Australia’s bank regulator, the Australian Prudential Regulation Authority (APRA), has taken decisive action against ANZ, the country’s third-largest lender. In response to suspected misconduct at ANZ’s bond trading unit, APRA has increased the amount of spare cash that ANZ must keep on hand. Initially imposed in 2019 as a A$500 million capital add-on, the regulator has now raised ANZ’s requirement by an additional A$250 million. This move comes amidst growing concerns about risk culture within the bank.
In addition to the increased capital requirement, APRA has mandated that ANZ hire an external party to review the underlying causes of the problems within its bond trading division. This directive is in response to reports earlier this year that ANZ traders had misreported the value of a government bond trade. As a result, the bank has already taken disciplinary actions, including firings and suspensions, while launching an internal investigation.
APRA’s Chair, John Lonsdale, has emphasized the importance of addressing non-financial risks within financial institutions. While acknowledging ANZ’s solid financial position in terms of capital and liquidity, Lonsdale has warned against the persistence of weaknesses in risk management. The regulator expects ANZ to identify and rectify the root causes of the misconduct, with the possibility of further actions depending on the outcome of the independent review.
The news of APRA’s actions against ANZ has had immediate repercussions in the market, with the bank’s shares declining by as much as 1% in early trading. This contrasted with the performance of other major Australian banks, which saw either minimal losses or slight gains. Analysts have noted that while the financial impact of the misconduct may be limited in the short term, it raises concerns about the potential long-term consequences of improper conduct within financial institutions.
Overall, the fallout from the misconduct at ANZ’s bond trading unit serves as a reminder of the importance of robust regulatory oversight and risk management practices within the banking sector. As APRA continues to scrutinize the bank’s operations, it remains to be seen how ANZ will address the challenges posed by the scandal and regain the trust of investors and regulators alike.