ANZ’s Management of Non-Financial Risk: A Root Cause Analysis
ANZ, one of Australia’s leading banks, has recently made public a comprehensive root cause analysis that delves into its management of non-financial risk. This report, shared with the Australian Prudential Regulation Authority (APRA) in early July 2025, brings to light key factors contributing to its organisational weaknesses.
The analysis, conducted by global management consulting firm McKinsey & Company, has been a closely held secret until its release last Friday. The report highlights six root causes that have been undermining ANZ’s non-financial risk management, a recurring issue that has beleaguered the bank in recent years.
The Six Root Causes
As per the summary in The Establishment Report prepared by consulting firm Promontory, the six root causes identified by McKinsey are as follows:
1. Culture: Despite ANZ’s generally positive culture, its downside surfaces in the form of complacency, insularity, and a reluctance to challenge and react. This is further intensified by a lack of emphasis from the top on non-financial risk management and customer outcomes.
2. Capabilities and Consequences: ANZ’s non-financial risk management capabilities need to mature across its three lines of defence. The bank’s leadership must provide clear direction, and external perspectives and talent must be considered.
3. Accountability: ANZ’s siloed thinking often prevents effective end-to-end accountability for non-financial risk management. This is further exacerbated by the variable application of the three lines of defence model across the enterprise.
4. Non-financial risk governance and reporting: ANZ’s transparency and insights in non-financial risk management are still at an nascent stage, further complicated by a ‘good news culture’.
5. Non-financial risk policies and practices: There’s a lack of consistency in applying non-financial risk frameworks, policies, and processes across divisions, often due to the perception of these frameworks being complex, compliance-focused, and not business-oriented.
6. Prioritisation and Execution: Projects at ANZ often lack strategic focus and are executed in a mechanical manner without sustainable outcomes. This is due to insufficient prioritisation and coordination of change across the enterprise.
Underlying Themes
The report further identifies four themes that intensify the impact of these root causes. These include the diversity of ANZ’s business, its federated operating model, the data and systems landscape, and ANZ’s manual process environment.
It’s crucial to note that these weaknesses were first identified in ANZ’s 2018 Self-Assessment focusing on its practices for governance, accountability, and culture. However, the full details and conclusions of this Self-Assessment have not been made public, a fact that prevents ANZ’s investors and depositors from forming a considered view on ANZ’s credit or value.
Given the depth and gravity of such issues, it is paramount that ANZ takes necessary corrective measures to address these root causes. Its proactive response to these issues will not only ensure regulatory compliance but also sustain customer trust and overall financial stability.
For more details, access the source document Here.
