(Bloomberg) -- Australia’s banking regulator said ANZ Group Holdings Ltd. must hold more capital due to a lack of improvement in risk management, as the firm battles to clean up a markets business that’s faced allegations of poor culture.
Several issues emerging in ANZ’s markets business have increased the Australian Prudential Regulation Authority’s concerns, according to a statement Friday. While ANZ has launched several investigations into these issues, they raise concern that the company hasn’t adequately addressed deficiencies in controls, risk culture, governance and accountability, APRA said.
“ANZ is financially sound with strong capital and liquidity levels,” APRA Chair John Lonsdale said in the statement. “However, weaknesses in managing non-financial risk can lead to detrimental financial impacts and APRA has no tolerance for such weaknesses persisting.”
ANZ has taken action against staff relating to cultural and conduct issues and has also hired external legal counsel to investigate allegations that it overstated bond dealings to win business. It’s also facing a probe into its role in the sale of a government bond last year.
The bank’s shares traded about 1.5% lower on Friday, the most in three weeks.
APRA raised the capital add-on for ANZ by A$250 million ($168 million) to A$750 million. It’s had a requirement for additional capital of A$500 million since 2019 that reflected deficiencies in its risk governance.
The 2019 penalty also involved National Australia Bank Ltd. and Westpac Banking Corp., who were hit by this extra capital requirement. Commonwealth Bank of Australia had to stump up an additional A$1 billion the year before. With the regulator satisfied that issues have been addressed, CBA saw these capital add-ons removed in 2022, NAB’s requirement was also taken away while Westpac had its add-on cut by half this year.
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In its statement on Friday, the regulator said that of the major banks that had capital add-ons applied in 2019, ANZ is the only bank yet to have its add-on either removed or reduced. It said that even though the bank has implemented actions to improve its risk governance and culture over the past five years, “these recent issues suggest there continues to be material gaps that need to be closed as a priority.”
ANZ said in a separate statement that it acknowledges the regulator’s concerns and is expediting work already underway to address the issues raised. “This includes working with APRA on the scope of an independent culture and control review within its Markets business which has already been initiated and will report to the Board.”
APRA also asked ANZ to appoint an independent 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. It requested a remediation plan to address findings from the independent review.
“We have communicated our clear expectations to the ANZ board and executive team that these issues must be urgently reviewed to ensure underlying drivers are identified and addressed,” Lonsdale said. “Depending on the outcomes from ANZ’s independent review, APRA will consider whether further action is required.”
(Updates with earlier capital requirements on Australia banks in fifth paragraph and additional comment from regulator in sixth paragraph.)
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