Ernst & Young buckled to Allianz, royal commission told

The failure of independent consultants to resist pressure from some of Australia’s largest companies has again been exposed.

Allianz’s Lori Callahan leaves the royal commission hearings in Melbourne yesterday. Picture: AAP

The failure of independent professional consultants to resist pressure from some of Australia’s largest companies has again been exposed by the financial services royal commission, which yesterday heard how Ernst & Young buckled to the demands of insurance giant Allianz.

Revelations that EY produced four drafts of one report, and that Allianz unsuccessfully tried to “manipulate” another EY report that was destined for the prudential regulator, follow evidence before the commission in April that embattled financial services giant AMP had law firm Clayton Utz make more than two dozen changes to what was an “independent” report.

Allianz chief risk officer Lori Callahan also admitted to the commission that just three months ago she killed a scathing Deloitte report probing the insurer’s compliance and control failures — a move she said was “not my finest moment”.

The mounting evidence of management interference in “independent” reports uncovered by the commission throws doubt on the reliability of the endless stream of such reviews mandated by the Australian Securities & investments Commission and the Australian Prudential Regulation Authority.

The revelations come as APRA prepared to be inundated with independent reviews, after the regulator forced the nation’s largest financial institutions to investigate whether they suffered from the same issues as Commonwealth Bank, which was the subject of a scathing APRA-led review of its governance, culture and accountability.

The biggest banks, insurers and super funds have to the end of November to submit the “board-endorsed written assessments” of the group-wide governance.

The royal commission heard that in September and October last year Allianz forced EY to redraft a troubling review of the insurer’s compliance with financial services laws, after it was “not happy” with its dismal performance in the review.

Under pressure from Allianz, EY agreed to accept as true information given to it by the insurer that had no documentation to back it up, the commission heard.

An EY spokeswoman declined to comment.

This year Allianz commissioned Deloitte to review its culture and governance — a process that has uncovered that Allianz staff thought the company had a “poor compliance culture”, and that its compliance officers were “dumped on”.

Ms Callahan received the scathing draft report, and the following day called Deloitte asking for it to be withdrawn. A Deloitte spokesman said the Allianz report was “an early draft” to be discussed with the chief executive.