Regulator Increases Capital Penalty for ANZ Over Markets Division Conduct

The Australian Prudential Regulation Authority (APRA) has increased the capital add-on applied to ANZ to AUD750 million in response to heightened concerns about the bank’s non-financial risk management practices, amidst a regulatory investigation into its Markets business and news that it had disciplined “several” employees from that division.

ANZ was levied with an AUD 500 million operational risk add-on in 2019, along with NAB and Westpac due to “deficiencies” in their risk governance, but while the other two banks have had their add-ons removed or reduced, ANZ has been hit with the latest increase. “APRA has held longstanding concerns with ANZ’s non-financial risk management,” the regulator says in a statement. “This capital add-on has remained in place as the bank implemented a remediation program. Despite this program being in place for several years, APRA has yet to observe significant improvements in ANZ’s non-financial risk management.”

APRA also highlights recent issues that have emerged in the bank’s Markets business that have increased its concerns. ANZ has admitted that it misreported bond trading data to the Australian Office of Financial Management (AOFM) in 2022-23, and that action has been taken in response to poor behaviour by employees in its Markets business, but while it has launched several investigations into the issues, APRA says events raise prudential concerns that ANZ has yet to adequately address deficiencies in controls, risk culture, governance and accountability.

In addition to the capital add-on, APRA says ANZ has to appoint an independent party to review the root causes of recent issues and risk governance in the Markets business, and assess the potential impacts across the broader bank. It is also demanding the development of a remediation plan to address findings from the independent review.

APRA chair John Lonsdale said he was concerned at the persistence of risk governance and culture issues within one of Australia’s largest banks.

“ANZ is financially sound with strong capital and liquidity levels, however, weaknesses in managing non-financial risk can lead to detrimental financial impacts and APRA has no tolerance for such weaknesses persisting,” says John Lonsdale, chair of APRA. “Of the major banks that had capital add-ons applied in 2019, ANZ is the only bank yet to have its add-on either removed or reduced. While the bank has implemented actions to improve its risk governance and culture over the past five years, these recent issues suggest there continues to be material gaps that need to be closed as a priority.

“We have communicated our clear expectations to the ANZ board and executive team that these issues must be urgently reviewed to ensure underlying drivers are identified and addressed,” he adds. “Depending on the outcomes from ANZ’s independent review, APRA will consider whether further action is required.”