The Australian Prudential Regulation Authority (APRA) will oversee a comprehensive assessment of how Macquarie Group Limited (MGL) determines the required capital for its non-bank businesses after identifying a breach of the group’s Non-Operating Holding Company (NOHC) authority.
APRA identified that MGL had miscalculated the amount of capital required to support risks within the non-bank during a recent capital review. The breach, which dates back to 2019, resulted in lower required capital for the non-bank, however the overall financial stability of the group, including the bank, was not undermined at any point.
MGL has since addressed the understatement of its required capital, and a $100m governance overlay has been put in place. APRA will oversee a full assessment of the approach used by Macquarie to determine the required capital for its non-bank business (Economic Capital Model). Subject to the assessment findings, APRA may consider further action.
The $100m overlay is in addition to an existing $500m capital overlay that APRA applied to Macquarie Bank Limited in 2021. Removal of these overlays is subject to APRA approval.
APRA Deputy Chair Therese McCarthy Hockey said the breach reflected a serious failure in Macquarie Group’s governance and assurance processes.
“Macquarie is one of the country’s largest financial groups and, as such, APRA expects it to have among the highest standards of governance, risk management and controls. Macquarie failed to identify and address this issue through its own governance and assurance processes, which falls short of APRA’s expectations.
“While APRA acknowledges Macquarie's cooperation, addressing the breach after identification does not diminish the seriousness of the underlying failure. Board and senior executives are responsible for ensuring their institutions maintain effective risk management, assurance and governance practices that support compliance, not simply react when deficiencies are identified.
“As previously flagged, APRA will be reviewing all existing NOHC authorisations to ensure they appropriately address the risks arising from group structure and activities,” Ms McCarthy Hockey said.