APRA warns ANZ over ’non-financial’ failings, amid questions over executive pay

ANZ has failed to satisfy the prudential regulator’s concerns over culture and ‘non-financial’ risk management problems, with the board warned to carefully consider any executive bonuses.

ANZ chief executive Shayne Elliott. Picture: Arsineh Houspian

ANZ has failed to satisfy the prudential regulator’s concerns over culture and “non-financial” risk management problems, with warnings that the board should carefully consider any bonuses handed to bank management.

Speaking as it unveiled its new corporate plan, the Australian Prudential Regulation Authority issued a stern warning over ANZ’s handling of a bond trading scandal, pointing to concerns around the bank’s management in the years since a landmark royal commission.

APRA chair John Lonsdale said the regulator had been frustrated by a lack of progress at ANZ over the past five years, adding that the regulator was closely watching the bank’s management of non-financial risks, governance, culture, remuneration and accountability.

“We’ve had longstanding concerns on non-financial risk and more recently they’ve been heightened by the developments in the markets area of the bank,” Mr Lonsdale said.

“What we said to the board and the management very clearly is we want further action on non-financial risks.”

Mr Lonsdale said many issues had been identified years ago and APRA wanted them “dealt with more quickly”. He said: “We’re trying to signal very clearly that we don’t have an appetite for persistent risk on the non-financial side. We want more progress to be made.”

This comes as ANZ received a $250m capital penalty, after failing to secure the release of a ­further $500m requirement imposed in the wake of the Royal Commission into Misconduct in the Banking, Superannuation, and Financial Services Industry.

APRA hit the bank with the capital charge amid growing concern over an Australian Securities & Investments Commission investigation into ANZ over the bank’s involvement in a $14bn government bond placement last year.

APRA chair John Lonsdale. Picture: Chris Pavlich

ANZ’s markets team was a co-lead manager in the massive government debt deal, but trades in the lead-up to the issuance raised concerns among the Australian Office of Financial Management, the agency charged with placing government bonds.

As revealed in The Australian, ASIC began its investigations into the bond trading in July, after the placement in April.

APRA also ordered ANZ to appoint an independent third 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”.

Mr Lonsdale said APRA had told ANZ’s board “we want further action on non-financial risks”, with analysis of the root causes the “first step”. But Mr Lonsdale also said ANZ’s board should “look very closely at ­accountability issues” when assessing pay and bonuses.

APRA’s new standards require lenders to put in place policies that apply consequences for poor risk outcomes.

“It is up to the boards to think about what is the appropriate level of accountability and what are the remuneration consequences that are attached to that,” Mr Lonsdale said.

The warnings come after ANZ acknowledged the prospect of pay cuts, with chief executive Shayne Elliott indicating a process was under way at board level to “ensure consequences will be applied to senior executives, both past and present, including myself, where appropriate”.

Shareholders will vote on ANZ’s remuneration report at the bank’s annual general meeting in Brisbane in December. If more than 25 per cent of shareholders vote against the report at two consecutive meetings, ANZ’s board could be spilled and directors forced to stand for re-election.