The Australian Prudential Regulation Authority (APRA) has increased Macquarie Bank Limited’s (Macquarie Bank’s) liquidity and operational risk capital requirements in response to multiple material breaches of APRA’s prudential and reporting standards.
The enforcement action relates to the incorrect treatment of specific intra-group funding arrangements for the purposes of calculating capital and related entity exposure metrics, as well as multiple breaches of APRA’s reporting standards on liquidity between 2018 and 2020. These resulted from deficiencies in Macquarie Bank’s ability to manage the operational risk inherent in the complex intra-group structure, within which it transacts with its related entities.
The breaches are historical and do not impact on the current overall soundness of Macquarie Group’s capital or liquidity positions. However, they raise serious questions about the bank’s risk management practices and ability to calculate and report key prudential ratios.
As a consequence of the breaches, APRA will require:
- Macquarie Bank to hold an operational capital overlay of $500 million, reflecting deficiencies in its management of operational risk inherent in the bank’s intra-group structure;
- a 15 per cent add-on to the net cash outflow component of its LCR calculation; and
- a 1 per cent adjustment to the available stable funding component of its NSFR calculation.
The increases in Macquarie Bank’s capital and liquidity requirements will take effect from 1 April 2021. In addition, APRA will require Macquarie Bank to resubmit and restate selected regulatory returns.
APRA Deputy Chair John Lonsdale said: “APRA’s legally-binding prudential and reporting standards play an essential role in enabling APRA to adequately monitor risks to financial safety and stability. For one of the country’s largest financial institutions to have committed breaches of this nature is disappointing and unacceptable.
“Alongside the enforcement actions, APRA will subject Macquarie Bank to intensified supervision to address the bank’s persistent difficulties in complying with its prudential obligations. We cannot rule out further action as more information comes to light about the root causes of these breaches,” Mr Lonsdale said.