- Bank culture and conduct
- The culture and conduct of the banks are an enduring focus of the Committee. The Hayne Royal Commission (the Royal Commission) publicly highlighted numerous instances of misconduct across the financial services sector driven by poor culture, and by remuneration structures that incentivised harmful sales practices and the neglect of customer welfare.
- Five years on from the Royal Commission, progress has been made to implement its recommendations, with a general uplift in most banks’ governance, culture, risk management and accountability processes. However, conduct and culture issues raised at the hearings in 2023 and 2024 give cause for concern.
- This chapter first discusses the banks’ progress implementing the Hayne Royal Commission recommendations, including the remediation of customers who experienced harm. It then discusses trends in complaints to the Australian Financial Complaints Authority (AFCA). The chapter also discusses the recent decisions by some banks—led by CBA—to lift bonus caps on some bankers. The remainder of the chapter focuses on the recent reports and allegations about ANZ.
Progress on implementation of the Hayne Royal Commission recommendations
3.4The banks updated the Committee on the implementation of Royal Commission recommendations and the progress of remediation efforts. The banks advised that implementation of the recommendations was almost complete, including the remediation of customers affected by misconduct.
3.5The Committee heard that the outstanding Royal Commission recommendations require action from regulators, government or the ABA. For example, ANZ informed the Committee that:
From the royal commission perspective, we're obviously responding to both the spirit and the letter of that commission, as well. There were 76 recommendations from that commission; 41 of those apply to us as an institution. Of those 41, 26 of them are complete. The remaining 15 all require action from regulators, from the government or alternatively from the ABA before we can take any further steps on them.
3.6Some of the banks identified wealth remediation efforts as an important element of their progress implementing Royal Commission recommendations. The Royal Commission uncovered widespread misconduct, such as charging fees for services that were never provided and giving poor financial advice that led to significant consumer losses. The Royal Commission recommended robust remediation programs for all affected customers.
3.7ASIC’s final update on compensation for financial advice-related misconduct in 2023 reported that CBA, ANZ, NAB and Westpac had paid approximately $3.7 billion in compensation for fees-for-no-service misconduct, and approximately $227 million in compensation for non-compliant advice.
3.8In discussions with the Committee on wealth remediation in July 2023, NAB informed the Committee that its wealth remediation work was almost complete, with ‘two very large wealth remediation’ activities expected to have concluded by the end of 2023. NAB acknowledged that there was still one ‘pocketed’ area of wealth remediation work underway, and that it was in discussion with the appropriate regulators.
3.9In Westpac’s view, wealth remediation was ‘by far the biggest’ area of remediation activity, and was near completion. Other Royal Commission initiatives were still working through the legislative process at the time of the public hearing, including the Compensation Scheme of Last Resort, the Quality of Advice Review, and the Financial Accountability Regime.
3.10ANZ detailed its approach to identifying customers it was obliged to remediate, and updated the Committee on work by relevant teams:
They have been doing two things. They have a piece of work called 'detect and prevent'. They are not just responding to customer inquiry but going through every single product and checking: 'Have we charged the right fees? Are the interest calculations correct?' et cetera. If somebody bought a package of things, did they get the benefit of that package? That work is by and large done. There's a little bit of a tail of a few things, but the vast bulk of that detection work is done. Then we go about the actual remediation. That's either the things that we found or the things that came out through the royal commission, where we are obliged to go back and refund. We sold our wealth businesses, but we've completed all the wealth remediations. They're done; they're a hundred per cent finished. In the banking remediation, there is a relatively small tail of work still to be done. The reason it's taking a little bit of time is generally that some of those remediations go back in time, and it's difficult to find the customers—they no longer bank with us, or we don't know where they are. But that work is essentially done. We think there will be a tail out into the next 12 to 18 months as we clean up the end of that. That's the remediation: getting money back into people's hands.
3.11Reflecting on the Royal Commission, CBA reported that it had spent significant time making improvements in two areas—risk management, and a ‘sharper focus’ on the customer—which CBA viewed as moving the bank ‘in the right direction’ away from the poor conduct highlighted by the Royal Commission. On the latter area (focusing on the customer), CBA explained:
Internally we have a goal of substantially lifting our net promoter score. That's really driving a light-on-the-hill effect within the organisation around the customer—caring for the customer, looking after customer needs and focusing on the breakpoints that might occur in our processes and in our systems that upset customers and cause problems with customers. Those two factors together are taking us in the right direction, away from the conduct highlighted by the royal commission into an era of much stronger controls internally around our conduct and a much more motivated workforce around satisfying customers' needs.
Complaints
3.12The Committee also investigated the volume of complaints lodged against the banks following the Royal Commission, and whether the changes in practices and approaches to customer engagement implemented to date had been effective. Persistent or increasing complaint levels could suggest that the reforms implemented by the banks are not properly addressing the causes of customer complaints.
3.13The Committee requested information from the banks in 2024 on how many of the cases that arose from the Royal Commission remained outstanding. The banks all reported that no cases were outstanding. The Committee also asked how many AFCA cases the banks had been involved in over the past 10 years. Some banks provided data relating to the predecessor of AFCA, the Financial Ombudsman Scheme, as AFCA was established in 2018. This data is available on the Committee’s website.
