3 November 2021
Market Announcements Office
ASX Limited
Level 420 Bridge Street
SYDNEY NSW 2000

Australia and New Zealand Banking Group Limited (ABN 11 005 357 522)(“ANZBGL”) - Annual Financial Report submission under the Disclosure andTransparency Rules of the United Kingdom Financial Conduct Authority (“UKDTR Submission”)

The attached UK DTR Submission will be lodged by ANZBGL with the London Stock
Exchange (“LSE”) today, together with the Group’s Annual Report for the year ended 30
September 2021. This UK DTR Submission has been prepared by ANZBGL in order tocomply with the applicable periodic reporting requirements of DTR 4 of the Disclosure
and Transparency Rules of the United Kingdom Financial Conduct Authority in connection
with certain debt securities issued by ANZBGL. For completeness, in addition tolodgement with the LSE, ANZBGL is lodging this UK DTR Submission with applicableexchanges, including the Australian Securities Exchange and the New Zealand Stock
Exchange today.

Yours faithfully

Simon Pordage
Company Secretary
Australia and New Zealand Banking Group Limited
ANZ Centre Melbourne, Level 9, 833 Collins Street, Docklands Vic 3008
GPO Box 254, MELBOURNE VIC 3001 AUSTRALIA
www.anz.com

Approved for distribution by ANZ’s Board of Directors

Australia and New Zealand Banking Group Limited

ABN 11 005 357 522

3 November 2021
DISCLOSURE AND TRANSPARENCY RULES – ANNUAL FINANCIAL REPORTSUBMISSION
Australia and New Zealand Banking Group Limited (ABN 11 005 357 522)(“ANZBGL”) together with its subsidiaries (“ANZ” or the “Group”) – Annual
Financial Report submission under the Disclosure and Transparency Rules(“DTR”) of the United Kingdom Financial Conduct Authority
The following attached documents constitute ANZ’s 2021 Annual Financial Report for the
purposes of the disclosure requirements of DTR 4.1:•

The Group’s 2021 Annual Report for the year ended 30 September 2021;•

A description of the principal risks and uncertainties for the Group provided inaccordance with DTR 4.1.8 (2); and•A responsibility statement of the Directors of ANZBGL provided in accordance with DTR
4.1.12 (3)(b).

1

ANZ’s 2021 Annual Report
This document was separately lodged by ANZ with applicable stock exchanges, including
the London Stock Exchange and the Australian Securities Exchange, on 3 November
2021.

2

Principal risks and uncertainties faced by Australia and New Zealand Banking Group
Limited ABN 11 005 357 522 (“ANZBGL”) and its subsidiaries (ANZBGL together with
its subsidiaries, the “Group”) (DTR 4.1.8 R (2)) (“Principal Risk and Uncertainties”)
Introduction
The Group’s activities are subject to risks, including risks arising from the coronavirus(“COVID-19”) pandemic, that can adversely impact its business, operations, results ofoperations, reputation, prospects, liquidity, capital resources, financial performance andfinancial condition (together, the “Group’s Position”).
The risks and uncertainties described below are not the only ones that the Group may face.
Additional risks and uncertainties that the Group is unaware of, or that the Group currently
deems to be immaterial, may also become important factors that affect it.
If any of the specified or unspecified risks actually occur, the Group’s Position may bematerially and adversely affected, with the result that the trading price of the Group's
equity or debt securities could decline, and investors could lose all or part of theirinvestments.
Risks related to the Issuer's business activities and industry
1.

The COVID-19 pandemic and future outbreaks of other communicable diseases or
pandemics may materially and adversely affect the Group’s Position
The outbreak of the novel strain of coronavirus in late 2019, specifically identified as SARSCoV-2, with the disease referred to as ‘COVID-19’, has resulted in governments worldwide
enacting emergency measures to combat the spread of the virus. Governments, including
those in Australia and New Zealand, have imposed wide ranging restrictions on, suspensionsof, or advice against, regional and international travel, events, and meetings and manyother normal activities and undertaken substantial and costly monetary and fiscal
interventions designed to stabilise sovereign nations and financial markets. While certain
restrictions have been lifted or modified, governments may in the foreseeable future
reintroduce prior restrictions or implement and introduce further measures to contain the
spread of COVID-19, for example, in July 2021, the Greater Sydney region of NSW wasplaced into a protracted lockdown. In addition, although globally and domestically COVID19 vaccines are being deployed, there are uncertainties associated with the long-term
effectiveness of such vaccines and the success of nationwide vaccination programmes. The
uncertainties of the COVID-19 pandemic have also increased as a result of the recent
spread of new strains of the virus, such as the ‘Delta variant’. Further variants may developthat require different government responses and greater restrictions to those adopted todate. Consequently, the duration, severity and impact of the COVID-19 pandemic, as wellas the effectiveness of government and central bank responses to the pandemic, remainsubject to significant uncertainties.
Major disruptions to community health and economic activity continue to have wide ranging
negative effects across most business sectors in Australia, New Zealand and globally, which
in turn has impacted demand for the Group’s products and services and resulted in a
deterioration of the quality of the Group’s credit portfolio. Additionally, many of the Group’s
borrowers have been and continue to be negatively impacted by the COVID-19 pandemic
and the Group is exposed to an increased risk of credit loss from borrowers, particularly inthe following sectors: transportation (including airlines and shipping); tourism and travel(including accommodation, food and beverage); entertainment; education; retail; andproperty (particularly shopping malls and hotels). See Notes 1 and 17 of the consolidated
financial statements for the financial year ended 30 September 2021 as set out in theGroup’s 2021 Annual Report (“2021 Financial Statements”).
Despite initial concerns about the negative impacts of the COVID-19 pandemic and thethreat of a long-term recession, most commercial property markets in the Group’s coreproperty markets have been resilient in large part due to government stimulus, record low
interest rates and strong investor interest (debt and equity) seeking long-term defensive

