Australia’s bank regulator, the Australian Prudential Regulation Authority (APRA), has increased the amount of spare cash that ANZ, the country’s third-largest lender, must hold in response to suspected misconduct at its bond trading unit. Originally, a A$500 million capital add-on was imposed on ANZ and other major banks in 2019 during a crackdown on industry misconduct. However, following concerns about the risk culture at ANZ, the regulator decided to raise the requirement by an additional A$250 million.
In addition to raising the capital requirement, APRA has instructed ANZ to engage an external party to conduct a review of the issues within its bond trading division. This independent review is in addition to investigations already being carried out by the bank itself and the securities regulator. This move marks the first tangible impact on ANZ since reports surfaced in May alleging that traders had misreported the value of a government bond trade.
Despite the financial implications of the increased capital requirements, ANZ maintains that it is financially sound with robust capital and liquidity levels. However, the bank acknowledges the need to address weaknesses in managing non-financial risks to prevent any detrimental financial impact. APRA Chair John Lonsdale emphasized that the regulator has zero tolerance for such weaknesses persisting within financial institutions.
Following the news of the regulatory intervention, ANZ shares experienced a decline of up to 1% in early trading, outpacing the broader market dip. Analysts have warned that the bond trading scandal could potentially overshadow ANZ’s recent financial performance, despite the bank reporting results on par with its competitors. The risk of disproportionate outcomes from improper conduct has been highlighted as a key concern by industry experts.
The regulatory action taken against ANZ underscores the importance of maintaining a strong risk management culture within financial institutions. While the bank remains financially stable, the need to address non-financial risks and ensure compliance with regulatory requirements is imperative to safeguard its reputation and long-term sustainability. ANZ’s response to the regulatory review and its commitment to addressing the underlying issues will be crucial in determining any further action that may be required by APRA.