The Australian Prudential Regulation Authority (APRA) has formalised an agreement with the Australia and New Zealand Banking Group (ANZ) to tackle persistent deficiencies in the bank’s non-financial risk management and risk culture.
This agreement, known as a Court Enforceable Undertaking (CEU), comes alongside an increase in the capital add-on imposed on ANZ, now totalling A$1bn, up from the previous A$750m. This follows a previous increase in 2022, when APRA raised the operational risk capital add-on from A$500m to A$750m.
APRA has expressed ongoing concerns about ANZ’s handling of non-financial risks, particularly in operational risk and compliance management, as well as a reactive risk culture. Despite APRA’s efforts through reviews and engagements with ANZ, these issues persist across the bank.
In August 2024, APRA introduced several measures in response to significant concerns about employee conduct and non-financial risk management within ANZ’s Global Markets division. As part of these measures, ANZ was required to commission an independent review to investigate the root causes of these issues and assess whether they extend beyond the Global Markets division.
The independent review supported APRA’s concerns, identifying root causes contributing to the ongoing risk governance deficiencies. While some improvements in culture, conduct, and risk governance were noted within ANZ’s Global Markets business, the review warned that similar shortcomings might exist in other areas of the bank.
APRA recognises the progress made in ANZ’s remediation program, which aims to implement a comprehensive non-financial risk management framework across the group. However, APRA has determined that completing this program alone will not sufficiently address the broader non-financial risk weaknesses at ANZ.
Under the CEU terms, ANZ is required 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.
The bank must also develop a comprehensive remediation plan, appoint an independent reviewer to ensure the plan’s execution, and provide a written attestation from key board members to APRA upon satisfactory completion of the remediation activities.
Additionally, ANZ must integrate accountability for the remediation plan into the accountability statements for relevant personnel under the Financial Accountability Regime and reflect this in remuneration scorecards.
The A$1bn capital add-on will remain until ANZ meets APRA’s remediation requirements.