3

assets. However, some segments of the economy have experienced more direct andongoing consequences from the COVID-19 pandemic (e.g. with respect to mobility andtourism) and in these segments cash flows have been impaired and are more volatile, which
has impacted serviceability and asset valuations. Furthermore, a highly competitive
commercial construction sector, coupled with COVID-19 related supply chain disruption andlabour mobility constraints could result in a decline in profit margins, and could also, impact
contractors’ and sub-contractors’ cash flows, working capital needs and liquidity, which may
present a completion risk to the Group’s commercial property development financing
activities.
In response to the COVID-19 pandemic, the Group established a range of accommodations
and measures, such as loan payment deferral, designed to assist its personal and businesscustomers but there can be no assurance that these accommodations and measures will be
sufficient to prevent or mitigate further hardship, or ensure the delivery of the Group’s
products and services, and there is a risk that the Group’s Position may be materially andadversely affected. For example, there can be no guarantee that at the conclusion of thedeferral or suspension period, customers will be able to recommence their loan repayment
obligations, leading to a potential increase in credit risk related losses, which could have amaterial adverse effect on the Group’s Position. See Notes 1 and 17 of the 2021 Financial
Statements. These accommodations and measures, and any future accommodations andmeasures while supporting the Group’s customers, may in turn have a negative impact on
the Group’s Position, may negatively impact the Group’s net interest margin, and may resultin the Group assuming a greater level of risk than it would have under ordinary
circumstances and the Group’s Position may be materially and adversely affected as aresult.
Significant requests for assistance from retail and small business customers have been
received by the Group’s customer service team. These requests may grow if there arefurther outbreaks and the Group is continuing to address additional resourcing and processchanges to enable it to support its customers. Whilst there have been signs ofimprovement, in the longer term, asset values may start to deteriorate if a large quantity ofretail and business customers liquidate their investments, which may also be exacerbatedby the cessation of government assistance, either during, or immediately after, the crisis or
due to a decrease in demand for these assets. In both scenarios loan-to-value ratios are
expected to be impacted.
Substantially reduced global economic activity has caused substantial volatility in thefinancial markets and such volatility may continue and is expected to continue, to have asignificant impact on the global economy and global markets, as well as on the economies
of Australia and New Zealand. Travel restrictions, border controls, social distancing
measures, quarantine protocols and other containment measures have contributed, andmay continue to contribute, to restricted economic activity in Australia, New Zealand andelsewhere around the world and suppress demand for commodities, interrupt the supply
chain for industries, dampen consumer confidence and suppress business earnings andgrowth prospects, all of which could contribute to ongoing volatility in global financial
markets.
Many countries have, at times, experienced large declines in GDP as they restrict activities
to manage the spread of the virus, with sharp increases in unemployment rates. These
declines in GDP could be exacerbated by further outbreaks, such as due to the emergenceof new variants, of the virus. Governments have responded, and some continue to respond,with fiscal stimulus packages/measures as well as traditional and unconventional monetaryeasing and regulatory forbearance that is designed to offset at least some of the worst
effects of the COVID-19 pandemic. While such stimulus measures do not prevent thedecrease in economic activity stemming from the widespread movement restrictions aimed
at stalling the spread of the virus, they have contributed to economic recovery whenrestrictions were eased. There may also be further fluctuations in economic activity when
economic support policies are withdrawn.
The Australian and New Zealand Governments and their agencies pursued (and may
continue to pursue) policies to promote lending by financial institutions. These actions may
support providers that compete with the Group. Given the importance of a functioning and4

competitive banking sector, and the Australian and New Zealand Governments’ ongoing
desire to pursue a pro-growth agenda in response to the economic disruption caused by the
COVID-19 pandemic, it is anticipated that over the longer term the level of competition in
the financial services sector will remain a focus area for the Australian and New Zealand
Governments. Policy reform in this area may result in increased competitive pressure in theGroup’s key markets which may adversely affect the Group’s Position.
A deterioration of public finances of sovereigns in response to the COVID-19 pandemic
combined with pre-existing sovereign risk may lead to further increased volatility andwidening credit spreads. In March 2020 there was a substantial impact to market liquidity
across most asset classes as market volatility significantly increased. Whilst this level ofmarket volatility has not been repeated since, there is still uncertainty surrounding any
future impact on financial markets. The Group’s assessment of its valuation of assets andliabilities considers internal and external information, which includes assessing the ongoing
impact of the COVID-19 pandemic, and related responses of governments, regulators andbusinesses, on the carrying values of the Group’s assets. There is a high degree of
uncertainty associated with the duration and impact of the COVID-19 pandemic which may
affect the recoverability of the Group’s assets in future periods.
The COVID-19 pandemic has also affected, and can be expected to continue to impact, theGroup’s ability to continue its operations without interruption or delays due to closure of andrestricted access to premises, contagion management and travel restrictions. Any related
illness or quarantine of the Group’s employees or contractors or suspension of the Group’sbusiness operations at its branches, stores or offices could affect the Group’s Position. The
COVID-19 pandemic has resulted in the adoption of the virtual working environment as‘business as usual’ and the Group has focused on the well-being of staff given the pressuresof working from home including the risk of ongoing impacts of the COVID-19 pandemic andpotential impacts that it may have on employee mental well-being, including the ability toperform duties and operational activities appropriately. Conduct risk, however, may beheightened because of remote working through its impact on employees’ behaviour and/or
the Group’s systems and processes (or through its impact on the Group’s ability to monitor
such matters). The risk of customer harm over the next twelve months is likely to be
shaped by the economic and social impact of the pandemic, and a prioritised area of focus
for the Group is mitigating the risk of unfair treatment of borrowers, including those infinancial difficulties. As the economy begins to move towards recovery and governments’ or
the Group’s COVID-19 related support measures are wound back, individual customers still
enduring hardship may suffer detriment if the Group cannot provide tailored support andsustainable arrangements based on individual circumstances.
In addition, the COVID-19 pandemic has also increased geopolitical risk. Continuing
tensions between countries, including between Australia and China, and policy uncertainty
could result in further downturns to the domestic and global economies, which in turn could
have a material adverse impact on the Group’s Position or its ability to execute its strategic
initiatives. See Risk Factor 2 ‘Changes in political and general business and economic
conditions, including disruption in regional or global credit and capital markets, may
adversely affect the Group's Position".
The ongoing ramifications of the COVID-19 pandemic remain highly uncertain and, as of thedate of this document, it is difficult to predict the further spread or duration of the COVID19 pandemic, including whether there will be further outbreaks and whether and to what
extent vaccines or other medical treatments will be effective in curtailing the effects of the
COVID-19 pandemic.
All or any of the negative conditions related to the COVID-19 pandemic described above
may cause a further reduction in demand for the Group’s products and services and/or an
increase in loan and other credit defaults, bad debts, and impairments and/or an increase in
the cost of the Group’s operations. Should any of these occur, the Group’s Position could bematerially adversely affected.
Actions taken by regulators in response to the COVID-19 pandemic have impacted, and may
continue to impact, the Group. As an example, in Australia, the Australian Prudential

