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Westpac Governance Issues Details-Good Return

Westpac NZ has been pinged by the Reserve Bank of New Zealand (RBNZ) for lack of banking expertise on the board.

Thursday, November 25, 2021 11:31 AM

In addition, technical failures and inadequate liquidity monitoring have led to several problems over the years.

The RBNZ justifies criticism by saying that Westpack’s NZ financial position is sound.

However, I was worried enough to request an independent report by international consultant Oliver Wyman in March.

It is based on what is called a significant flaw in the risk governance processes and practices applied by Westpac NZ’s board of directors and executives.

A report by Oliver Wyman confirmed that these concerns were well-founded.

“In short, the risk governance of Westpac NZ’s board needs to see significant improvements,” said Geoff Bascand, Deputy Governor and General Manager of Treasury.

“The report’s findings highlight significant risks to effective risk governance and point out that the role played by the board is below the standards expected of an organization of bank scope and size.”

In some cases, issues that had been recognized by the Board for several years did not receive sufficient attention and effective remediation.

“The report found that banks’ risk management capabilities had historical underinvestments, and investments seemed to be responsive rather than strategic.”

Bascand said Westpac NZ has made progress towards implementing the recommendations of the review, but there was much more to be done.

“Westpac NZ expects to prioritize repairs in line with the recommendations of the report and carefully monitor their efforts to ensure they are effective.”

When referencing this issue to Oliver Wyman, the RBNZ stated that it was “a continuous non-compliance and technical issue, including a serious failure to report liquidity correctly, a capital model breach, and a significant technology outage.” I talked about.

During the investigation, Oliver Wyman interviewed more than 50 current and former directors and staff, observed 10 board, board and executive committee meetings over a three-month period and exceeded 900. I have reviewed the document.

It turns out that independent non-executive directors did not have sufficient expertise to meet the requirements of their position in key areas of banking, risk management, and banking technology.

As a result, they were unable to engage with executives on risk issues and offer strong challenges, and generally over-trusted executives.

The board also failed to address the bank’s desire for risk and allowed the duration of risk without a sense of urgency, challenge, or debate.

When risks were identified, they were often dealt with in siled ways, without effective consideration of synergies and interdependencies. As a result, resources have been overextended and deadlines have been repeatedly extended.

Oliver Wyman’s report calls on the board to increase the number of independent directors with banking experience, and Westpack states that it is already working on this issue.

Baskand issued an additional warning when presenting Oliver Wyman’s report.

“The findings are a timely reminder that other regulated entities will consider their own risk governance practices,” he said.

“(This) precedes a cross-cutting thematic review of governance conducted by the Reserve Bank in collaboration with the Financial Markets Authority in 2022.”

Westpac NZ has accepted the results of the Risk Governance Review and states that it is very advanced in responding to the recommendations in the report.

Westpac NZ Chairman of the Board, Pip Greenwood, agrees that strong risk governance and a strong risk culture are fundamental requirements for banks.

“We have always aimed for a high level of risk governance, but admit that the identified cases were inadequate,” says Greenwood.

Mr Greenwood said a new chair and six experienced and skilled new directors have been appointed to the Westpac NZ Board since the review began.

“We also immediately followed up on other recommendations in the report, including a review of the restructuring committee and how risk information is provided to the board.”

Westpac NZ has also significantly increased its investment in risk management in recent years.

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Westpac Governance Issues Details-Good Return

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