Australia’s Westpac is hit by second enforcement action in a year after the banking regulator flagged risk management lapses at the bank.

The Australian Prudential Regulation Authority (APRA) has asked the bank to raise its cash reserves due to material breaches of prudential standards.

In a statement, APRA said that the breaches were identified last year and in 2020 highlight weaknesses in liquidity processes and risk control framework.

The regulator directed the bank to add 10% to the net cash outflow component of its Liquidity Coverage Ratio (LCR) calculation, until the completion of an independent review of its risk management.

However, APRA added that the breaches, which have since been rectified, do not raise concerns about Westpac’s current liquidity position.

APRA deputy chair John Lonsdale said: “Under APRA’s liquidity requirements, banks must maintain a sound liquidity risk management framework, ensuring accurate calculation of the LCR and Net Stable Funding Ratio (NSFR).

“While Westpac’s LCR and NSFR are comfortably above regulatory minimums, APRA’s actions reflect how seriously we view breaches of our prudential requirements.”

“In taking these actions, our objective is to obtain assurance that Westpac is complying with APRA’s liquidity requirements. It also sends a message to the wider banking industry that breaches of prudential standards are not acceptable, and APRA will respond as appropriate, including by imposing penalties.”

In a separate statement, Westpac also acknowledged the findings of APRA’s review.

The move comes after Westpac agreed to pay a fine of A$1.3bn ($916m) in September for violating anti-money laundering laws.