5Regulation Authority (“APRA”) revised its guidance for Authorised Deposit-taking institutions(‘ADIs”) on capital management (including capital distributions) and, in New Zealand, theReserve Bank of New Zealand (“RBNZ”) made the decision to restrict the payment ofdividends on ordinary shares by New Zealand incorporated registered banks during theperiod of economic uncertainty caused by the COVID-19 pandemic.
To the extent the COVID-19 pandemic continues to adversely affect the Group’s Position, it
may also have the effect of heightening many of the other risks described in these Principal
Risks and Uncertainties.
2.

Changes in political and general business and economic conditions, including
disruption in regional or global credit and capital markets, may adversely affect
the Group’s Position
The Group’s financial performance is primarily influenced by the political and economic
conditions and the level of business activity in the major countries and regions in which theGroup or its customers or counterparties operate, trade or raise funding including, without
limitation, Australia, New Zealand, the Asia Pacific region, the United Kingdom (“UK”),
Europe and the United States (the “Relevant Jurisdictions”).
The political, economic and business conditions that prevail in the Group’s operating andtrading markets are affected by, among other things, domestic and international economic
events, developments in global financial markets, political perspectives, opinions andrelated events and natural disasters.
Global political conditions that impact the global economy have led to, and may continue toresult in extended periods of increased political and economic uncertainty and volatility inthe global financial markets, which could adversely affect the Group’s Position. Relatively
recent examples of events that have affected (and may continue to affect) global politicalconditions include the United Kingdom ceasing to be a member of the European Union(“EU”) and the European Economic Area on 31 January 2020 (commonly referred to as“Brexit”), and global trade developments relating to, among other things, the imposition or
threatened imposition of trade tariffs and levies by major countries, including the UnitedStates, China and other countries that are Australia’s and New Zealand’s significant trading
partners and allies.
Following the end of the Brexit transition period on 30 December 2020, aspects of therelationship between the UK and the EU have been governed by the EU-UK Trade andCooperation Agreement (the “TCA”). The TCA came into effect on 1 May 2021, following its
provisional application. The TCA sets out a number of preferential arrangements in areas
such as trade in goods and in services, digital trade and intellectual property, but many
matters pertaining to the provision of financial services remain uncertain. There are anumber of remaining uncertainties regarding, among other things, post-Brexit protocols andarrangements among the parties involved.
Trade, and broader geopolitical, relationships between the United States and some of its
trading partners, such as China, remain volatile. The implementation of trading policies ordivergent regulatory frameworks by Australia’s and New Zealand’s key trading partners andallies may adversely impact the demand for Australian and New Zealand’s exports and maylead to declines in global economic growth. In particular, China is one of Australia’s and
New Zealand’s major trading partners and a significant driver of commodity demand andprices in many of the markets in which the Group and its customers operate. Anyheightening of geopolitical tensions and the occurrence of events that adversely affectChina’s economic growth and Australia’s and New Zealand’s economic relationship with
China, including the implementation of additional tariffs and other protectionist trade
policies, could adversely affect Australian or New Zealand’s economic activity, and, as aresult, could adversely affect the Group’s Position.
Instability in global political conditions, including in the United States, has contributed toeconomic uncertainty and declines in market liquidity and could increase volatility in the
global financial markets and negatively impact consumer and business activity within themarkets in which the Group or its customers or counterparties operate, or result in the6introduction of new and/or divergent regulatory frameworks that the Group will be required
to adhere to.
Should economic conditions in markets in which the Group or its customers or
counterparties operate deteriorate, asset values in the housing, commercial or ruralproperty markets could decline, unemployment could rise and corporate and personal
incomes could suffer. Deterioration in global markets, including equity, property, currency
and other asset markets, may impact the Group’s customers and the security the Groupholds against loans and other credit exposures, which may impact the Group’s ability torecover loans and other credit exposures. Should any of these occur, the Group's Position
could be materially adversely affected.
The Group’s financial performance may also be adversely affected if the Group is unable toadapt its cost structures, products, pricing or activities in response to a drop in demand or
lower than expected revenues. Similarly, higher than expected costs (including credit andfunding costs) could be incurred because of adverse changes in the economy, generalbusiness conditions or the operating environment in the countries or regions in which theGroup or its customers or counterparties operate. Should any ofthese occur, the Group's Position could be materially adversely affected.
3.

Competition in the markets in which the Group operates may adversely affect theGroup’s Position
The markets in which the Group operates are highly competitive and could become morecompetitive in the future. Competition is expected to increase, including from nonAustralian financial service providers who continue to expand in Australia, and from new
non-bank entrants or smaller providers in those markets.
Examples of factors that may affect competition and negatively impact the Group’s Position
include:•entities that the Group competes with, including those outside of Australia and New
Zealand, could be subject to lower levels of regulation and regulatory activity. This
could allow them to offer more competitive products and services, because thoselower levels of regulation may give them a lower cost base and/or the ability to attract
employees that the Group would otherwise seek to employ;•

digital technologies and business models are changing customer behaviour and thecompetitive environment and emerging competitors are increasingly utilising newtechnologies and seeking to disrupt existing business models in the financial services
sector;•existing companies from outside of the traditional financial services sector may seek
to directly compete with the Group by offering products and services traditionallyprovided by banks, including by obtaining banking licenses and/or by partnering withexisting providers;•consumers and businesses may choose to transact using, or to invest in, new forms ofcurrency (such as cryptocurrencies) in relation to which the Group may choose not, or
may not competitively be able, to provide financial services; and•Open Banking (as described below) may lead to increased competition (see risk factor
16 “Regulatory changes or a failure to comply with laws, regulations or policies may
adversely affect the Group’s Position”).

