Regulator asks ANZ to prove it's operating in 'prudent manner'

Reserve Bank Governor Adrian Orr says ANZ remains sound and well capitalised. Photo/Mark Mitchell.

The Reserve Bank has asked the ANZ to get independent proof it is operating in a prudent manner.

The banking regulator has requested two reports from ANZ New Zealand in the wake of last month's censure of New Zealand's largest bank.

On May 17 the Reserve Bank revoked ANZ's accreditation to model its own operational risk capital requirement due to a "persistent failure" in its controls and attestation process.

ANZ is one of four big banks in New Zealand that are accredited by the Reserve Bank to use their own risk models – the internal models approach - in calculating their regulatory capital requirements.

But it is now required to use the standardised approach for calculating appropriate operational risk capital.

From March 2019, this will increase its minimum capital held for operational risk by around 60 per cent, to $760 million, the RBNZ said.

Today the central bank said it had requested two reports from the ANZ under Section 95 of the Reserve Bank of New Zealand Act 1989 which gives the Reserve Bank the power to require a bank to provide a report by a Reserve Bank-approved, independent person.

These reviews can investigate such issues as risk management, corporate or financial matters, and operational systems.

The Reserve Bank said the first report would cover ANZ New Zealand's compliance with the its current and historic capital adequacy requirements.

While the second report would assess the effectiveness of ANZ New Zealand's Director's Attestation and Assurance framework, focussing on internal governance, risk management and internal controls.

Reserve Bank Governor Adrian Orr said ANZ remained sound and well capitalised.

"We continue to engage constructively with ANZ New Zealand's board, and they remain focused on these important issues.

"These formal reviews will allow us to work with the bank to ensure the public, and we as regulator, can have continued confidence in the bank and that it is operating in a prudent manner."

ANZ said it was working with the Reserve Bank on the independent reviews of its capital models and attestation process.

Sir John Key, ANZ New Zealand chairman said: "The board has been working commencing an independent review to provide assurance that our capital models and the directors'
attestation process are robust and operating in a prudent manner.

"Following discussions with the RBNZ, the Directors agree that the best way to achieve this assurance is working with the RBNZ and an independent party to undertake the necessary reviews."

Keys said Section 95 has been used by the RBNZ in the past with other banks.

"As has been the case with independent reviews of other financial institutions' processes, we agree that the most effective way of achieving this assurance is via the independent report powers given to the RBNZ under section 95 of the RBNZ Act", Key said.

He said ANZ continued to be sound and well capitalised with strong credit ratings.

As at 31 March 2019, the bank held over $12.4 billion of capital, almost $3.5 billion more than its regulatory requirement, Key said.