3.14AFCA’s recent Annual Review reported that in the banking and finance sector, between 1 July 2023 and 30 June 2024, 60,076 complaints were received—an increase of 12 per cent. In the previous financial year, 53,639 complaints were received—in turn an increase of 27 per cent from the year before that.
3.15In discussions with the Committee, the banks acknowledged that there had been an increase in the number of complaints being lodged. However, the banks suggested that this uplift could be attributed to a range of factors, including broader trends in the banking sector.
3.16For example, NAB reported a ‘big uplift in complaints’ over the 12 months to July 2023—and therefore an increased volume of complaints flowing through to AFCA. NAB identified that a substantial rise in scam activity and increases to interest rates were major factors contributing to the surge in complaints.
3.17ANZ told the Committee that it was not seeing any significant trends other than this broad across-industry trend towards an increase in scam complaints. ANZ informed the Committee that:
I think AFCA are seeing that 25 to 30 per cent, or something of that ilk, of their complaints are in scams, which is, again, not surprising, given what we're seeing more generally. We also do engage with AFCA to track where we might be sitting outside our peers and to look at what kinds of complaints are coming through. We look at scams and hardship complaints—that's an important one, to see where we're sitting with peers in relation to hardship complaints—and also whether they're spiking. We also look very closely, as you'd expect, at AFCA decisions. Every complaint doesn't necessarily result in an adverse decision against the bank, but where there is an adverse decision we look at what we can learn from the findings that AFCA has made.
3.18The Committee also asked the banks what systems they are putting in place to address complaints, and how they prioritise resolving complaints to customers’ satisfaction.
3.19Westpac, which reported 150,000 complaints in the first six months of 2024, acknowledged that there were ‘still way too many’ complaints, despite figures being down by around 6–7 per cent. Westpac detailed its approach:
In terms of anything that goes all the way to AFCA, we have what we call a customer outcomes committee which meets for about three hours every Tuesday. We go through all of those complaints that we haven't been able to resolve within a five-day period. The standard by which we aim to resolve all of our complaints is within five days. Anything that's more complicated or difficult comes to that committee for review. We actually ask our staff to escalate if they're going to say no. So, rather than needing approval to say yes, it's the other way around. Our philosophy is, if you're going to say no, then you need to talk to your manager and we need to understand why it's a no. In addition to the customer outcomes committee, I get reporting every week. I report to the board every month, so there is an enormous amount of focus on the complaints. The other thing we try and do with them is learn from them. We want to make sure that we offer the best possible service that we can, so that's where our philosophy of 'spot it, log it, own it' comes in. We want every complaint recorded so that we understand the root cause of that complaint, and then we have people whose job is to make sure that we take the reason why there was a complaint and fix it in the product, in the service or in the way that we're interacting with customers. It's this continuous learning feedback loop so that we're making ourselves better from the complaints, with the aim of reducing them over the long term.
3.20Some banks also suggested that the increase in complaints could be partly explained by an increase in the range of problems now classified as ‘complaints’ and captured in the data, from relatively minor irritations to more serious concerns.
3.21For example, ANZ emphasised that a ‘broad array’ of bank–customer interactions could be considered complaints, including customer comments about the long wait time to see a staff member in a branch, and complaints about scams. ANZ attributed part of the increase in complaint numbers for the banking sector to changes in the criteria for what is categorised as a complaint over time, with the threshold for reporting now capturing all complaints ‘whatever nature they are and in whatever channel’. Elaborating further on its complaint figures, ANZ told the Committee that:
We do have about 285,000 complaints a year. Again, a number or most of those are contacts about waiting too long or 'I don't like an interest rate' or something. But we capture all of those, and they're 285,000. That's about a six per cent decline versus the prior year. Importantly, one of the other things that we do is, obviously, like all the other banks, measure how and if they get escalated, where they're captured and how quickly they're resolved. About 90 per cent of those complaints are captured in the front line, and about 90 per cent of those are resolved at that first point of contact. But, obviously, there are a number that do get escalated up to AFCA, which is the body. Obviously, if someone has a complaint that they don't feel is getting resolved, we make it very clear that they have avenues where they can escalate their complaints. On an average year, we would have somewhere between 3,000 or so or maybe up to 4,000 complaints escalated to AFCA. Not all of those complaints are accepted by AFCA. There are a relatively small number of those that do get escalated within AFCA and need to go to the ombudsman.
Remuneration and bonuses
3.22The Committee also investigated recent changes by some banks to increase the maximum variable bonuses available to some bankers. These changes were initiated by CBA, which in 2024 announced an increase in its maximum bonus for home loan bankers from 50 per cent to 80 per cent of their base pay. Following CBA’s decision, several other banks either implemented or said they were considering similar changes to remain competitive in the labour market.
