Sharechat Logo

RBNZ censures ANZ, prescribes risk capital calculation

Friday 17th May 2019

Text too small?

The Reserve Bank of New Zealand has revoked ANZ Bank New Zealand's accreditation to model its own operational risk capital requirement due to a "persistent failure" in its controls and attestation process.

ANZ is one of four big banks in New Zealand that are accredited by the Reserve Bank to use their own risk models – the internal models approach - in calculating their regulatory capital requirements.

“Accreditation is earned through maintaining high risk-management standards, and comes with stringent responsibilities for the bank’s directors and management,” said Deputy Governor Geoff Bascand.

ANZ is now required to use the standardised approach for calculating appropriate operational risk capital. From March 2019, this will increase its minimum capital held for operational risk by around 60 percent, to $760 million, the RBNZ said. 

ANZ New Zealand said it "accepts the  RBNZ’s decision that the ORC model to be used from now will be based on the RBNZ’s standardised approach." ANZ says it discovered it wasn't using and approved model during an internal review.

As a result, as at 31 March 2019, ANZ New Zealand’s ORC requirement increased by $277 million, and its capital ratios have decreased by 0.4 percent for common equity tier 1 capital and 0.6 percent for total capital, it said.

All four of the banks allowed to use their own models for calculating risk are Australian owned and they account for about 88 percent of New Zealand's banking system.

The decision comes as the Reserve Bank is currently consulting on its capital framework for banks. 

Among the many decisions to be made, and in part due to proven weaknesses with the internal models approach, it is proposing that all banks adopt a new standardised approach for calculating operational risk capital, it said. The bank capital proposals were announced on Dec. 14 last year and after a couple of extensions, the consultation period is set to end today. 

According to Bascand, the RBNZ had encouraged ANZ to review its attestation and assess its compliance with capital regulations.

"It's failure to use an approved model was revealed through that review," he said. 

“ANZ’s directors have attested to compliance, despite the approved model not being used since 2014. The fact that this issue was not identified for so long highlights a persistent weakness with ANZ’s assurance process," he added. 

“We continue to work with ANZ in assessing its systems controls before determining any further action.” ANZ said that its board and management takes the attestation regime "very seriously" and while it "believes it has appropriate controls and attestation processes in place, it will work with the RBNZ in its assessment of those controls and processes." 

A bank's disclosure statement is required to contain certain statements signed by each director of the bank. These must state, among other things: whether the bank has systems in place to monitor and control adequately the banking group's material risks and whether those systems are being properly applied; and whether the bank has complied with its conditions of registration over the period covered by the disclosure statement.

“These directors’ attestations are important because they strengthen the incentives for directors to oversee, and take ultimate responsibility for, the sound management of their bank," Bascand said. 

(BusinessDesk)



  General Finance Advertising    

Comments from our readers

No comments yet

Add your comment:
Your name:
Your email:
Not displayed to the public
Comment:
Comments to Sharechat go through an approval process. Comments which are defamatory, abusive or in some way deemed inappropriate will not be approved. It is allowable to use some form of non-de-plume for your name, however we recommend real email addresses are used. Comments from free email addresses such as Gmail, Yahoo, Hotmail, etc may not be approved.

Related News:

SML - Synlait Milk Limited - Trading Halt of Securities
AIA - Auckland Airport announces board chair changes
AIA - Auckland Airport announces board chair changes
CEN - Tauhara commissioning progress update
FPH initiates voluntary limited recall
March 28th Morning Report
KFL Celebrates 20 Years of Excellence in Investment Mgmt.
SVR - Savor FY24 Earnings Guidance & Change in Banking Partner
NZK - NZ King Salmon Investments Limited FY24 Results
March 27th Morning Report