An independent report into Westpac New Zealand’s risk governance has highlighted “material shortcomings” in the board's oversight.
The report by management consulting firm Oliver Wyman was commissioned on the instructions of the RBNZ over concerns, stemming from material compliance issues, with the risk governance processes and practices of the Westpac NZ board and management.
The RBNZ says the report shows these concerns were "well founded” and the risk governance of Westpac NZ’s Board needs "significant improvement”.
“The report’s findings highlighted material risks to effective risk governance and noted that the role played by the Board fell short of the standard expected of an organisation of the bank’s scope and scale. In some cases, issues that had been acknowledged by the Board for several years had not received due attention or effective remediation," said RBNZ deputy governor Geoff Bascand.
“The report found there had been historic underinvestment in risk management capabilities at the bank with investment appearing reactive, rather than strategic.”
The make up of the board as well as its performance was criticised in the report, which said the independent Non-Executive Directors "collectively did not have sufficient expertise in the critical areas of banking, risk management, and banking technology" and as a result "were not able to engage with and provide robust challenge to the executive on risk topics".
"The independent Non-Executive Directors also placed too much trust in the executive without sufficient substantiation."
It said the directors didn't "use, consider, or engage with the bank’s risk appetite framework" and did not demonstrate the "fluency and depth of understanding of risk management expected of a Director on a bank board".
The board's relationship with the RBNZ was also poorly managed, with "instances of miscommunication and misunderstanding".
Bascand said, although Westpac NZ had made some efforts to address the issues, a lot remained to be done.
“We expect Westpac NZ to prioritise remediation in line with the report’s recommendations and will be closely monitoring their efforts to ensure that they are effective," he said.