3.23The Committee questioned CBA about this change, noting concerns expressed by ASIC—which called the move ‘disappointing’ and inconsistent with both the 2017 Sedgwick Review (seebelow) and the recommendations of the Royal Commission. The Committee also expressed its concern that variable remuneration was returning to the sector, potentially incentivising profit-seeking at the expense of consumers—a toxic pattern revealed during the Royal Commission.
3.24The ABA-commissioned Independent Review into Retail Banking Remuneration, also known as the Sedgwick Review, proposed that the banking industry should progressively reduce maximum variable rewards. The 2021 Final Review of progress made on the recommendations observed that nearly all banks now had a maximum variable remuneration opportunity of no more than 50 per cent of fixed pay. Mr Stephen Sedgwick AO commented that:
I sincerely hope that each bank accepts that ‘50 percent’ is recommended as a cap, not a target to which all should aspire!
3.25CBA told the Committee that its hand had been forced by the significant growth in the market share of non-bank mortgage brokers, which now accounted for 72 per cent of new loans and which were not subject to remuneration limits—thus placing CBA’s home loan lenders at a disadvantage.
3.26CBA said that it had ‘considered this issue carefully and over a significant period of time’, and that extensive oversight and monitoring applied to its lenders, including a scorecard that weighted values and behaviours. CBA further explained that only a small proportion of its lenders would qualify for the increase, and also highlighted issues with how mortgage brokers were remunerated:
We have lenders on fixed pay, and a small proportion would then qualify for an increase, versus 50 per cent of their fixed pay to 80 per cent. To make the comparison—and I'm certainly not alleging that this is a problem per se in the mortgage broking industry—we have 1,800 home lenders, and there are approximately 20,000 mortgage brokers. Since 1995 mortgage brokers have grown very successfully to become about 72 per cent of mortgage origination. There is, as a matter of fact, no balanced scorecard. There is no fixed pay. They are entirely remunerated based on the number of loans they sell. I'm sure this has been extensively reviewed. They have their own regulatory obligations and things that have come in from a best-interest duty perspective. We felt that we were putting ourselves at a significant competitive disadvantage. We thought the remuneration practices that we were limiting our people to were unfair. We still see it as a much lower risk channel than the mortgage broking channel.
3.27In response to the Committee’s questioning, CBA acknowledged concerns around the risks that increasing the maximum bonus could create. However, CBA believed that these risks could ‘be controlled’, and said that it had undertaken extensive engagement and consideration before making the change, which it considered to be in the best interests of the bank. CBA told the Committee that:
…whilst I certainly acknowledge the concern, and it’s a valid concern—we had an extensive dialogue with a number of stakeholders, including our regulators—but it simply cannot be that there is an undue level of concern over it. We are talking about a few hundred lenders versus the 20,000 mortgage brokers that don't have any of the controls that we’re talking about in this regard. So I certainly acknowledge these concerns, but they must, at the same point, be dwarfed by concerns in other aspects of the industry. But, ultimately, we recognise that. It’s not a decision we made lightly. We had extensive deliberations and engagement with the regulator. We felt that in the interests of our customers, the broader market and the Commonwealth Bank it was the right thing to do, and it’s up to us to be able to control for any of those issues and risks. Culture is an important issue in any company, large and small. It’s something that ultimately we will have to make sure we manage very closely.
3.28The Committee also heard evidence from the other banks on their response to CBA’s pivot. Other banks said that CBA’s decision was the primary driver for their own decisions to match the increase, so as not to lose staff to CBA. NAB announced its decision to extend its variable remuneration cap soon after CBA. In discussions with the Committee, NAB explained that its decision to do so was made ‘reluctantly’—but that CBA’s move had made NAB’s situation ‘untenable’. NAB said that it had lost a number of its best bankers to CBA, and exit interviews identified the reason as CBA’s changes to remuneration.
3.29Like CBA, NAB also emphasised the controls it had in place to ensure customer outcomes would not be negatively impacted by these changes, stating that it took this task ‘very seriously’:
We've put in a very strong system to manage controls and customer outcomes with all of those bankers who are able to avail themselves of that extended variable remuneration. In fact, what we have done is put in a hard gate on risk controls and customer outcomes. If we see anything that makes us concerned, they will not be eligible—not for 80 per cent, but for no bonus at all. We've put in place incredibly strong guardrails here because we're very conscious of making sure that, first and foremost, our customers get the very best outcome for them.
3.30Westpac informed the Committee:
We will finalise our thinking for next year's approach very soon, and that is a live consideration for us because I can't be in a position where my best mortgage brokers will go to another organisation. I've got to compete within the market. I'd say on industry and policy that there is a lot of focus on the banks, but we only write one in four mortgages now. If you go back five or 10 years ago, it used to be one in two were written through the banks. Now, three-quarters of mortgages are written by mortgage brokers. If you're worried about there being an incentive issue in the market, then it really should be a standard that's applied to the whole market.
3.31Westpac also suggested that the original Sedgwick Review aimed to have bonus caps instituted across the whole industry, to include both banks and mortgage brokers, but that this recommendation was never fully implemented. Westpac also argued the mortgage broker market operated with higher systemic risk compared with the banks.