The impact on the Group of an increase in competitive market conditions or a technologicalchange that puts the Group’s business platforms at a competitive disadvantage, especiallyin the Group’s main markets and products, could lead to a material reduction in the Group’s
market share, customers and margins and adversely affect the Group’s Position.
Increased competition for deposits may increase the Group’s cost of funding. If the Group is
not able to successfully compete for deposits, the Group would be forced to rely moreheavily on other, less stable or more expensive forms of funding, or to reduce lending. This
may adversely affect the Group’s Position.

7

Economic disruptions could have a significant impact on competition and profitability in thefinancial services sector over the medium term due to funding cost and provision increases,
further declines in or persistence of structurally low interest rates, insufficient liquidity,
implementation of business continuity plans, changes to business strategies and temporary
regulatory safe harbours. The low-growth environment will likely lead to heightenedcompetitive intensity and margin compression.
4.

Changes in the real estate markets in Australia, New Zealand or other markets
where the Group does business may adversely affect the Group’s Position
Residential and commercial property lending, together with real estate development andinvestment property finance, constitute important businesses of the Group. Major subsegments within the Group's lending portfolio include:•

residential housing loans (owner occupier and investment); and•commercial real estate loans (investment and development).

Since 2009, the world’s major central banks have embarked upon unprecedented monetary
policy stimulus. The resulting weight of funds searching for yield continues to be asignificant driver underlying property markets in the Group’s core property jurisdictions(Australia, New Zealand, Singapore and Hong Kong). However, although values forcompleted tenanted properties and residential house prices, particularly in metropolitan east
coast Australian regions rose steadily until 2018, the fall in Australian house prices in 2018
was the largest since the global financial crisis. In the latter part of 2019 and early 2020,
property prices across Australia had started to increase, and although this trend was
disrupted by COVID-19 (see risk factor 1 “The COVID-19 pandemic and future outbreaks ofother communicable diseases or pandemics may materially and adversely affect the Group’s
Position”), property prices in Australia have risen again in the most recent fiscal year.
Similarly, in New Zealand residential property prices have steadily increased with median
prices increasing to a record high in March 2021. In response, the New Zealand
Government has introduced a range of initiatives aimed at limiting further price increases,
such as mandating that the RBNZ consider the impact on housing when making monetaryand financial policy decisions; creating a NZ$3.8 billion fund to accelerate housing supply inthe short to medium term by investing in infrastructure like roads and pipes to homes;
extending the ‘bright-line’ test (which is akin to a capital gains tax on investment property ifsold within 10 years from date of purchase, previously 5 years); the removal of interest
deductibility from 1 October 2021 for residential property investors who hold theirinvestments (acquired on or after 27 March 2021) on capital account as well as phasing out
its application on existing residential investments (with concessions for businesses and for“new builds”); and pledging to help Kāinga Ora (the Crown entity responsible for housing
and communities) borrow an additional NZ$2 billion to increase land acquisitions to boost
housing supply. These measures are intended to moderate the rate of New Zealandresidential property price increases.
Longer term, given a prolonged period of asset price inflation and record low interest rates,
the Group’s portfolio of commercial property loans may become more susceptible to asudden and material increase in interest rates, which could cause a decline in interest
coverage ratios and asset values, which could increase refinance risk and necessitate equity
contributions towards debt reduction.
5.

Sovereign risk events may destabilise global financial markets and may adversely
affect the Group’s Position
Sovereign risk is the risk that governments will default on their debt obligations, be unable
to refinance their debts as and when they fall due or nationalise parts of their economy.
Sovereign defaults may adversely impact the Group directly, through adversely impacting
the value of the Group’s assets, or indirectly through destabilising global financial markets,
thereby adversely impacting the Group’s Position.
Sovereign risk exists in many economies, including the United States, the UK, China,

8

Europe, Australia and New Zealand. Should one sovereign default, there could be acascading effect to other markets and countries, the consequences of which, while difficult
to predict, may be similar to or worse than those experienced during the global financial
crisis and subsequent sovereign debt crises.
6.

Market risk events may adversely affect the Group’s Position
Market risk is the risk of loss arising from adverse changes in interest rates, currency
exchange rates, credit spreads, or from fluctuations in bond, commodity or equity prices.
For purposes of financial risk management, the Group differentiates between traded andnon-traded market risks. Traded market risks principally arise from the Group’s trading
operations in interest rates, foreign exchange, commodities and securities. The non-tradedmarket risk is predominantly interest rate risk in the banking book. Other non-tradedmarket risks include transactional and structural foreign exchange risk arising from capital
investments in offshore operations and non-traded equity risk. Losses arising from theoccurrence of such market risk events may adversely affect the Group's Position.

7.

Changes in exchange rates may adversely affect the Group’s Position
As the Group conducts business in several different currencies, its businesses may beaffected by movements in currency exchange rates. Additionally, as the Group’s annual andinterim reports are prepared and stated in Australian dollars, any appreciation in theAustralian dollar against other currencies in which the Group earns revenues (particularly
the New Zealand dollar and the U.S. dollar) may adversely affect the Group’s reported
earnings.
While the Group has put in place hedges to partially mitigate the impact of currencychanges, there can be no assurance that the Group’s hedges will be sufficient or effective,
and any appreciation in the Australian dollar against other currencies in which the Groupearns its revenue may have an adverse impact upon the Group’s Position.

8.

