APRA Pushes for Accountability at ANZ

In recent comments to the media, John Lonsdale, Chair of the Australian Prudential Regulation Authority (APRA), made clear that the regulator expects ANZ's board to consider bonus reductions for senior executives following a high-profile bond trading scandal and widely reported cultural deficiencies.

APRA recently imposed an additional $250 million risk capital penalty on ANZ due to ongoing concerns about its risk management, bringing the bank's total operational risk capital addon to $750 million. As a part of that action, APRA ordered an independent review of the root causes of cultural issues within ANZ's market business, mandating that the bank create a remediation plan with the findings of that review. Lonsdale emphasized APRA's focus on the non-financial risks stemming from culture and operations, which can materially affect a bank's financial stability and reputation.

Lonsdale stated that ANZ's board must assess accountability and remuneration. He referenced APRA's new prudential standard CPS 511, which requires pay policies to incentivize prudent risk management and impose consequences for poor outcomes. Lonsdale noted that "the board will, I am sure, look very closely at accountability issues" during their remuneration review.

APRA's new pay rules include clawback provisions that allow banks to adjust variable pay for up to two years in cases of significant misconduct or risk management failures. ANZ's CEO, Shayne Elliott, who received $5.8 million in variable remuneration in 2023, could see his pay reviewed and adjusted, along with other senior executives. Shareholders are set to vote on the remuneration report at ANZ's annual meeting later this year.

The bank recently dismissed a senior trader, marking the third departure from its trading room amid ongoing internal investigations into workplace conduct and inappropriate trading. This termination followed the resignation of another senior trader involved in the controversial $14 billion government bond issuance of April 2023, which is under investigation by the Australian Securities and Investments Commission for alleged market manipulation.