Operations and staff conduct prompt ongoing APRA concerns
In a significant move impacting the banking sector, the Australian Prudential Regulation Authority (APRA) has mandated the Australia and New Zealand Banking Group (ANZ) to increase its capital reserves by $250 million, bringing the total to $750 million. This decision comes as a direct response to what APRA said were ANZ's persistent shortcomings in managing non-financial risks, a crucial factor for insurers, brokers, and businesses reliant on banking stability.
APRA's actions stem from ongoing concerns about how ANZ handles risks that are not directly tied to financial metrics, such as operational processes and employee conduct. Initially, in 2019, APRA had already added a $500 million charge to ANZ's capital reserves due to identified gaps in the bank’s risk governance frameworks.
Despite ANZ's efforts to rectify these issues through various remediation plans, substantial improvements have been elusive. Recent complications, especially in the bank's Markets division, have escalated worries. Notably, ANZ acknowledged missteps in reporting bond trading figures to the Australian Office of Financial Management for the fiscal years 2022-23 and issues related to staff conduct within the Markets division.
In reaction to these developments, APRA's increased capital requirement serves as a financial buffer to safeguard the bank from potential risks arising from these governance lapses. Moreover, APRA has ordered ANZ to engage an independent party to conduct a thorough review of the underlying causes of these failings, particularly within the Markets division. This review will also assess the potential broader impacts on the bank's overall operations.
APRA chair John Lonsdale (pictured) expressed his concern regarding the continuous issues in risk governance and culture at ANZ, one of Australia’s largest banking institutions. Despite being financially robust, ANZ’s ongoing issues with non-financial risk management suggest deeper systemic problems that require immediate attention, he said.
Furthermore, unlike its peers who have either reduced or removed similar capital charges, ANZ remains the only major bank from the 2019 cohort that has not seen any relaxation in these additional requirements. This has prompted APRA to maintain a firm stance, emphasizing the urgency of addressing these concerns to prevent any adverse financial consequences.
The regulator has made it clear to ANZ’s board and executive team that the current shortcomings need urgent and effective resolution. The outcomes from the independent review will significantly influence whether APRA will need to take further regulatory actions.
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