The planned discontinuation of LIBOR and developments affecting otherbenchmark rates could have adverse consequences on the Group’s securities
issuances and its capital markets and investment activities
As a result of longstanding global regulatory initiatives, LIBOR (the London Interbank
Offered Rate) is being discontinued as a floating rate benchmark. LIBOR has been theprincipal floating rate benchmark in the financial markets, and its planned discontinuation
has affected and will continue to affect the financial markets generally and may also affect
the Group’s operations, finances and investments specifically, as described below.
On 5 March 2021, ICE Benchmark Administration Limitation (the “IBA”), the administratorof LIBOR, and its regulator, the UK’s Financial Conduct Authority (the “FCA”), separately
announced the dates on which panel bank submissions for all LIBOR settings will either
permanently cease to be published or will cease to be representative of the underlying
market and economic reality the rates are intended to measure (with such
representativeness not being restored). These dates are (a) 31 December 2021, for all
sterling, euro, Swiss franc and Japanese yen settings and the 1-week and 2-month U.S.
dollar settings; and (b) 30 June 2023, for the remaining U.S. dollar settings. Subsequently,
the Alternative Reference Rates Committee (the “ARRC”), the working group convened by
the U.S. Federal Reserve Board and the Federal Reserve Bank of New York to identify riskfree alternatives to U.S. dollar LIBOR, confirmed the FCA’s announcements constituted a“Benchmark Transition Event” under ARRC-recommended fallback language with respect toall U.S. dollar LIBOR settings. The International Swaps and Derivatives Association (“ISDA”)
also confirmed the FCA announcement was an ‘Index Cessation Event’ under the fallbacks
added to derivatives transactions by Supplement 70 to the 2006 ISDA Definitions.
While significant effort has been made to implement replacement alternative benchmark
rates, there are loans, mortgages, securities, derivatives and other financial instruments
which remain linked to the LIBOR benchmark. Any failure to successfully implement
replacement benchmark rates and execute effective transitional arrangements to address

9LIBOR discontinuation could result in disruption in the financial markets, suppress capital
markets activities and give rise to litigation claims. In addition, financial markets,particularly the trading market for LIBOR-based obligations, may in general be adversely
affected by the planned discontinuation of LIBOR, the alternative reference rates that will be
used when LIBOR is discontinued and other reforms related to LIBOR. There is no assurance
that any alternative reference rate will be the economic equivalent of the LIBOR setting it isintended to replace. Any or all of these matters could have a negative impact on theGroup’s Position and on the value of LIBOR-linked securities or other instruments which areissued, funded or held by the Group.
The Group is party to loans, securities, derivatives and other financial instruments thatcurrently use LIBOR as a benchmark rate or are otherwise linked to LIBOR. In some cases,
those instruments include terms providing for the relevant interest or payment calculations
to be made by reference to an alternative benchmark rate or on some other basis in theevent of LIBOR’s discontinuation; and such instruments should transition away from LIBOR
in accordance with those terms. In cases where an instrument’s terms do not include robust
fallback provisions or the fallback provisions are considered to be inadequate, theinstrument, may need to be amended to add or amend such provisions in line withemerging market standards, or other arrangements may have to be made with regard tosuch instrument when LIBOR is discontinued. Progress is being made by the Group on theamendment of these types of instruments. In some cases, it may not be possible to amend
the relevant terms of LIBOR-linked instruments. The potential legal, regulatory and otherconsequences if this occurs are uncertain. In any event, implementation of existing fallback
provisions or changes made on any other basis may, for example, alter the amounts
payable under the relevant instrument, its value and its liquidity, and may result in amismatch between such instrument and any related contract (such as a hedging
agreement). In addition, the process of taking the necessary action with regard to this large
volume of contracts prior to the end of calendar year 2021 (for sterling, euro, Swiss franc
and Japanese yen settings, or the 1-week or 2-month U.S. dollar settings) and prior to theend of June 2023 (for remaining U.S. dollar settings) involves operational risks for theGroup.
Other benchmark rates have been, or may be, reformed (for example, the Euro Interbank
Offered Rate (‘EURIBOR”)). Any such reforms may cause the relevant benchmarks toperform differently than in the past, or the reforms made to the rate may have otherconsequences which cannot be fully anticipated.
If a benchmark is discontinued, there may or may not be a suitable, similar alternativereference rate and there may be adverse consequences in transitioning to an alternative
rate. Any of these developments, and any future initiatives with regard to the regulation ofbenchmarks, could result in adverse consequences to the return on, value of and market forloans, mortgages, securities, derivatives and other financial instruments whose returns arelinked to any such benchmark, including those issued, funded or held by the Group; andcould result in widespread dislocation in the financial markets, engender volatility in thepricing of securities, derivatives and other instruments, and suppress capital markets
activities, all of which could have adverse effects on the Group’s Position.
9.

Acquisitions and/or divestments may adversely affect the Group’s Position
The Group regularly examines a range of corporate opportunities, including acquisitions anddivestments, with a view to determining whether those opportunities will enhance theGroup’s strategic position and financial performance.
Integration (or separation) of an acquired (or divested) business can be complex and costly,
sometimes including combining (or separating) relevant accounting and data processing
systems, and management controls, as well as managing relevant relationships with
employees, customers, regulators, counterparties, suppliers and other business partners.
Integration (or separation) efforts could create inconsistencies in standards, controls,
procedures and policies, as well as diverting management attention and resources. There isalso the risk of counterparties making claims in respect of completed or uncompleted
transactions against the Group that could adversely affect the Group’s Position. There can
10also be no assurance that any acquisition (or divestment) would have the anticipatedpositive results around cost or cost savings, time to integrate and overall performance. Allor any of these factors could adversely affect the Group’s ability to conduct its businesssuccessfully and impact the Group’s operations or results. Additionally, there can be noassurance that employees, customers, counterparties, suppliers and other business partnersof newly acquired (or retained) businesses will remain post-acquisition (or postdivestment). Further, there is a risk that completion of an agreed transaction may not occur
whether in the form originally agreed between the parties or at all, including due to failureof the counterparty to satisfy its completion conditions or because other completion
conditions such as obtaining relevant regulatory or other approvals are not satisfied. Should
any of these integration or separation risks occur, this could adversely affect the Group’s
Position.
Transactions that the Group has previously announced but not yet completed include a
proposed merchant acquiring joint venture arrangement with Worldline, a European
payment systems provider. Completion of this transaction, which remains subject tosatisfaction of one or more conditions, is expected to occur during the first half of calendar
year 2022.
Risks related to the Issuer's financial situation
10.