3.32The above views mark a departure from banking industry comments around the time of the Sedgwick Review, when the peak body for banks supported ‘self-regulation’ by mortgage brokers.
3.33For context: the 2017 Sedgwick report stated, ‘My approach generally aligns with that adopted in the ASIC Report. Some recommendations are proposed for adoption quickly (for example to cease bonus payments to Mortgage Brokers in some circumstances – Recommendation 16)’. Mr Sedgwick was referring to ASIC’s REP516: Review of mortgage broking remuneration, published in March 2017. Under Proposal 2 of this report, ASIC suggested ‘that the industry moves away from bonus commissions and bonus payments. The ABA review [that is, the Sedgwick Review] provides an opportunity for the banking industry to act on this proposal.’
3.34Notably, both Recommendation 16 of the Sedgwick Review and ASIC’s Proposal 2 were directed atbanks: they focused on commissions paid to mortgage brokers by banks, and recommended that the banking industry—through the ABA—take steps to reform these remuneration structures.
3.35In June 2017, the ABA told Treasury it was engaging with the Mortgage and Finance Association of Australia and Finance Brokers Association of Australia to progress reform, that it supported a ‘self-regulatory’ solution for the mortgage broking industry, and that ‘self-regulation provides an opportunity to develop solutions more quickly than through processes that require legislation, preserves competition and minimises unintended consequences for industry and consumers.’ The response to the ASIC report by the Combined Industry Forum (comprising the ABA and the other relevant peak bodies) similarly emphasised its preferred self-regulatory approach.
3.36The Committee offers a brief comment on the apparent recent change of heart in the banking sector at the conclusion of this chapter.
Issues relating to ANZ’s culture and conduct
3.37The Committee expressed significant concern over reports of incidents relating to ANZ’s Markets division. Prior to the August 2024 public hearing, media had reported widely on three serious incidents or allegations: data reporting errors to the Australian Office of Financial Management (AOFM) in 2023; conduct and behavioural issues relating to ANZ’s Sydney dealing room; and an ASIC investigation into suspected market manipulation by ANZ during a 2023 issuance of Treasury bonds for the AOFM.
3.38These separate reports, while still undergoing investigation at the time of the public hearing, signalled potential underlying issues at ANZ. In its questioning of ANZ, the Committee discussed how these issues arose, and how ANZ was approaching its internal investigations and cooperation with ASIC.
Data reporting error
3.39ANZ advised the AOFM in August 2023 that it had discovered a mistake in previously reported data on its past bond transactions on behalf of governments. In a media release, ANZ said it had reported this error to the AOFM prior to the required end-of-year sign-off on the accuracy of the data, and that the ‘[d]ata errors were caused by a range of issues including process and data extraction errors on ANZ’s part. This resulted in the incorrect inclusion of transactions that should have been omitted as well as double counting of some transactions.’ Such an inflation of the historical data would have exaggerated ANZ’s experience handling government bond transactions, making it more competitive for lucrative roles in future bond issuances.
3.40ANZ told the Committee that it had immediately apologised to the Chief Executive at the AOFM upon discovering its error, and that it was reviewing and improving its relevant processes. Changes included building a separate validation tool and increased training for staff.
3.41In its evidence to this inquiry, ANZ was emphatic that the mistake was not deliberate—and also suggested that ANZ’s further investigation had pointed to under-reporting. ANZ Chief Executive Officer (CEO) Mr Shayne Elliott also explained the complexities of the calculations involved:
It is one of those issues that, when it first arose, you sit there and think, 'How on earth can this happen?' There were assertions that it was somehow deliberate. Just bear with me for a moment. What happened was that we went back and looked at it. It was a mistake. We have seen no evidence that it was deliberate. You sit there, like me, and say, 'How hard can reporting the amount of volume to AOFM be?' When you dig into it, it is a lot more complicated than you might think. What AOFM is interested in, from all institutions, is knowing who is buying our bonds and why? Are they end buyers, like a superannuation fund, or is it a bank buying it just to sell on to somebody else, for example? They give us a whole bunch of definitions of the sorts of transactions they want reported in the spreadsheet and in various columns and cells. There is some confusion and greyness around those interpretations. That's on us. I am not blaming AOFM. It is entirely on us. If we were unclear, we should have asked for clarification.
We misclassified some of those transactions in our reporting. For example, there is a really complex transaction type called synthetic repos. We did not report synthetic repos last year. AOFM is now telling us that they did want us to report those for last year. In fact we did not over-report our volume last year, we under-reported our volume. As it so happens, AOFM are now advising us that, going forward, they no longer want synthetic repos included in the spreadsheet.
3.42The Committee questioned ANZ on the steps it was taking to correct the error and ensure accountability. Mr Elliott stated:
I have apologised to the CEO of AOFM. We have gone back. We have fixed the spreadsheet. We are continuing to be in dialogue to make sure that we totally understand the definitions and get it right going forward. But as I said, that error over the longer term sometimes meant that we were overstating volumes but at other times it meant that we were understating. On that basis, it's hard to assert that ANZ received any advantage from that error.
However, your question is about accountability. We need to go and find out. We are still trying to understand how the error was made. If it was an honest mistake, or not, we'll determine and then we will decide whether or not there are consequences.
