The Australian Prudential Regulation Authority (APRA) recently confirmed that a significant milestone has been reached in the ongoing risk management improvements within a major banking institution. Following a rigorous review process, APRA announced the removal of a $500 million capital add-on that had previously been imposed on the bank.
Back in 2020, an investigation led to the bank entering into a Court Enforceable Undertaking (CEU) with APRA. This agreement was aimed at addressing specific weaknesses identified in the institution’s governance, culture, and accountability structures. To facilitate this complex transformation, a comprehensive program named Customer Outcomes and Risk Excellence (CORE) was initiated, along with the appointment of an independent reviewer to oversee the changes.
In the context of this oversight, APRA had initially imposed a $500 million capital buffer in July 2019, followed by an additional $500 million in December of the same year. These add-ons were instituted to strengthen the capital position of the bank while corrective measures were being implemented.
As the reforms progressed, APRA made a positive assessment and reduced the capital add-on by $500 million in July 2024, acknowledging the strides made in rectifying the issues highlighted previously. However, the remaining capital add-on was retained until APRA could validate the sustainability of the improvements and ensure that sound risk management practices had been adequately embedded.
With the recent confirmation that the risk transformation program has been successfully completed and the persisting challenges addressed, APRA has lifted the final capital add-on. This decision reflects the regulatory body’s confidence in the bank’s enhanced risk management capabilities.
In a statement, an APRA member emphasized the importance of maintaining high standards of governance and risk management, particularly for institutions deemed systemically important. The successful completion of the risk transformation program is seen as a critical step towards achieving these standards. The member noted that while the bank has made significant progress, ongoing vigilance is essential to identify and address any potential legacy issues that may arise.
Furthermore, APRA reiterated the expectation for the bank to sustain a strong capital position moving forward, reinforcing the regulator’s commitment to overseeing the financial stability and sound operation of the country’s banking sector. The transition reflects a broader trend towards stricter regulatory oversight and demands for financial institutions to uphold robust risk management practices.