ANZ takes $250m buffer hit over risk culture | Australian Markets

Big 4 bank ANZ has been dealt a $250 million blow underneath the phrases of a court-enforceable enterprise with the banking regulator over risk management flaws.

The Australian Prudential Regulation Authority has instructed ANZ to carry the additional money in capital — up from $750m to $1 billion — after the lender launched the findings of an unbiased report into its culture.

The regulator mentioned on Thursday it had long-standing issues over ANZ’s non-financial risk management practices and risk culture.

“These include weaknesses in ANZ’s operational risk and compliance management and a reactive risk culture,” mentioned chair John Lonsdale.

“APRA has been taking measures, through reviews and engagements with ANZ, to supervise the bank’s remediation of these weaknesses. However, we have observed that these weaknesses remain present across the bank.”

ANZ suffered reputational harm brought on by the handling of a bond trading scandal and cultural and risk management failings in its international markets division.

Angry buyers delivered a first strike on government pay at December’s annual common assembly and the board was compelled to withdraw a $3.2 million bonus for retiring chief government Shayne Elliott.

ANZ mentioned it had accepted all advice of an unbiased review ordered by APRA to uncover the basis causes of the problems and decide whether or not they prolonged past the bank’s international markets business.

The five-month review included interviews with more than 110 employees.

That report discovered that whereas there had been allegations of a number of events of unacceptable office conduct within the markets unit previously regarding a small quantity of employees — together with bullying and alcohol and substance abuse — there was no proof of widespread or systemic misconduct.

The report additionally flagged management shortcomings and limitations in supporting infrastructure that allowed misconduct to emerge and proceed. This in the end resulted in a loss of trust amongst employees.

It additionally indicated risk culture issues may not be restricted to the markets division and really helpful the bank do a additional investigation to look at whether or not comparable points are additionally current in different components of the firm.

ANZ chair Paul O’Sullivan mentioned the bank now had “a clear roadmap for addressing” APRA’s issues.

“We are disappointed that we have not met APRA’s expectations about how the bank manages non-financial risk and its non-financial risk culture,” Mr O’Sullivan mentioned.

“A strong non-financial risk regime is critical to protecting our bank and our customers.

“While APRA has recognised the bank has a significant agenda of non-financial risk work under way and has made some progress with improving our practices, we recognise we have more work to do to uplift our management of non-financial risk and to improve risk culture across the bank.”

Mr O’Sullivan mentioned the bank can be work in direction of having the additional $250m buffer eliminated “as quickly as possible”.

But Mr Elliott, who will likely be changed by incoming chief government Nuno Matos subsequent month, mentioned the bank remained in a sturdy financial place.

As half of the court-enforceable enterprise, ANZ has appointed Mark Evans as head of non-financial risk program supply, and in addition created a new position for common supervisor chargeable for operational risk, Dan Wong.

The board will job group government institutional Mark Whelan to supervise the implementation of the 19 suggestions and 53 sub suggestions of the review, with the help of a devoted working group.

Mr Lonsdale mentioned APRA was not ready to attend for the chance of a critical prudential downside crystallising at ANZ earlier than taking motion.

“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,” he mentioned.

“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.”