The ANZ Group Holdings Ltd (ASX: ANZ) share price is sinking on Thursday.
In morning trade, the banking giant's shares are down 3.5% to $28.62.
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Why is the ANZ share price sinking?
Investors have been hitting the sell button today after the big four bank confirmed that it has entered into a court-enforceable undertaking (EU) with the Australian Prudential Regulation Authority (APRA). This is in relation to shortcomings in its non-financial risk management practices and culture.
The move follows ongoing discussions with the regulator and a previously identified need to lift standards within parts of ANZ's business — particularly its Global Markets division.
As part of the undertaking, ANZ will carry an additional $250 million operational risk capital overlay, equivalent to 5 basis points of its Common Equity Tier 1 capital. While not a material hit to the bank's strong capital position, it underscores APRA's seriousness about seeing improvements.
What's the issue?
At the heart of APRA's concerns is non-financial risk — this includes things like governance, conduct, cultural behaviours, and how risk is managed beyond pure financial metrics.
ANZ Chairman Paul O'Sullivan said:
We are disappointed that we have not met APRA's expectations about how the bank manages non-financial risk and its non-financial risk culture. A strong non-financial risk regime is critical to protecting our bank and our customers. While APRA has recognised the bank has a significant agenda of non-financial risk work underway and has made some progress with improving our practices, we recognise we have more work to do to uplift our management of non-financial risk and to improve risk culture across the bank.
The EU entered into today provides us with a clear roadmap for addressing APRA's concerns. Both the Board and management will bring a clear-eyed focus to completing this work, seeking to have the capital overlay removed as quickly as possible."
APRA acknowledged that some progress has been made but expects much more to be done — and soon. An independent reviewer will be appointed to identify the root causes and cultural drivers behind these issues. A remediation plan will follow, subject to Board approval and reviewed quarterly.
Commenting on the news, ANZ's CEO, Shayne Elliott, said:
While the bank remains in a strong financial position with strong capital and liquidity levels, we know we have more work to do in the coming two to three years to boost our uplift of non-financial risk practices.
As part of the EU agreed with APRA, an independent reviewer will soon be appointed to identify root causes and behavioural drivers of shortcomings in ANZ's non-financial risk management practices and risk culture. ANZ has committed to developing a remediation plan based on the independent reviewer's findings that will be Board approved and independently assessed and reported on a three-monthly basis.
