An independent report by Deloitte into Westpac NZ’s liquidity risk management has found that the Kiwi subsidiary’s repatriation of its liquidity model from its parent to New Zealand and other risk management enhancements have led to an overall improvement in its liquidity control environment.
The report was commissioned by the Reserve Bank of NZ, which said it showed Westpac NZ was now “moving in the right direction as it builds a proactive risk culture”.
A previous independent report into Westpac NZ November last year found material shortcomings in the Board’s oversight paired with historic underinvestment in risk management capabilities at the bank. That report was sparked by what the RBNZ described as “ongoing compliance issues with Westpac NZ over recent years, most recently involving material failures to report liquidity correctly, in line with the Reserve Bank’s liquidity requirements”, with the bank operating “outside of its own risk settings for technology for a number of years”.
Yesterday’s report found the “root causes of the non-compliance issues were primarily attributed to a Treasury control environment which lacked accountability, governance, ownership and clear understanding of the end-to-end liquidity risk management”
Deloitte found Westpac NZ has now, overall, “improved its liquidity control environment. The repatriation of the liquidity model to New Zealand has necessitated changes to its operating model which has included: transferring responsibilities to WNZL Treasury, Treasury Finance and Market Risk, refreshing existing liquidity risk management frameworks, redefining roles and responsibilities across the three lines of defence, strengthening the reporting to relevant committees and uplifting the governance around product change and modelling.
"In addition, the repatriation of the model has resulted in rigorous reviews and external validation of model inputs and assumptions prior to implementation. The repatriation of the liquidity model has significantly reduced the reliance on WBC and streamlined the process of calculation and reporting.
"Additionally, WNZL reassessed its obligations, risks and controls which led to the development and improved linkage of new and existing controls to manage liquidity risk and support the compliance with BS13 requirements."
However, Deloitte made a number of recommendations to further enhance the progress in risk management made at the bank.