The Australian Prudential Regulation Authority (APRA) has agreed with ANZ, one of Australia’s biggest banks, to fix ongoing problems with how the bank handles risks that aren’t about money, like employee behaviour and company culture.
APRA has also told ANZ to set aside an extra $1 billion as a safeguard. This is an increase from $750 million last year.
APRA has worried for a while about weaknesses in ANZ's risk management.
Even though ANZ has tried to improve, APRA still sees problems across the bank.
To fix this, APRA has asked for an independent review to figure out why these issues keep happening. It has also asked to check if ANZ’s existing plans to fix them are enough.
Last year, APRA had already taken steps to deal with these problems, especially in ANZ’s Global Markets business, which handles complex financial trading.
The review found that while there have been some improvements in that part of the bank, the root causes of the issues are still there.
It also warned that similar problems might exist in other areas of the bank.
Under the revised agreement, called a Court Enforceable Undertaking (CEU), ANZ has promised to take several actions.
These include hiring independent reviewers to check its plans, making a full strategy to solve the issues, and ensuring its leaders are held accountable for making improvements.
APRA says the $1 billion safeguard will stay in place until the bank proves it fixed the problems.
Although ANZ is financially strong, APRA’s chair, John Lonsdale, stated that fixing these risk management issues is critical to avoiding serious problems later.
Lonsdale said APRA was not prepared to wait for the possibility of a serious prudential problem crystallising at ANZ before taking action.
“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.
“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,” Mr Lonsdale said.
ANZ Chairman Paul O’Sullivan said, "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."
At the time of writing, ANZ Group Holdings Ltd's (ASX: ANZ) share price was trading at $29.24, with a market cap of approximtely $86.85 billion.
