The Australian Prudential Regulation Authority (APRA) has increased the capital surcharge for the Australia and New Zealand Banking Group (ANZ) to $750 million in response to growing concerns about the bank’s non-financial risk management practices.

APRA has long had concerns about ANZ’s non-financial risk management and in 2019 imposed a $500 million operational risk capital surcharge on the bank to address deficiencies in its risk governance.

This capital increase remained in place while the bank implemented a recovery program. Although this program has been running for several years, APRA has not yet seen any significant improvements in ANZ’s non-financial risk management.

Recently, several issues that have emerged in the bank’s Markets business have heightened APRA’s concerns. ANZ has admitted that it reported incorrect bond trading data to the Australian Office of Financial Management (AOFM) in 2022-23 and that action has been taken in response to poor conduct by staff in the Markets business.

While ANZ has launched several investigations into these issues, they raise regulatory concerns that ANZ has not adequately addressed deficiencies in controls, risk culture, governance and accountability.

In response, APRA will require ANZ to:

• have an operational risk capital allowance of USD 750 million, an increase of USD 250 million over the existing allowance;
• commission an independent party to investigate the causes of the recent problems and risk management in the market business and to assess the potential impact on the entire bank; and
• Prepare a remediation plan to take into account the results of the independent review.

The capital surcharge will remain in place until ANZ has completed the necessary remedial measures to the satisfaction of APRA.