RACQ ordered to implement a risk transformation program

The Australian Prudential Regulation Authority (APRA) will require RACQ Insurance Limited and RACQ Bank to create and implement an APRA-approved, risk transformation program following a prudential review that exposed several weaknesses in the RACQ’s risk governance.

In June, RACQ promised to undertake “a significant investment in its systems and processes” after self-reporting a regulatory breach to the Australian Securities and Investments Commission (ASIC) – but the promised move toward stronger risk management wasn’t enough to convince the APRA.

During the review, it found more issues in RACQ’s risk and compliance framework and practices, capability and capacity challenges within the risk functions, unclear accountabilities and immature risk cultures. As such, APRA’s new requirements builds on RACQ’s existing investments as it seeks to ensure the material risk governance concerns are fully addressed.

Aside from the implementation of a risk transformation program, RACQ is ordered to engage a third-party to provide independent assurance over the delivery of the program and provide periodic reporting to APRA, as well as assign accountability under the Banking Executive Accountability Regime for successful delivery of the risk transformation program to an appropriate executive.

Helen Rowell, deputy chair of the APRA, expressed the regulatory body’s disappointment with the “current deficiencies” within RACQ as she called for better compliance from similar entities.

“We expect APRA-regulated entities to have strong risk governance in place,” Rowell said. “APRA will continue to work closely with insurers, banks and superannuation trustees to improve risk management practices and strengthen risk frameworks across the financial sector. We will not hesitate to require action and highlight publicly, where appropriate, when entities do not meet these expectations.”