement action is related to the incorrect treatment of specific intra-group funding arrangements for the purposes of calculating capital and related entity exposure metrics.

It is also related to multiple breaches of APRA’s reporting standards on liquidity between 2018 and 2020, the prudential regulator said.

“These resulted from deficiencies in Macquarie Bank’s ability to manage the operational risk inherent in the complex intra-group structure, within which it transacts with its related entities,” APRA said.

APRA said it will require Macquarie Bank to hold an operational capital overlay of $500 million due to the breaches.

This reflected deficiencies in the bank’s management of operational risk inherent in the bank’s intra-group structure, it said.

APRA added that it will also require 15 per cent add-on to the net cash outflow component of its liquidity coverage ratio calculation, and a 1 per cent adjustment to the available stable funding component of its net stable funding ratio calculation.

The increase in capital and liquidity requirements took effect on 1 April.

In addition, Macquarie will be required to resubmit and restate selected regulatory returns, according to APRA.

APRA said the breaches are historical and do not impact on the current overall soundness of Macquarie Group’s capital or liquidity positions.

“However, they raise serious questions about the bank’s risk management practices and ability to calculate and report key prudential ratios,” APRA said.

Speaking about the breaches at Macquarie and the enforcement actions, APRA deputy chair John Lonsdale said: “For one of the country’s largest financial institutions to have committed breaches of this nature is disappointing and unacceptable.

“Alongside the enforcement actions, APRA will subject Macquarie Bank to intensified supervision to address the bank’s persistent difficulties in complying with its prudential obligations. We cannot rule out further action as more information comes to light about the root causes of these breaches.”

“APRA’s legally binding prudential and reporting standards play an essential role in enabling APRA to adequately monitor risks to financial safety and stability.”

Macquarie Group acknowledged APRA’s announcement in a statement to the ASX in relation to Macquarie Bank’s risk management practices and ability to calculate and report key prudential ratios.

It said it has various programs in place to strengthen capital and liquidity reporting and its risk management framework, adding that these ongoing programs would help with addressing issues and improvements moving forward.

Macquarie Group managing director and CEO Shemara Wikramanayake said: “We note the actions announced by APRA and share their disappointment.

“We recognise that while specific historical matters leading to these actions have been addressed, we have continued work to strengthen our operating platform and risk governance. We will work with APRA through a period of intensified supervision to advance this work as quickly as possible.”

The group said that it will also work with APRA to determine any necessary restatements of selected historical regulatory returns.

[Related: Macquarie posts 9% quarterly mortgage growth]