Student confesses that they are not ready for exam

There is important context to determine whether this should be a learning lesson for them or that they should truly postpone the date.

This student of mine has been doing RCM 4 for about a year and their Sonatina is no where ready for the exam 3 weeks from now. The rhythm isn't there and memorization + articulation isn't polished either. They asked me if they simply take out this repertoire out of their list and just play the other 4 which is obviously not possible. Needless to say, they are extremely stressed.

The reason why I feel so calm is because I knew this would happen. For the entire year, they've been giving me some incomplete homework: procrastinating scales for 5-6 months straight, getting distracted by practicing other songs found online and giving little focus to their RCM program. On top of all that, started with bad practice habits despite me telling countless times to correct them, they're gone now but it could've been taken care of sooner.

And yes, I did talk to the parents about what is going on. I'm not sure how the parents support this child (maybe tough love? Lol) but the other sibling is doing just fine. And yes, I was very thorough with my teaching. Every class there are results (even the struggling student commented on that), but every week after those results are halved because what was done in class is not being practiced at home.

Maybe it was my fault for not being strict enough? But I never found it appropriate to be strict in sacrifice of my current rapport with this student. I just feel like I've done everything I can but also worried what will the parents say if the results aren't as good since they don't know exactly the process behind piano teaching. Any advice?