The Reserve Bank has told Westpac it must commission two independent reports to address concerns the regulator has around the bank's risk governance processes.
Geoff Bascand, deputy governor and general manager of financial stability at the Reserve Bank, said it had experienced ongoing compliance issues with Westpac New Zealand in recent years.
Bascand said most recently it had dealt with the bank over material failures to report liquidity correctly and the bank had continued to operate outside of its own risk settings for technology for a number of years.
"Westpac NZ needs to take a close look at its risk governance practices. To ensure this happens we are requiring them to provide an independent report that assesses Westpac NZ's risk governance processes and practices applied by the Westpac NZ Board and executive management."
It had also required Westpac to provide a separate independent report to provide assurance that the actions they have taken to improve the management of their liquidity risks, and the culture surrounding it, are effective.
Bascand said until it was satisfied that Westpac's remediation work was complete and effective it was increasing the bank's required holding of liquid assets.
The bank regulator can require the reports under section 95 of the Reserve Bank of New Zealand Act 1989.
In a statement Westpac New Zealand said it acknowledged the importance of liquidity and risk governance obligations and would support the independent reviewers to provide the necessary reports to the Reserve Bank.
"WNZL will also act promptly on any recommendations from the reviews.
"WNZL has taken a number of steps to improve risk governance but recognises more work is required, and supports the additional oversight that the independent reports will provide."
The bank said the reviews only applied to WNZL and not the governance processes of Westpac Banking Corporation in Australia or its New Zealand branch.
The Reserve Bank noted that it was confident that Westpac New Zealand's current liquidity and funding positions were sound and that the bank was well capitalised.