I would also say that, understandably, we have looked at all of the data reports we provide to government, including state governments, semi-governments and all those sorts of things, and at this stage we've not found—we've done a big and comprehensive drains-up review—evidence of any other error. This does appear to be isolated but that work is ongoing.
Alleged conduct and behavioural problems in ANZ’s Sydney dealing room
3.43The Committee was also gravely concerned by reports alleging extremely inappropriate conduct and behavioural issues in the Sydney dealing room. ANZ reported to the media in July 2024 that:
In addition to our own internal investigation, ANZ has engaged specialist external counsel to investigate allegations of inappropriate conduct and behaviour primarily within the Sydney dealing room.
While the external investigation remains ongoing, there have been employment outcomes for several employees including suspension, termination and a formal warning. Management changes in the Sydney dealing room have also been made.
3.44Responding to the Committee’s concerns about the reported poor behaviour, ANZ clarified that it had received complaints and allegations from staff regarding the behaviour of a small number of people. ANZ said investigations had not substantiated the ‘vast bulk’ of claims. Those claims that were substantiated related to the use of profanities in the dealing room, and staff working under the influence of an unreasonable amount of alcohol, in violation of ANZ’s code of conduct. At the time of the August 2024 public hearing, ANZ told the Committee:
…already a consequence has been applied for that. As I've said, three people have lost their jobs and have left the bank. Another person has received a formal warning, and that's to do with their individual behaviour and not with trading or anything; it is about profanity in the dealing room and the use of alcohol during working hours et cetera. Those issues have been dealt with and so there has been a consequence. As for what happens now, there will be an ongoing review to see whether that consequence should go further up the supervisor chain; that's an ongoing thing that we're doing as we speak. In terms of the data breach, the evidence at this stage suggests that the data error was a mistake, there was no ill-intent and it was not deliberate; but that work is also ongoing. If we find wrongdoing there, there will be a consequence.
ASIC probe into ANZ’s involvement with 2023 Treasury bond issuance
3.45The Committee was most gravely concerned about ASIC’s ongoing investigation into potential misconduct by ANZ in a major 2023 Treasury bond issuance.
3.46Since February 2024, ASIC has been investigating suspected criminal misconduct by ANZ during its role as joint lead manager and risk manager on an issuance of $14billion in 10-year Australian Government Treasury bonds by the AOFM on 19April 2023. ASIC’s investigation concerns suspected market manipulation and contraventions of a number of provisions of the ASIC Act 2001 and the Corporations Act 2001. In August 2024, ASIC expanded its investigation to include suspected contraventions relating to errors in ANZ’s reporting of secondary bond market turnover data to the AOFM (discussed above).
3.47During discussions with the Committee, ANZ described its role in the transaction and the actions it undertook before, during and after the bond issuance. ANZ said that its role was well understood by market participants, and that it had adhered to the AOFM’s protocols on the day. ANZ provided an account of the events on the day from its own perspective:
…we had a particular role to play where we de-risk the transaction—we take risk off the Australian Government and the people of Australia—and we manage that risk. We do so by hedging in the market. That's understood and it's transparent. Everybody in the market knew we had the role. Everybody knew that we would be hedging that transaction before, during and after the price setting. AOFM has a bunch of protocols, for the want of a better term, of how you are to fulfil that role. We followed those protocols on the day. At the time when the pricing of the bond was set…ANZ had substantially hedged its position. At that point, we no longer had any financial interest in whether the bond futures go up or down, et cetera. We'd fulfilled our role. After that, there was unusual activity. The price spiked. That caused questions. AOFM, quite rightly, reached out to ANZ and said: 'What is that? What is happening?' The business knew, and we then conducted a review over the following days with AOFM to go back and say, 'What was that happening? Could any of that be ascribed to our behaviour or our trading?' We reached a determination that it was not. We shared that with AOFM. I'm using my language here. They were satisfied with that at the time. As it so happens now, or more recently, people say that there were other people who had opinions about what might have happened and expressed those views in the marketplace. This is the marketplace. There are people talking all the time and people throwing around stories and allegations, et cetera. At some point—I don't know when—ASIC decided to conduct an investigation. They only told us about that investigation formally—as I say, February is when I found out about it. So I don't know that there's anything unusual in the fact that took that time. As I said, at the time, we didn't see wrongdoing to alert the CEO of the bank about and say, 'Hey, we found something untoward.' There was nothing found to be untoward. ASIC, for whatever reason—it's up to them to give their position on it—believe they have some suspicions. As I said, they have different information than we do. They may well be talking to some of those other traders. But, from what I've seen, there has been no wrongdoing.
3.48The Committee expressed concern that any deliberate market manipulation could have serious financial repercussions for the Australian Government, such as higher borrowing costs that would ultimately be passed on to taxpayers. ANZ responded:
Hypothetically, 'market manipulation' is a broadly defined term and it could have all sorts of impacts on the markets. You're right in that, hypothetically, yes, it could have meant higher costs to taxpayers, but, as I've said, we've seen no evidence of that at this stage.
