Documents show APRA took ANZ to task over its non-financial risk issues

APRA in August handed ANZ a to-do list of problems it felt needed addressing and it appears the regulator had grown tired of raising issues with the banking major.

ANZ chief executive Shayne Elliott presenting the bank’s full-year results for 2024. Picture: Arsineh Houspian.

The prudential regulator has blasted ANZ’s handling of non-financial risks in a seven-page letter, with the agency detailing its concerns with the big four bank’s handling of problems in its markets business and warning it had failed to act despite repeatedly raising ­issues.

In documents released to The Australian under Freedom of Information, the Australian Prudential Regulation Authority warned ANZ had failed to live up to expectations that it would improve its non-financial risk handling, not justifying the removal of a $500m capital penalty imposed on the bank in 2019.

The letter, which APRA heavily redacted, citing “secrecy” concerns, reveals its “long-standing concerns” with ANZ’s non-financial risk management and risk culture, warning the bank would be hit with an additional $250m capital charge in the wake of publicity around the bank’s involvement in a bond deal.

The letter, sent a day before APRA formally revealed its decision to the market, reveals the regulator was concerned about ANZ’s misreporting of data to the Australian Office of Financial Management, in which the bank overstated trades in government bonds by almost $54bn.

This data was supplied by ANZ as part of the bank’s efforts to win a role in the AOFM’s placement of Australian government debts.

ANZ sources have indicated ANZ’s incorrect data was due to poor internal systems coupled with insufficient oversight of the turnover figures prior to their distribution to the AOFM.

APRA also took aim at conduct and behaviour issues in ANZ’s markets business. The regulator noted a redacted matter “indicate(d) that risk governance weaknesses are persisting”.

APRA goes on to list its supervisory decisions and requirements of ANZ, with the heavily redacted section warning the bank would be required to commission an independent review of the “the root causes of the recent issues and risk governance” as well as develop a remediation plan to address any findings. “Please be advised that if APRA’s concerns are not promptly or effectively addressed, (redacted) additional actions will be considered,” APRA notes.

The extensively redacted sections suggest APRA detailed a number of its concerns with ANZ.

An APRA spokesman declined to reveal the regulator’s full list of issues and concerns, instead directing The Australian to the regulator’s August statements.

APRA FOI officer “Katherine” reveals much of the information the regulator refused to reveal “has not been lawfully made available to the public and meets the definition of ‘protected information’.”

APRA chair John Lonsdale. Picture: Chris Pavlich

She noted the decision to prevent the release of much of the information came after consultation with ANZ over the letter.

But a separate FOI reveals APRA engaged in considerable behind-the-scenes discussions about non-financial risk issues in ANZ prior to the regulator issuing the bank with its letter of demands in August.

APRA’s FOI officer “Nicky” reveals APRA staff exchanged or created 41 documents relating to non-financial risk at ANZ between July and August this year.

But APRA refused to release any of the documents or correspondence, warning they represented “protected” information.

ANZ sources said APRA’s ­letter had come after years of engagement between the bank and the regulator over non-financial risks.

Sources with knowledge of the markets business said APRA and ANZ staff would meet semi-regularly to discuss issues.

But they noted ANZ internal staff often dismissed APRA’s concerns or thought the bank had addressed the issues.

These sources said ANZ staff were aiming to get APRA to remove the $500m capital buffer already in place prior to August this year. This led ANZ to slash spending on travel, among other cutbacks, as the bank sought to show its financial restraint to the regulator and ratings agencies.

But sources said it also led ANZ to hold back on spending on upgrades to technology systems used to understand risk within the markets business.

It was widely known within the markets business that ANZ’s Murex platform was ageing and unwieldy.

Much of the incorrect data supplied to the AOFM was exported from Murex.

In response to the scandals surrounding the disgraced markets business, ANZ moved last week to slash bonuses to traders.

But others were reportedly still handed significant pay packets, including several Singapore-based seniors in the ANZ markets business.

Sources said staff sought to raise concerns over conduct issues within the markets business with ANZ’s senior management over recent years, but were met with assurances or platitudes and nothing was done.

ANZ’s board is now focused on the markets business issues, with chair Paul O’Sullivan chairing a subcommittee “to evaluate and test technical issues on ongoing basis”.

Originally published as Documents show APRA took ANZ to task over its non-financial risk issues