Westpac’s liquidity add-on dropped by APRA

According to APRA, the bank has since completed a program to remediate the findings stemming from an independent review into the bank’s liquidity risk management, resulting in the removal of the liquidity add-on effective as of 1 September 2022.

In 2020, APRA took action against Westpac in response to “material breaches” that revealed weaknesses in Westpac’s risk management and oversight, risk control framework and risk culture in its liquidity risk management and reporting.

APRA identified the breaches in 2019 and 2020 in relation to the “incorrect treatment” of specific funding and loan products for the purposes of calculating the liquidity coverage ratio (LCR) and net stable funding ratio (NSFR).

APRA imposed a 10 per cent add-on to the net cash outflow component of the bank’s LRC calculation.

Additionally, the capital add-on of $1 billion reflecting the bank’s “heightened operational risk profile” still remains in place after its application by APRA in December 2019.

The add-on was applied in response to the allegations pressed by AUSTRAC, stating that the bank had breached anti-money laundering laws.

APRA deputy chair John Lonsdale said at the time the action against the bank was taken: “Under APRA’s liquidity requirements, banks must maintain a sound liquidity risk management framework, ensuring accurate calculation of the LCR and NSFR.

“While Westpac’s LCR and NSFR are comfortably above regulatory minimums, APRA’s actions reflect how seriously we view breaches of our prudential requirements.”

In June 2020, APRA delegated certain enforcement powers to the Australian Securities and Investments Commission (ASIC), which was conducting its own investigation into Westpac’s conduct at the time.

According to APRA, the regulators determined that there is potential for a “significant overlap” of the factual background as well as any legal contraventions under the Corporations Act 2001 and the Banking Act.

APRA stated at the time: “To avoid both agencies separately investigating and potentially litigating related matters, ASIC will consider whether the conduct that it is investigating also gives rise to contraventions of the accountability obligations under the Banking Executive Accountability Regime and standards of fitness and propriety under the Banking Act.”

As outlined in the Banking Act, APRA provided ASIC with the authority to apply to the courts for fines and disqualifications of individuals for the purpose of the investigation.

[RELATED: APRA defers Westpac investigation to ASIC]