3.49The Committee also enquired about the evidence that had prompted ASIC to initiate the investigation. ANZ told the Committee that ‘unusual activity in the marketplace’ rather than observed misbehaviour by traders had triggered ASIC to investigate. ANZ said the futures market was ‘unusually volatile’ after the price setting during the bond issuance. ANZ said this was not unique and had occurred in the past, but was also not typical activity, and that it had therefore prompted questions regarding the underlying causes.
3.50The media had described the situation more bluntly, with an Australian Financial Review article suggesting, for example, that ‘[t]o accept there was no wrongdoing is to accept that…the bond market gods smiled on ANZ as the futures price dipped at a precisely advantageous moment, only to recover immediately and favourably.’
3.51ANZ repeatedly emphasised to the Committee that, at the time of the public hearing, its internal investigations so far had not uncovered evidence that supported allegations of misconduct or market manipulation. For example, ANZ stated:
We've investigated it internally, and, as I've said, I've not seen any evidence or data that supports any misconduct, market manipulation or otherwise by ANZ, and those investigations are ongoing. As I've mentioned, ASIC may have a different view. They may have data that is different from ours, and they've had the opportunity to speak to and interview some of the traders and staff at the bank; but certainly, based on what I've seen, there's nothing there.
3.52The Committee enquired into the status of ASIC’s ongoing investigation. While acknowledging the seriousness of the situation, ANZ told the Committee that ASIC had ‘not put an allegation’ to the bank at the time of the public hearing. (ASIC Chairman Joe Longo had previously responded to similar comments by saying that an ASIC investigation ‘by definition’ implies ‘we suspect a contravention of the law’.)
3.53ANZ stressed that it was cooperating with ASIC’s requests for documents and interviews to support the investigation:
ASIC is an independent regulator. We're not cooperating in the sense of sharing notes or anything; we are cooperating in the sense that they've come to us with what are, literally, hundreds of thousands—it may have even reached the millions—of document requests for emails, text messages, all sorts of policy documents, and communications et cetera, which we've provided. Also, understandably, they've wanted to interview staff at ANZ and are continuing to do so, and they are either those involved in the actual transaction or those involved in some of the control processes, like our risk team or our compliance team. So that's ongoing. I can't comment for them about where they are; I don't know.
3.54ANZ also provided the Committee with an update on its internal investigation, which included forming a board subcommittee and engaging external lawyers to investigate the claims. ANZ informed the Committee:
…we have formed a board subcommittee, and the reason for doing that is that there are some sensitive legal issues here and, from a governance perspective, it was felt that it was legally more robust for us to have a smaller group of the committee dive into some more of the detail. That committee continues to review work that is being given to external advisers, interrogating and going back and looking at that data. We've had an initial report around those things from our internal investigations, and that work is also ongoing. I couldn't give you a date for when it will come to completion but, again, that will probably be in the next month or so. Then, once that's reported to the board, we—because I'm on the board too—will then decide what actions we should take from there.
APRA increases ANZ’s operational risk capital add-on to $750million
3.55In August 2024, APRA increased the capital add-on applied to ANZ to $750 million in response to heightened concerns about ANZ’s non-financial risk management practices. APRA noted that the issues in ANZ’s Markets business—namely the misreporting of bond trading data to the AOFM, and poor behaviour by some employees in the Sydney dealing room—had increased its concerns regarding ANZ’s controls, risk culture, governance and accountability.
3.56Further, APRA reported that it has held ‘longstanding concerns’ with ANZ’s non-financial risk management, having imposed a $500 million operational risk capital add-on to ANZ in 2019 to reflect deficiencies in its risk governance. APRA also noted that it was ‘yet to observe significant improvements’ in these longstanding deficiencies:
APRA has held longstanding concerns with ANZ’s non-financial risk management, and imposed a $500 million operational risk capital add-on to the bank in 2019 to reflect deficiencies in its risk governance.
This capital add-on has remained in place as the bank implemented a remediation program. Despite this program being in place for several years, APRA has yet to observe significant improvements in ANZ’s non-financial risk management.
More recently, several issues emerging in the bank’s Markets business have increased APRA’s concerns. ANZ has admitted that it misreported bond trading data to the Australian Office of Financial Management (AOFM) in 2022-23, and that action has been taken in response to poor behaviour by employees in its Markets business.
While ANZ has launched several investigations into these issues, they raise prudential concerns that ANZ has yet to adequately address deficiencies in controls, risk culture, governance and accountability.
In response, APRA will require ANZ to:
- hold an operational risk capital add-on of $750 million, representing an increase of $250 million to the existing add-on;
- appoint an independent party to review the root causes of recent issues and risk governance in the Markets business, and assess the potential impacts across the broader bank; and
- develop a remediation plan to address findings from the independent review.
The capital add-on will remain in place until such time as ANZ has delivered required remediation to APRA’s satisfaction.
APRA Chair John Lonsdale said he was concerned at the persistence of risk governance and culture issues within one of Australia’s largest banks.
