APRA accepts Court Enforceable Undertaking from ANZ and increases capital add-on to $1 billion

The Australian Prudential Regulation Authority (APRA) has accepted a Court Enforceable Undertaking (CEU) from Australia and New Zealand Banking Group (ANZ) to address ongoing weaknesses in the bank’s non-financial risk management practices and risk culture. 

APRA has also increased the capital add-on applied to ANZ from $750 million to $1 billion. This comes after APRA last year increased the $500 million operational risk capital add-on applied in 2019 by $250 million.

APRA has had long-standing concerns 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. 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.

In August 2024, APRA announced several measures in response to the serious issues relating to employee conduct and non-financial risk management emerging in ANZ’s Global Markets business. In response, APRA required ANZ to commission an independent review to determine the root causes of the issues, whether they extend beyond the Global Markets business and if the bank’s existing multi-year remediation program would be sufficient to address them.

The findings of the independent review have lent further credence to APRA’s concerns. While the review noted some improvements in the culture, conduct and risk governance in ANZ’s Global Markets business, it identified root causes that have contributed to the emergence and persistence of risk governance shortcomings. It also cautioned that shortcomings identified in ANZ’s Global Markets business may be present in other parts of the bank. 

APRA acknowledges the progress of ANZ’s remediation program to date in implementing a group-wide non-financial risk management framework, system and operating model. However, APRA has assessed that the completion of this program alone will not effectively and sustainably address the broader non-financial risk weaknesses across ANZ. 

Chair John Lonsdale said APRA was not prepared to wait for the possibility of a serious prudential problem crystallising at ANZ before taking action.

“ANZ remains financially sound with robust levels of capital and liquidity, however problems with the bank’s management of non-financial risks are persistent and prevalent across the bank. 

“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.

Under the terms of the CEU, ANZ has agreed to:

• appoint an independent reviewer to complete a Group-wide review of root causes and behavioural drivers of the persistent weaknesses in non-financial risk management practices and risk culture, and to conduct a gap analysis against current or planned remediation work; 
• develop a comprehensive remediation plan to address the root causes; 
• appoint an independent reviewer to provide assurance over the execution of the remediation plan; 
• provide a written attestation from the relevant Accountable Person, the Chair of the Board Risk Committee and/or the Chair of the Board Audit Committee to APRA once ANZ is satisfied that the remediation activities under the plan have been completed and the target states substantially achieved; and 
• incorporate accountabilities for delivery of the remediation plan into the accountability statements for Accountable Persons required under the Financial Accountability Regime, and to reflect this accountability in the remuneration scorecards. 

The $1 billion capital add-on will remain in place until such time as ANZ has delivered the required remediation to APRA’s satisfaction. 

A copy of the CEU is available here: Enforceable undertakings register.