APRA to Oversee Capital Model Review After Macquarie Group NOHC Authority Breach

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 found that MGL had miscalculated the capital required to support risks within the non-bank during a recent capital review. The breach dates back to 2019 and resulted in lower required capital for the non-bank, though APRA said 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 Economic Capital Model used by Macquarie to determine the required capital for its non-bank business. 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. She said Macquarie, as one of the country's largest financial groups, is expected to meet among the highest standards of governance, risk management and controls, and that it failed to identify and address the issue through its own processes.

McCarthy Hockey said that while APRA acknowledges Macquarie's cooperation, addressing the breach after identification does not diminish the seriousness of the underlying failure. She added that board and senior executives are responsible for ensuring effective risk management, assurance and governance practices that support compliance, rather than simply reacting when deficiencies are identified.

APRA will also review all existing NOHC authorisations to ensure they appropriately address the risks arising from group structure and activities, McCarthy Hockey said.