There was an element of complacency in the way ANZ's directors signed off requirements for the bank and its operation was piecemeal, an independent report on the country's largest bank has found.
But the Deloitte report also found ANZ did not breach its policies when it came to the controversial sale of a luxury St Heliers property to the wife of its former chief executive David Hisco.
• Former ANZ boss David Hisco's last pay revealed, forgoes millions of dollars
• Premium - David who? Disgraced ANZ bank boss David Hisco back in the lap of luxury
• Revealed: What former ANZ boss David Hisco paid for Sir John Key's Omaha holiday home
• FMA chief: ANZ's Hisco house sale 'daft' and 'deeply frustrating'
The Reserve Bank ordered ANZ to undertake two Section 95 reports in June in the wake of the departure of Hisco over an expenses scandal involving wine storage and chauffeured cars.
The regulator requested the report look at ANZ's directors attesting to compliance despite the bank failing to use an approved capital model, inaccurate attestations about expenditure by Hisco and the sale of the St Heliers property.
The findings of the first report were released today and show that improvements in the bank's director attestation process are needed.
Geoff Bascand, deputy Reserve Bank governor, said it was concerning that Deloitte had found there was an element of complacency in ANZ's historical approach to the attestation process and that its operation was piecemeal.
"The Reserve Bank and the New Zealand public expect all banks' to ensure their director attestation and assurance frameworks are operating at the highest possible standard.
"ANZ's directors must drive this change and ensure this benchmark is achieved. While we acknowledge ANZ's work over the recent months to improve its framework and the attention these matters are now receiving, more is required.
"We will continue to work with ANZ on this until the Reserve Bank is satisfied that ANZ's overall approach to attestation meets our expectations."
The Reserve Bank has issued a further Section 95 notice to ensure ANZ meets Deloitte's recommendations which requires an external party to confirm it has implemented the changes by June 2021.
But the Deloitte report stopped short of pulling the bank up over its sale of the St Heliers house, finding that it did not breach any policies by doing so.
The Financial Markets Authority has previously ruled that the bank should have disclosed the sale as a related-party transactions.
ANZ New Zealand chairman Sir John Key welcomed the findings of the report.
"The report involved a thorough review of ANZ NZ's attestation and assurance framework, including four case studies, and has developed useful recommendations for improvement," he said.
"While we should never have been in the situation where a Section 95 review was necessary, the work has given the company the opportunity to reflect on its processes and systems around its attestation framework and improve the performance of the organisation.
"We're committed to implementing all the recommendations by the time of the next section 95 review in 2021."
Key said the review showed Hisco's departure was handled appropriately.
"The report noted that once aware of the issue, the board responded promptly and in line with the requirements of the RBNZ.
"As mentioned at the time of his departure, even though the expenses were mischaracterised, we said we'd review our internal processes around the CEO's expenses and since then have made improvements, as the report acknowledges."
Key said the report also showed the purchase of the St Heliers house in 2010 and its sale in 2017 were conducted at arms length and the prices were based on independent valuation using appropriate standards.
A Terranet Summary Report shows that the house was purchased by ANZ New Zealand owned subsidiary company, Arawata Assets, in 2011 for $7.5 million.
Despite a booming property market over the next six years the property was on-sold to Hisco's wife Deborah Veronica Walsh in July 2017 for just $6.9 million.
As of July 1 2017 the property at 269 St Heliers Bay Rd had a Rating Valuation of $10.75 million, according to Terranet.
Key said the report showed the sale was appropriately conducted by the previous ANZ NZ board chair.
"The review showed Arawata directors acted on the work appropriately undertaken by the ANZ NZ Chair.
"ANZ NZ acknowledges the Financial Markets Authority's recent statement that the sale of the house should have been disclosed in the company's FY17 disclosure statement."
Key said it acknowledged the issues identified in the report leading to the bank using an unapproved method for calculating the amount of operational risk capital needed.
"The checks and balances in place at the time should have been of a higher standard, and steps have been taken to address those shortcomings.
"Since identification of the issue, we've undertaken a full review of all our models and found some issues that need attention which we have discussed with the RBNZ and disclosed in our disclosure statement."
ANZ will have until February 2020 to produce the second Section 95 report which relates to its compliance with capital requirements.