A new report from the Australian Prudential Regulation Authority (APRA) summarising the responses of Australia’s financial institutions to an inquiry into the Commonwealth Bank, has found that their financial management was adequate but their culture and accountability lacking.
Deputy Chair of APRA, John Lonsdale said the Authority had written to the institutions’ boards last June asking them to gauge whether the weaknesses uncovered by the Commonwealth Bank of Australia (CBA) Prudential Inquiry also existed in their own companies.
Mr Lonsdale said that inquiry had found that continued financial success dulled the bank’s senses, especially with regard to the management of non-financial risks.
“After receiving the self-assessments last December, APRA’s frontline supervision teams carried out detailed analysis and benchmarking of their quality and the key issues that institutions identified,” Mr Lonsdale said.
“APRA noted a wide variation in the quality of the self-assessments.”
He said most institutions recognised the opportunity provided by the findings to critically examine their own organization but a small number had taken a lighter touch approach and viewed it as an exercise for APRA rather than an opportunity to drive improvement.
“It is clear that many of the issues identified within CBA are not unique to that institution,” Mr Lonsdale said.
“Although the self-assessments raised no concerns about financial soundness, they confirmed our observation that industry is grappling to manage non-financial risks, such as culture and accountability.”
He said the self-assessments provided valuable insights into the depth and totality of issues, and how institutions were addressing them.
“It was also interesting to observe the generally positive assessments boards and senior leadership teams had of their own performance, even when they had identified serious weaknesses in their institutions,” Mr Lonsdale said.
“It was not always evident that institutions clearly understood the drivers of their findings … therefore, there is a risk that any planned action to address weaknesses may not be effective or sustainable.”
He said APRA was considering applying additional capital requirements to several regulated institutions after an analysis of self-assessments found material weaknesses in the governance and management of non-financial risks.
APRA’s 27-page report can be accessed at this PS News link.
