By Gareth Vaughan
Westpac New Zealand has had to take "corrective action" to address further breaches of the Reserve Bank's bank registration conditions.
The Reserve Bank's annual report out this week reveals that all 20 registered banks are in compliance with their conditions of registration after "corrective action" was taken to address a single breach during the year.
The central bank's comments come after Westpac's General Disclosure Statement for the year to September 2010 noted breaches to its conditions of registration, which are the means by which the Reserve Bank applies prudential requirements to banks, in three areas stemming from services provided to Westpac NZ by its Australian parent as the Westpac group continues to work on transferring New Zealand business operations to Westpac NZ from parent Westpac Banking Corporation.
In the event of stress or failure of the Bank, or of a service provider of the Bank, the Bank must be able to provide legal and practical controls relating to certain settlement tasks. The Bank needed to enhance its practical controls in this area and did so during the three months ended December 31, 2009.
Growing customer demand for automated payment solutions has resulted in the need to add more legal and practical controls in relation to one product for a small number of business customers. The Bank completed the work necessary to remediate this issue on June 30, 2010.
In the event of stress or failure of the bank, or of a service provider of the Bank, the Bank must be able to deliver certain settlement services that are currently provided by the NZ Branch (parent) in relation to functions provided to the Bank by Interchange and Settlement Limited. This aspect of non-compliance relates to the period from April 1, 2010 to September 30, 2010. From October 1, 2010 the Bank complied with condition 11 of its conditions of registration as "varied" by the Reserve Bank on September 30, 2010.
A Reserve Bank spokeswoman declined to comment on the breaches, or on what was done to rectify them, saying the central bank doesn’t comment on individual entities.
The Reserve Bank has the power to vary, add to, or remove conditions of registration. It's also able to recommend to the Minister of Finance that a bank's registration be cancelled. It's required to give a registered bank at least seven days’ notice of its intention to make such a recommendation and to provide a statement of its reasons.
On top of this it must also give the bank a reasonable opportunity to make submissions, and must have regard to those submissions. See more on bank registration and supervision here including a list of the standard conditions of registration
Westpac Banking Corporation is due to transfer institutional, some debt capital markets, and corporate advisory business to Westpac NZ by the end of the 2011 calendar year. The transfer programme was put in place after non-compliance by Westpac with some bank registration conditions in 2008.
As of June 30 this year, Westpac said business activities being transferred to Westpac NZ include customer loans worth about NZ$6.2 billion, and customer deposits worth about NZ$5.8 billion. It expects term intra-group funding of about NZ$3.1 billion will be put in place. Westpac estimates the business operations being transferred had revenue of about NZ$120 million in the nine months to June and net profit after tax of about NZ$74 million.
Westpac NZ CEO George Frazis told interest.co.nz last year that from the customers' perspective the shift of assets and liabilities to Westpac NZ would have no impact. Frazis said the shift creates "some inefficiency" but all of the business involved in the move was carried out in New Zealand.
The changes to Westpac's New Zealand operational model date back to 2004. That was when Westpac, which had been operating in New Zealand solely as a branch of its Australian parent, agreed to incorporate in New Zealand. Westpac NZ was duly registered as a bank in November 2006 meeting the Reserve Bank's local incorporation policy that all systemically important banks operating in New Zealand be locally incorporated.
However, since 2006 Westpac has run the dual registration operating model with Westpac NZ undertaking its retail and business banking activities in New Zealand and the branch of parent Westpac Banking Corporation established to undertake institutional and financial market activities.
See the full list of registered banks here.
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