The Australian Prudential Regulation Authority (APRA) will require Heritage Bank Limited (Heritage) to increase its minimum capital requirement by $5 million through an operational risk capital add-on. The enforcement action comes after Heritage had incorrectly reported capital because of weaknesses in operational risk and compliance frameworks. Heritage did not breach minimum prudential capital ratios at any point and remains well capitalised.
In addition to the increased capital overlay, APRA will require Heritage to complete a remediation program to address areas of concern regarding governance, risk management systems, processes and frameworks.
APRA Deputy Chairman Mr John Lonsdale said: “Although Heritage remains financially sound, APRA takes breaches of its prudential requirements seriously. This capital overlay reflects our assessment of the bank’s heightened operational risk and compliance profile. The increased capital requirement will remain in place until we are satisfied that our concerns have been addressed and weaknesses rectified.
“We also expect Heritage to assign Accountable Persons under the Banking Executive Accountability Regime with responsibility for delivering the sustainable change needed at the bank,” Mr Lonsdale said.
APRA will also launch a targeted self-assessment program to ascertain whether other authorised deposit-taking institutions are similarly affected and address any potential deficiencies.