The Australian Prudential Regulation Authority (APRA) has increased the capital add-on applied to Australia and New Zealand Banking Group (ANZ) to $750 million in response to heightened concerns about the bank’s non-financial risk management practices.
APRA has held longstanding concerns with ANZ’s non-financial risk management, and imposed a $500 million operational risk capital add-on to the bank in 2019 to reflect deficiencies in its risk governance.
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.
More recently, several issues emerging in the bank’s Markets business have increased APRA’s 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.
While ANZ has launched several investigations into these issues, they raise prudential concerns that ANZ has yet to adequately address deficiencies in controls, risk culture, governance and accountability.
In response, APRA will require ANZ to:
- hold an operational risk capital add-on of $750 million, representing an increase of $250 million to the existing add-on;
- 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; and
- develop a remediation plan to address findings from the independent review.
The capital add-on will remain in place until such time as ANZ has delivered required remediation to APRA’s satisfaction.
