According to an exclusive report by the Australian Financial Review's Jonathan Shapiro and Lucas Baird, the Australian Prudential Regulation Authority (APRA) had repeatedly warned ANZ about deficiencies in its culture and risk management in the lead-up to its recent action against the bank.
Late last month, APRA 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. In two letters sent to ANZ executives in 2022 and 2023, APRA lamented a lack of clear progress made on the bank's commitments to improving its culture and risk management practices. "[I]t is not yet apparent what specifically will be delivered, by who, and by when, and with confidence that the solutions will materially uplift the quality and consistency of operational risk practices across ANZ Group," APRA wrote in November 2022.
APRA specifically pointed to the importance of addressing cultural root causes in the bank's risk transformation efforts. "Cultural change requires a much stronger focus within the plan to address the significant cultural reasons identified by Promontory that have inhibited success in previous iterations of the framework," it emphasized. APRA also complained that ANZ's remediation plan lacked specific and tangible targets, moreso representing a "plan to build a plan."
In a contribution to Starling's 2024 Compendium, Chris Gower, Executive Director of the Cross-Industry Insights Division at APRA, explained why culture and governance are matters that warrant focus from prudential regulators.
"It has long been recognised that deficiencies in governance and risk culture can be early indicators of potential financial risks," Gower writes. "However, in a world where complex non-financial risk is growing rapidly, global regulators are increasingly recognising that the key to viability is not only to require more capital and liquidity, but also for supervisors to require good governance and a sound risk culture." ▸ Read More
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