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The Australian Prudential Regulation Authority (APRA) has accepted a Court Enforceable Undertaking (CEU) from ANZ to address persistent weaknesses in the bank’s non-financial risk management practices and risk culture.
APRA has also raised the capital add-on applied to ANZ from $750 million to $1 billion. This increase follows a $250 million rise to the $500 million operational risk capital add-on initially applied in 2019.
APRA’s concerns about ANZ’s non-financial risk management practices and risk culture have been ongoing for some time.
These concerns include weaknesses in operational risk and compliance management and a reactive risk culture. Despite extensive reviews and engagements aimed at addressing these issues, APRA has observed that the weaknesses persist throughout the bank.
In August 2024, APRA introduced several measures in response to serious concerns over employee conduct and non-financial risk management in ANZ’s Global Markets business.
As part of these measures, APRA required ANZ to commission an independent review to identify the root causes of the issues, assess whether they extended beyond the Global Markets business, and determine if the bank’s existing multi-year remediation program would suffice.
The findings of the independent review have confirmed APRA’s concerns. Although the review highlighted some improvements in culture, conduct, and risk governance within ANZ’s Global Markets business, it identified persistent shortcomings that have contributed to the ongoing risk governance issues.
The review also cautioned that these issues may extend beyond the Global Markets division and could be present in other parts of the bank.
While APRA recognises the progress ANZ has made in implementing a group-wide non-financial risk management framework, system, and operating model, it has concluded that the completion of this program alone will not effectively address the broader non-financial risk weaknesses across the bank.
Chair John Lonsdale emphasised that APRA was unwilling to wait for a potential prudential problem to materialise before taking action.
“ANZ remains financially sound with robust levels of capital and liquidity; however, problems with the bank’s management of non-financial risks are persistent and prevalent across the bank,” he said.
“APRA has seen how long-standing non-financial risk management weaknesses have manifested in material prudential issues at some of ANZ’s peer banks. We have observed some similar weaknesses at ANZ and require these to be addressed as a priority.”
Lonsdale continued: “ANZ has offered the CEU to APRA in response to the concerns I have raised directly with the ANZ board, including the Chair. They have assured me that they are fully committed to the undertakings in the CEU and will provide strong stewardship to ensure a successful remediation program.”
Under the terms of the CEU, ANZ has agreed to appoint an independent reviewer to conduct a group-wide review of the root causes and behavioural drivers of the persistent weaknesses in non-financial risk management practices and risk culture.
The review will also include a gap analysis against current or planned remediation work.
Additionally, ANZ is required to develop a comprehensive remediation plan to address these root causes, appoint an independent reviewer to ensure the plan’s execution, and provide a written attestation from the relevant accountable persons once the remediation activities have been completed to APRA’s satisfaction.
Furthermore, accountabilities for the delivery of the remediation plan will be incorporated into the accountability statements for responsible individuals, with remuneration scorecards reflecting this accountability.
The $1 billion capital add-on will remain in place until ANZ has sufficiently addressed the required remediation to APRA’s satisfaction.
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