Credit risk may adversely affect the Group’s Position
As a financial institution, the Group is exposed to the risks associated with extending credit
to other parties, including incurring credit-related losses that can occur as a result of acounterparty being unable or unwilling to honour its contractual obligations. Credit losses
can and have resulted in financial services organisations realising significant losses and, insome cases, failing altogether.
Whilst the risk of credit-related losses has increased as a result of the impact of the COVID19 pandemic, the risk of credit-related losses may further increase as a result of a numberof factors, including a deterioration in the financial condition of the economies in which theGroup or its customers or counterparties operate, a sustained high level of unemployment in
the markets in which the Group or its customers or counterparties operate, a deterioration of
the financial condition of the Group’s customers or counterparties, a reduction in the valueof assets the Group holds as collateral, and a reduction in the market value of thecounterparty instruments and obligations it holds.
Less favourable business or economic conditions, whether generally or in a specific industry
sector or geographic region, as well as the occurrence of events such as natural disasters or
pandemics, could cause customers or counterparties to fail to meet their obligations inaccordance with agreed terms.
Some of the Group’s customers and counterparties in or with exposures to the below
mentioned sectors are increasingly vulnerable:•industries impacted by the COVID-19 pandemic particularly those referred to in therisk factor 1 “The COVID-19 pandemic and future outbreaks of other communicablediseases or pandemics may materially and adversely affect the Group’s Position”;•

industries exposed to the unwinding of government stimulus packages and/or timingof the opening of borders (both domestic and international) as well as industries
reliant on consumer discretionary spending;•the commercial property sector (including construction and contractors) which is
exposed to a decline in investor demand for large scale inner city apartment buildings
and a material decline in net migration. In some markets, commercial contractors andsub-contractors may face cash flow/liquidity issues over the next 12-24 months as
current projects run off and their forward books are diminished. The residential
development sector is experiencing supply chain issues, increased costs and labour
mobility issues. Earnings for hotel accommodation and certain retail sectors are still
being impacted by reduced mobility and the extent of longer-term implications forsome offices remains uncertain due to the shift to remote working arrangements;

11•

industries at risk of sanctions, geopolitical tensions or trade disputes (e.g. technology,
agriculture and communications) and/or declining global growth and disruption to
global supply chains;•customers and industries exposed to disruption from physical climate risk (e.g.
bushfires, floods, storms and drought), and transition risk (e.g. industry exposed tocarbon reduction requirements and resulting changes in demand for goods andservices or liquidity). For more information on climate-related risks, see risk factor 29“Impact of future climate events, geological events, plant, animal and humandiseases, and other extrinsic events may adversely affect the Group’s Position”; and•industries exposed to the volatility of the United States Dollar as well as the Australian
Dollar and New Zealand Dollar.

The Group is also subject to the risk that its rights against third parties may not be
enforceable in certain circumstances, which may result in credit losses. Should material
credit losses occur to the Group’s credit exposures, this may adversely affect the Group’s
Position.
Credit risk may also arise from certain derivative, clearing and settlement contracts that theGroup enters into, and from the Group’s dealings with, and holdings of, debt securities
issued by other banks, financial institutions, companies, governments and government
bodies where the financial conditions of such entities are affected by economic conditions in
global financial markets.
In addition, in assessing whether to extend credit or enter into other transactions withcustomers and/or counterparties, the Group relies on information provided by or on behalfof customers and/or counterparties, including financial statements and other financial
information. The Group may also rely on representations of customers and independent
consultants as to the accuracy and completeness of that information. The Group’s financial
performance could be negatively impacted to the extent that it relies on information that is
incomplete, inaccurate or materially misleading.
The Group holds provisions for credit impairment that are determined based on current
information and subjective and complex judgements of the impairment within the Group’s
lending portfolio. If the information upon which the assessment is made proves to beinaccurate or if the Group fails to analyse the information correctly, the provisions made for
credit impairment may be insufficient, which may adversely affect the Group’s Position.
11.

Challenges in managing the Group’s capital base could give rise to greater
volatility in capital ratios, which may adversely affect the Group’s Position
The Group’s capital base is critical to the management of its businesses and access tofunding. Prudential regulators of the Group include, but are not limited to, APRA, the RBNZ
and various regulators in the United States, the UK and the countries in the Asia Pacificregion. The Group is required by its primary regulator, APRA and the RBNZ for the ANZBank New Zealand Limited (“ANZ New Zealand”, and, together with its subsidiaries, the“ANZ New Zealand Group”) to maintain adequate regulatory capital.
Under current regulatory requirements, risk-weighted assets and expected loan losses
increase as counterparty’s risk grade worsens. These regulatory capital requirements arelikely to compound the impact of any reduction in capital resulting from lower profits intimes of stress. As a result, greater volatility in capital ratios may arise and may require theGroup to raise additional capital. There can be no certainty that any additional capitalrequired would be available or could be raised on reasonable terms.
The Group’s capital ratios may be affected by a number of factors, such as (i) lower
earnings (including lower dividends from its deconsolidated subsidiaries such as those in theinsurance business as well as from its investment in associates), (ii) increased asset growth,(iii) changes in the value of the Australian dollar against other currencies in which the Group
operates (particularly the New Zealand dollar and U.S. dollar) that impact risk weighted
assets or the foreign currency translation reserve, (iv) changes in business strategy

12

(including acquisitions, divestments and investments or an increase in capital intensive
businesses), and (v) changes in regulatory requirements.
APRA and the RBNZ have implemented prudential standards to accommodate Basel III.
Certain other regulators have either implemented or are in the process of implementing
regulations, including Basel III, that seek to strengthen, among other things, the liquidity
and capital requirements of banks, funds management entities and insurance entities,
though there can be no assurance that these regulations have had or will have theirintended effect. These regulations, together with risks arising from any regulatory changes(including those arising from APRA’s response to the remaining Financial System Inquiry(“FSI”) recommendations, further changes from APRA’s ‘unquestionably strong’requirements, the requirements of the Basel Committee on Banking Supervision (“BCBS”),
the RBNZ’s reform of capital requirements and the RBNZ’s amendments to ANZ New
Zealand's Conditions of Registration in response to the COVID-19 pandemic, are describedin risk factor 16 "Regulatory changes or a failure to comply with laws, regulations or policies
may adversely affect the Group’s Position". Any inability of the Group to maintain its
regulatory capital may have a material adverse effect on the Group's Position.
12.

