Following APRA’s 2018 prudential inquiry on the frameworks and practises regarding governance and accountability at CBA (http://snip.ly/36jmh0), another 36 financial service institutions (across ADI’s, Insurance and Superannuation) where asked to qualify whether the findings established within the CBA report were also evident in their own organisations.
The findings where telling on several fronts. APRA found recurring themes including:
• non-financial risk management requires improvement;
• accountabilities are not always clear, cascaded and effectively enforced;
• acknowledged weaknesses are well-known and some have been long-standing; and
• risk culture is not well understood, and therefore may not be reinforcing the desired behaviours.
Whilst the GFC did do much to improve capital, funding and liquidity management, it would appear operational risk still has significant step change to be made. The dilemma as always, is primarily down to the trade-off between risk and reward, as Boards and Exec’s choose how much to invest in risk versus investing in top line growth.
In response to these latest findings, APRA is playing their hand in influencing this trade off, as they impose additional capital requirements on many organisations until their governance practises are improved, a direct hit to bottom line returns. It is a stern warning for all Financial Service organisations to address their governance practises.
Perhaps the most worrying of the findings from APRA’s report was the ongoing approach from some organisations to use the self-assessment process:
“as an exercise for APRA rather than an opportunity to drive improvement”.
With organisational culture being heavily influenced by management, such a tick box approach to what APRA is trying to manage and influence organisations to manage themselves, talks volumes to the significant concerns APRA must have with such organisations.
All of this is a timely reminder as the BEAR accountabilities come into force July 1 for ADI’s. Surely it will only be a matter of time before Kenneth Hayne recommendations for the extension of BEAR to other financial service industries (http://snip.ly/zduxce) comes into fruition.
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