(8 January 2020 – Australia) As the prudential regulator completes a deep dive into the nation’s largest financial institutions, it has found their risk and compliance functions unfit and in need of an overhaul.
Early findings from the Australian Prudential Regulation Authority’s onsite reviews of the banks’ governance, culture, risk and accountability frameworks were disappointing, said chairman Wayne Byres, and institutions found wanting could expect significant penalties.
APRA’s onsite inspections are part of a strategy to strengthen and sharpen governance, culture, remuneration and accountability frameworks across the industry following widespread opinion that it needed to take a tougher line after banks were found to have broken money laundering laws millions of times and wrongly charged customers billions in fees.
As the prudential regulator expands its inspections beyond the big four banks, smaller institutions are on notice that no leniency will be given when it comes to ensuring their systems are up to scratch.
“What we’ve done is set a very clear signal, and banks should expect if they have similar issues they should expect a similar response,” Mr Byres said.
In addition to capital penalties, the regulator may impose licence conditions, issue infringement notices and disqualify individuals depending on the infringement. APRA says it is important the punishment fits the crime, but notes that capital penalties are an important deterrent.
Behind the scenes, APRA is revising the Cross prudential standard that polices the risk management function, known as CPS 220, at banks, super funds and insurers.
APRA believes CPS 220 needs more teeth, and will begin testing the waters with a much sharper set of guidelines later in 2020.
“That standard at present has some pretty high level and fairly weak requirements, to be honest, in relation to compliance functions. There are only a couple of paragraphs about what institutions need to have by way of an effective compliance function,” Mr Byres said.