The Group’s credit ratings could change and adversely affect the Group’s ability toraise capital and wholesale funding and constrain the volume of new lending,which may adversely affect the Group’s Position
The Group’s credit ratings have a significant impact on both its access to, and cost of,capital and wholesale funding. They may also be important to customers or counterparties
when evaluating the Group’s products and services. Credit ratings and rating outlooks may
be withdrawn, qualified, revised or suspended by credit rating agencies at any time. The
methodologies used by ratings agencies to determine credit ratings and rating outlooks may
be revised in response to legal or regulatory changes, market developments or for any
other reason.
The Group’s credit ratings or rating outlooks could be negatively affected by a change in thecredit ratings or rating outlooks of the Commonwealth of Australia or New Zealand, theoccurrence of one or more of the other risks identified in this document, a change in ratings
methodologies or by other events. As a result, downgrades in the Group’s credit ratings or
rating outlooks could occur that do not reflect changes in the general economic conditionsor the Group's financial condition. In addition, the ratings of individual securities (including,but not limited to, certain Tier 1 capital and Tier 2 capital securities and covered bonds)
issued by the Group (and other banks globally) could be impacted from time to time bychanges in the regulatory requirements for those instruments as well as the ratings
methodologies used by rating agencies.
On 12 April, 2021, Fitch Ratings (“Fitch”) revised the outlook on ANZBGL and ANZ New
Zealand to stable from negative and affirmed ANZBGL’s and ANZ New Zealand’s ‘A+’ longterm and ‘F1’ short term issuer default rating. Further, on 7 June 2021, S&P Global Ratings(“S&P”) revised its outlook on the long-term ratings on Australia and its outlook on the longterm issuer credit rating for ANZBGL and ANZ New Zealand to stable from negative (having
previously revised it to negative from stable on 9 April 2020). S&P also affirmed Australia’s‘AAA’ long-term and ‘A-1+’ short-term unsolicited sovereign credit ratings and ANZBGL’sand ANZ New Zealand’s ‘AA-’ long-term and ‘A-1+’ short-term issuer credit ratings.
Any future downgrade or potential downgrade to the Group’s credit ratings or rating
outlooks may reduce access to capital and wholesale debt markets and could lead to anincrease in funding costs, which could constrain the volume of new lending and affect thewillingness of counterparties to transact with the Group which may adversely affect theGroup’s Position.
Credit ratings are not a recommendation by the relevant rating agency to invest in
securities offered by the Group.

13

13.

Liquidity and funding risk events may adversely affect the Group’s Position
Liquidity and funding risk is the risk that the Group is unable to meet its payment
obligations as they fall due (including repaying depositors or maturing wholesale debt) orthat the Group has insufficient capacity to fund increases in assets. Liquidity and funding risk
is inherent in all banking operations due to the timing mismatch between cash inflows andcash outflows.
Reduced liquidity could lead to an increase in the cost of the Group’s borrowings andconstrain the volume of new lending which may adversely affect the Group’s Position.
Deterioration and volatility in market conditions and/or declines in investor confidence in
the Group may materially impact the Group’s ability to replace maturing liabilities andaccess funding (in a timely and cost effective manner), which may adversely impact theGroup’s Position.
The Group raises funding from a variety of sources, including customer deposits andwholesale funding in domestic and in offshore markets to meet its funding requirements andto maintain or grow its business generally. Developments in major markets can adversely
affect liquidity in global capital markets. For example, in times of liquidity stress, if there isdamage to market confidence in the Group or if funding inside or outside of domestic
markets is not available or constrained, the Group’s ability to access sources of funding andliquidity may be constrained and the Group will be exposed to liquidity and funding risk.
In response to the economic impact of the COVID-19 pandemic, major central banks
including in Australia and New Zealand have implemented or expanded the use ofalternative monetary policy tools including quantitative easing and certain other facilities
that directly provide funding to banks in their relevant jurisdiction, including the Group. If
these tools were to be withdrawn or significantly reduced unexpectedly the Group may berequired to seek alternative funding.
The availability of alternative funding, and the terms on which it may be available, will
depend on a variety of factors, including prevailing market conditions and the Group’s credit
ratings at that time (which are strongly influenced by Australia’s and New Zealand’ssovereign credit rating). Even if available, the cost of these funding alternatives may be
more expensive or on unfavourable terms that may adversely affect the Group’s Position.

14.

Changes in the valuation of some of the Group’s assets and liabilities may
adversely affect the Group’s earnings and/or equity, and therefore the Group’s
Position
The Group applies accounting standards, which require that various financial instruments,
including derivative instruments, assets and liabilities classified as fair value through othercomprehensive income, and certain other assets and liabilities (as per Note 18 of the 2021
Financial Statements) are measured at fair value with changes in fair value recognised inearnings or equity.
Generally, in order to establish the fair value of these instruments, the Group relies onquoted market prices or fair values based on present value estimates or other valuation
techniques that incorporate the impact of factors that would influence the fair value as
determined by a market participant. The fair value of these instruments is impacted bychanges in market prices or valuation inputs that may have a material adverse effect on theGroup’s earnings and/or equity.
In addition, the Group may be exposed to a reduction in the value of non-lending related
assets as a result of impairments that are recognised in earnings. The Group is required totest the recoverability of goodwill balances and intangible assets with indefinite useful lives
or not yet available for use at least annually and other non-lending related assets including
premises and equipment, investment in associates, capitalised software and other intangible
assets where there are indicators of impairment.

14For the purpose of assessing the recoverability of the goodwill balances, the Group uses amultiple of earnings calculation. Changes in the assumptions upon which the calculation isbased, together with changes in earnings, may materially impact this assessment, resulting
in the potential write-off of a part or all of the goodwill balances.
In respect of other non-lending related assets, in the event that an asset is no longer inuse, or that the cash flows generated by the asset do not support the carrying value,
impairment charges may be recorded. This, in conjunction with the other potential changes
above, could impact the Group’s Position.
15.