3.57The Committee asked ANZ for its view on APRA’s assessment, and whether the bank disagreed with APRA’s observations. ANZ told the Committee that:
No. As I said, that's their assessment. At the time all the banks had various amounts; some had more than we did at the time. We conducted a program of work to improve our non-financial risk management. As I said, we believe that we were making progress. That's been independently assessed again by an external adviser who provides us and APRA with reports. That work was on track. These matters that have recently arisen, particularly the data and the conduct issues, as I think APRA referred to in its release, has caused them some concern. I understand that. As a result they have penalised us, as they should, and as is their right. That is their job as APRA. We take it really seriously. I am not happy about that. But what it has done is that it has steeled our resolve to make sure that we are making the progress we need to when it comes to non-financial risk management. We are spending a lot of time, as you would imagine, with our board looking at the way in which we are undertaking that program. Clearly it's not sufficient. I accept that. So we will re-resource it. We will re look at the terms of reference. We will re-look at the amount of money we are investing to do everything we can to get that back on track to strengthen the bank primarily. That is the ultimate gain, to make sure that we do get this right and of course hopefully one day—and, we will—win back APRA's confidence in the way that we manage non-financial risk.
3.58The Committee also pressed ANZ on its repeated refusals to release its self-assessment report on culture, governance and accountability, prepared at APRA’s behest in 2018–19. In 2018, APRA had asked the boards of 36 financial institutions to assess their culture, governance and accountability frameworks and practices, in light of issues identified by APRA’s prudential Inquiry into the Commonwealth Bank of Australia earlier that year. NAB and Westpac have publicly released their self-assessment reports.
3.59Considering that ANZ is now the only major bank yet to have its capital add-on reduced or removed by APRA—and in fact, its add-on has been increased—the Committee again requested that ANZ release its self-assessment report in line with the other banks.
3.60ANZ declined to provide the Committee with its self-assessment on two occasions during this inquiry, initially arguing that only APRA could release the report, and then citing confidentiality concerns (after APRA clarified to the Committee that the report was ANZ’s property, and that ANZ was free to publish it if it wished). ANZ told the Committee that it did not believe publicly releasing the report would aid the bank’s identification and management of risk.
Accountability and lessons learned
3.61The Committee asked ANZ what it considered to be appropriate accountability pathways, given the varied nature and seriousness of the above allegations, which have resulted in significant reputational damage to ANZ.
3.62On the data and conduct issues, ANZ explained that key staff had already experienced professional consequences for their actions, though some of this work remained ongoing (see above). Regarding the alleged bond trading incident, ANZ reiterated that it had not seen evidence of misconduct as a result of its own investigations, and therefore there was ‘nothing to be accountable for’.
3.63ANZ conceded that these issues were not discovered fast enough, and that this was something it had looked at for each of the three issues. For example, ANZ acknowledged that the data issue was not identified quickly enough, and that conduct issues in the Sydney dealing room could have been ‘dealt with more quickly’.
3.64ANZ also recognised that it had suffered reputational damage as a result of the negative reports—regardless of the ultimate findings of investigations. ANZ said that media reporting had conflated the multiple incidents, and had been ‘dramatic in terms of colour and content’, which had contributed to the reputational damage. It said bank leaders were reflecting on the experience, how it could have been better managed, and how to stop such incidents re-occurring:
At some level, whether it's fair or not, right or wrong or based on the right information doesn't matter; we have suffered significant reputational damage. As a result of that, you would expect us to go back and integrate how this happened—what we've done wrong in terms of communication or the way in which we've managed things, how we could avoid these things in the future and what actions we need to take to stop this from happening again.
3.65ANZ also accepted that ‘there will be a consequence’ for the bank’s leadership due to the reputational damage incurred, but at the time of the public hearing, this remained a matter for the board and shareholders to determine. ANZ noted that executive remuneration would be decided at its upcoming annual general meeting in December 2024. ANZ said there would also be implications for staff annual performance assessments:
In fact, we're meeting next week—we have our board meeting, as it so happens—and we're at the end of our financial year, which is 30 September, so we're right in the middle of doing our annual performance assessments of individuals, teams, divisions and the group, including me and my team, and that process kicks off more formally with the board next week. There's no doubt that the reputational damage will impact the assessment of some or perhaps many people. But we're only at the beginning of that, and those things will be determined over the coming two months.
3.66ANZ announced in December 2024 that the board had appointed an outside candidate, Mr Nuno Matos, to succeed Mr Shayne Elliot as CEO. Mr Elliott’s retirement had been a long-term plan, with the bank considering succession planning over several years. However, the board’s decision to pass over ANZ’s leading internal candidates was widely seen as a rebuke, showing a lack of confidence.
3.67At ANZ’s annual general meeting later in the month, a ‘substantial proportion’ of shareholders voted against Mr Elliott’s remuneration package. Though a majority remained in favour, the relevant resolution was withdrawn. ANZ’s Annual General Meeting Proxy Summary reported that, to limit the impact on the bank and in recognition of shareholder views, Mr Elliott had decided to forfeit his long-term variable remuneration for 2024.
