The move follows a scathing independent review of ANZ’s global markets business, revealing leadership shortcomings, inconsistent risk governance and a reactive risk culture – raising alarms that these issues extend beyond just one division.
In response, ANZ has entered into a court-enforceable undertaking (CEU) with APRA, committing to a sweeping overhaul of its risk framework.
The regulator, unimpressed with ANZ’s pace of reform, has made it clear it won’t wait for a "serious prudential problem" before stepping in.
In a statement on Thursday. 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. 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 underway 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.
“The EU entered into today provides us with a clear roadmap for addressing APRA’s concerns. Both the board and management will bring a clear-eyed focus to completing this work, seeking to have the capital overlay removed as quickly as possible,” O’Sullivan said.
What went wrong?
APRA’s latest action builds on long-standing concerns about ANZ’s operational risk management, which has now led to three capital add-ons since 2019 – escalating from $500 million to $750 million, and now to $1 billion.
The Oliver Wyman report, commissioned by the big four bank following APRA’s intervention last August, found that while ANZ’s institutional and markets culture has improved, there are still glaring inconsistencies in how non-financial risk is handled.
The report flagged leadership failures, revealing that ANZ’s markets leadership did not adequately address reported misconduct, allowing it to persist. Namely, the review uncovered serious allegations of workplace misconduct within ANZ’s markets division, including bullying, alcohol and substance abuse involving a small number of individuals.
While the report found no evidence of systemic misconduct, staff in Sydney and London repeatedly raised concerns about inappropriate behaviour – only to see leadership fail to take decisive action.
“Some markets leaders have compounded these challenges by not effectively role modelling leadership standards and risk management behaviours,” the report said.
“A positive but variable culture, leadership shortcomings and limitations in the supporting infrastructure allowed misconduct to emerge and persist. This ultimately resulted in a loss of trust among staff,” it said.
Moreover, the review found ANZ’s markets division struggle with inconsistent execution of its Three Lines of Defence model, resulting in unclear risk ownership and inadequate oversight, which undermined non-financial risk management and hampered the development of effective risk capabilities.
Additionally, the review said while markets has “a comprehensive suite of risk policies and frameworks”, “some of the current policy documentation suffers from inconsistency and complexity”.
Oliver Wyman identified five root causes contributing to ongoing shortcomings in the markets division, including leadership failures in non-financial risk management, inconsistent execution of risk activities, a tendency to view issues as isolated, a focus on execution over outcomes, and a variable culture that didn’t always prevent inappropriate behaviour.
“Addressing these root causes requires a comprehensive approach, including a shift in mindset, behaviours, and changes to the supporting infrastructure. Failing to address these root causes may lead to the re-emergence of shortcomings outlined in this report or allow new vulnerabilities to surface,” the report said.
It warned that “the weaknesses in culture, leadership and infrastructure could lead to material issues in the future if they are not addressed”.
ANZ’s next moves
On Thursday, ANZ announced it has accepted all recommendations of the Oliver Wyman review.
The recommendations include reinforcing leadership standards in markets to align actions with desired culture, refining governance roles to improve risk execution and independent challenge, and ensuring clear, monitored expectations for supervisors.
O’Sullivan said: “The board accepts all the recommendations of the Oliver Wyman review and will hold management accountable for implementing these in a systematic and permanent manner. This will be integrated with the work we are doing across the group to comply with the EU agreed with APRA.
“While numerous staff reported to Oliver Wyman that culture and risk culture within our institutional and markets businesses have improved significantly over the past decade, it’s clear there is more work to be done to ensure conduct and behaviour issues do not go unaddressed in the future.”
Faced with mounting regulatory pressure, ANZ also said it is making structural changes to its executive team, including creating a new executive role – group head of non-financial risk program delivery – to oversee the overhaul. This role will be filled by Mark Evans, current head of Singapore and head of south-east Asia, India and the Middle East.
Additionally, Dan Wong has been appointed as group general manager of operational risk, while Mark Whelan, group executive institutional, will be held responsible for implementing the 19 recommendations and 53 sub-recommendations of the Oliver Wyman report.
The road ahead
Under the CEU, ANZ must appoint an independent reviewer to pinpoint the root causes of its risk governance failures, develop a remediation plan and report progress to APRA every three months.
The $1 billion capital penalty stays in place until APRA is satisfied with the bank’s reforms.
“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,” chair John Lonsdale said.
“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,” he added.
