The Australian Prudential Regulation Authority (APRA) has imposed licence conditions on ING Bank Australia Limited (ING Australia) and will require it to hold additional capital and liquidity in response to material breaches of the bank's minimum liquidity requirements.
ING Australia notified APRA in July that it had identified material miscalculations of its liquidity position over several years, resulting in significant overstatement of its Liquidity Coverage Ratio (LCR).
Although the bank was reporting LCR outcomes of around 160 per cent, its true LCR was substantially lower and at times dropped below the minimum LCR requirement of 100 per cent mandated by Prudential Standard APS 210 Liquidity. ING Australia has since taken steps to raise its liquidity position to well above APRA's minimum requirements.
While APRA views ING Australia to be financially resilient, its breaches of liquidity prudential requirements are serious.
In response, APRA has imposed licence conditions requiring ING Australia to commission independent reviews into the causes of its liquidity reporting failures and broader risk management and governance practices, develop a comprehensive remediation plan to address weaknesses identified, and provide independent assurance that those remediation actions have been effectively implemented and embedded.
APRA has also increased ING Australia's minimum liquidity requirements to ensure it is operating prudently while it addresses the underlying drivers of its liquidity reporting failure. Further, APRA has imposed a $50 million operational risk capital add-on to address heightened operational risk and potential broader weaknesses in its prudential reporting.
The capital add-on, increased liquidity requirement and licence conditions will remain in place until ING Australia has completed the required work to APRA's satisfaction.
APRA Deputy Chair Therese McCarthy Hockey said: "ING Australia is one of Australia's largest banks with more than 2 million customers nationwide and assets of over $100 billion. As such, APRA expects it to have robust governance and internal controls to support its financial and operational resilience.
"Although the bank remains well capitalised, and benefits from the financial strength of the broader ING group, these breaches are not simply a reporting error. When a bank cannot accurately measure one of its most important financial safeguards, it raises fundamental questions about the effectiveness of its risk management and controls. APRA is therefore acting decisively to ensure ING rectifies these weaknesses expediently," Ms McCarthy Hockey said.
