The Australian Prudential Regulation Authority (APRA) has taken action against Macquarie Group Limited (MGL) for breaching a condition of its Non-Operating Holding Company (NOHC) authority by miscalculating the capital required for risks in its non-bank business since 2019.
APRA's recent capital review revealed that Macquarie understated the required capital for its non-bank operations, resulting in a lower capital requirement than appropriate. Despite this breach, APRA confirmed that the overall financial stability of the Macquarie Group, including its banking operations, was never compromised.
In response, Macquarie has corrected the capital understatement and implemented a $100 million governance overlay. This is in addition to a $500 million capital overlay APRA applied to Macquarie Bank Limited in 2021. The removal of these overlays will require APRA's approval.
APRA will oversee a comprehensive assessment of Macquarie's Economic Capital Model used to determine capital for its non-bank business. Depending on the findings, APRA may consider further regulatory action.
APRA Deputy Chair Therese McCarthy Hockey described the breach as a serious failure in Macquarie's governance and assurance processes, emphasizing the expectation for high standards of risk management and controls from one of Australia's largest financial groups. She noted that Macquarie failed to identify and address the issue internally, falling short of APRA's standards.
Ms. McCarthy Hockey also reiterated APRA's intention to review all existing NOHC authorisations to ensure they adequately address risks related to group structures and activities.