Committee comment
3.68The Committee remains deeply concerned about culture and conduct within the banking sector. The Hayne Royal Commission, only five years ago, exposed widespread misconduct driven by poor culture and governance, such as remuneration settings that incentivised harmful sales practices and neglect for customer welfare. The Royal Commission underscored the critical importance of maintaining a high standard of conduct and culture within the major banks.
3.69Five years after the Royal Commission, much progress has been made in implementing its recommendations, including improvements in governance, culture, risk management and accountability across most of the big four. However, certain recent developments are troubling.
3.70The Committee is concerned by the resurgence of remuneration practices that may create inappropriate incentives that could result in inappropriate conduct and worse outcomes for consumers. In particular, major Australian banks have increased or are considering increasing the maximum variable bonus caps for lenders, undermining past progress on this issue—to the chagrin of the relevant regulator. It is evident that any backsliding by one bank to gain a competitive advantage over outside mortgage brokers will be quickly implemented by the others.
3.71The Committee acknowledges evidence from the banks that the share of loans originated by non-bank lenders has grown dramatically, and that this sector is not subject to bonus caps, making it harder for banks to attract and retain talented lenders. The Committee is sympathetic to some banks’ suggestions that the solution is to extend bonus caps to the non-bank sector.
3.72However, the Committee also notes that the banking industry’s peak body—the ABA—previously told the Government it was in favour of self-regulation by mortgage brokers, with whom it was (at the time) in direct talks about implementing the Sedgwick Review’s recommendations. The Committee moreover notes that the Sedgwick Review recommended changes to brokers’ commissions by the banks.
3.73If banks now desire a legislated solution to enforce consistent bonus caps across both bank lenders and mortgage brokers, the ABA should make that wish clear. If not, it seems questionable for a major bank—specifically CBA, which was the first major bank to break ranks on this issue—to argue its hand has been forced by mortgage broker remuneration practices.
3.74The Committee urges the ABA to re-launch an urgent dialogue with the peak bodies for non-bank lenders in Australia, to resolve this issue through ‘self-regulation’—as the ABA originally said it preferred.
3.75Meanwhile, the Committee calls on all major banks that have recently lifted their lenders’ bonus caps to reconsider these decisions, and to instead work through the ABA to achieve standardisation of remuneration arrangements across bank and non-bank lenders. If the decisions are not reversed, the Committee will expect detailed reports on the results of monitoring and risk management arrangements around lending under the raised bonus caps, and the impact of these changes on customers.
3.76If the ABA and its counterparts prove unable to self-regulate on this matter within a reasonable timeframe, the Committee suggests that the Government consider legislating standardised remuneration rules for both sectors.
3.77The Committee wishes to make clear that it is concerned by this reversal of some of the hard-won gains from the Royal Commission, suggesting that the harrowing testimony of victims of misconduct has become a dim memory in just five years. We must not become complacent.
3.78The Committee is also acutely concerned by the recent reports surrounding ANZ. These underscore ongoing risk management, governance and cultural challenges in one of Australia’s largest banks—as reflected in APRA’s decision to increase ANZ’s capital add-on. The Committee notes that ASIC’s investigation into suspected misconduct by ANZ during a February 2023 bond issuance is ongoing. At the time of writing, there is no additional information regarding ASIC’s findings.
3.79Whatever the outcome of the investigation, the Committee urges ANZ to take all necessary steps to address any identified issues. The Committee also emphasises the importance of maintaining transparency and accountability throughout this process. Should ASIC ultimately choose not to pursue the matter in court, the Committee suggests that ANZ’s new CEO should nonetheless prioritise urgent internal reforms to remediate the grave concerns held by both ASIC and APRA—and indeed the Australian community—in light of recent events. The Committee will be seeking detailed updates on this work.
3.80The Committee acknowledges the gesture by ANZ’s outgoing CEO Mr Elliott to voluntarily forgo his long-term variable remuneration for 2024, reflecting an appropriate sense of personal accountability as the leader of the organisation, and respect for the disappointment expressed by many shareholders. However, the Committee suggests this gesture should not excuse other internal leaders with more direct responsibility for cultural, risk management and governance deficiencies at ANZ from being held accountable, particularly in light of APRA’s recent decision to increase ANZ’s capital add-on based on ‘longstanding’ concerns about problems in these areas—which ANZ has patently failed to remediate.
3.81The Committee further notes that in responses to questions on notice for this inquiry, ANZ has repeatedly declined to release its 2019 APRA self-assessment on governance, accountability and culture. After ANZ initially claimed that only APRA could release the report, the Committee sought APRA’s advice, which contradicted this. The Committee informed ANZ, and again requested that it release the self-assessment. ANZ again declined, citing confidentiality concerns.
3.82The Committee does not dismiss these concerns, but respectfully suggests that as part of a broader cultural reset emphasising probity and transparency, ANZ’s new CEO may wish to revisit that decision, and join the rest of the banks by finally making ANZ’s 2019 self-assessment public. Sunlight is often the best disinfectant.
3.83The Committee looks forward to engaging with Mr Matos over the coming years, and offers its strong support for whatever actions are necessary to finally and decisively address the above issues.