Changes to accounting policies may adversely affect the Group’s Position
The accounting policies that the Group applies are fundamental to how it records andreports its financial position and results of operations. Management exercises judgement inselecting and applying many of these accounting policies so that they comply with theapplicable accounting standards or interpretations and reflect the most appropriate mannerin which to record and report on the Group’s financial position and results of operations.
However, these accounting policies may be applied inaccurately, resulting in a misstatementof the Group’s financial position. In addition, the application of new or revised accounting
standards or interpretations may adversely affect the Group’s Position.
The impact of new accounting standards effective for the first time in the Group’s 2021
fiscal year is outlined in Note 1 of the 2021 Financial Statements.
In some cases, management must select an accounting policy from two or morealternatives, any of which would comply with the relevant accounting standard orinterpretation and be reasonable under the circumstances, yet might result in reporting
materially different outcomes than would have been reported under the alternative.
Legal and regulatory risk

16.

Regulatory changes or a failure to comply with laws, regulations or policies may
adversely affect the Group’s Position
The Group’s businesses and operations are highly regulated. The pace of regulatory change
has accelerated in recent years. The Group is subject to a substantial and increasing
number of laws, regulations and policies, including industry self-regulation, in the Relevant
Jurisdictions in which it carries on business or obtains funding and is supervised by anumber of different authorities in each of these jurisdictions. The volume of changes, andresources allocated to the regulation and supervision of financial services groups, such as
the Group, and the enforcement of laws against them, including through litigation, has
increased substantially in recent years, including in response to community concern
regarding the conduct of financial services groups in Australia and New Zealand. As a result,
the regulation and supervision of, and enforcement against, financial services groups,
including the Group has become increasingly extensive, complex and costly across theRelevant Jurisdictions. Such regulation, supervision and enforcement continue to evolve.
The COVID-19 pandemic has had, and may continue to have an impact on the regulationand supervision of, and enforcement against, financial services groups such as the Group.
Any future ramifications of the COVID-19 pandemic remain uncertain and, as of the date ofthis document, difficult to predict. There have been delays and deferrals to theimplementation of regulatory reforms in Australia and New Zealand and a re-ranking ofpriorities, including enforcement priorities.
Such delays and deferrals could impact the Group’s ability to manage regulatory change andincrease the risk of the Group not complying with new regulations when they come into
effect.
The ongoing COVID-19 pandemic also has the potential to complicate the Group’s dealings
with its regulators in a number of ways. In particular, disruptions to the Group’s business,
operations, third party contractors and suppliers resulting from the COVID-19 pandemic

15

may increase the risk that the Group will not be able to satisfy its regulatory obligations orprocesses and/or address outstanding issues, potentially increasing the prospect of aregulator taking adverse action against the Group. Although there is continuing engagementwith regulators with respect to banking industry wide loan repayment deferrals andassistance to customers to get back to making their repayments, the Group remains
susceptible to regulatory action where it fails to satisfy its regulatory obligations. For more
information on risks relating to the COVID-19 pandemic see risk factor 1 “The COVID-19
pandemic and future outbreaks of other communicable diseases or pandemics may
materially and adversely affect the Group’s Position”.
In Australia:
Prudential Developments
Developments in prudential regulation continue to impact the Group in a material way.
Given the number of items that are currently open for consultation with APRA and the
RBNZ, the potential impacts on the Group remain uncertain. Further changes to APRA’s or
the RBNZ’s prudential standards could increase the level of regulatory capital that the Groupis required to maintain, restrict the Group’s flexibility, require it to incur substantial costs
and/or impact the profitability of one or more business lines any of which may adversely
affect the Group’s Position. Particular points include:•

In August 2021, APRA released the final prudential standard APS111 Capital
Adequacy: Measurement of Capital (“APS111”). The most material change from
APRA’s revision is in relation to the treatment of capital investments for each banking
and insurance subsidiary at Level 1, with the tangible component of the investmentchanging from a 400% risk weighting to:o250% risk weighting up to an amount equal to 10% of ANZBGL’s net Level 1
Common Equity Tier 1 (“CET1”) capital; andothe remainder of the investment will be treated as a CET1 capital deduction.

•

APRA has maintained the above proposals, in an update in May 2021, which also
includes APRA responses to submissions made by the industry in relation to the issues
raised from the October 2019 discussion paper. ANZBGL continues to review the
implications of APRA’s proposal for its current investments. The net impact on theGroup is unclear and will depend upon a number of factors including the capitalisationof the affected subsidiaries at the time of implementation, the final form of theprudential standard, as well as the effect of management actions being pursued thathave the potential to materially offset the impact of these proposals. Based on
ANZBGL’s investment as at 30 September 2021 in its affected subsidiaries and in theabsence of any offsetting management actions, the above proposals imply a reductionin ANZBGL’s Level 1 CET1 capital ratio of up to approximately A$2 billion(approximately 60 basis points). There would be no impact on the Group’s Level 2
CET1 capital ratio arising from these proposed changes. The proposed implementation
date has been deferred by APRA to 1 January 2022. In a further update during
November 2020, APRA announced, that until the new APS111 is finalised andimplemented, APRA will require any new or additional equity investments in banking
and insurance subsidiaries, where the amount of that new or additional investments
takes the aggregate value of the investment above 10% of an ADI’s CET1 capital, tobe fully funded by equity capital at the ADI parent company level. This treatment
would apply to the proportion of the new or additional investment that is above 10%of an ADI’s CET1 capital.

•

In August 2019, APRA announced that it will amend prudential standard APS222
Associations with Related Entities to reduce the limits for Australian ADIs’ individual
entity exposure to related ADIs (or overseas equivalents) from 50% of Level 1 total
capital to 25% of Level 1 Tier 1 capital, and aggregate exposures from 150% of Level
1 total capital to 75% of Level 1 Tier 1 capital. As exposures are measured net of
capital deductions, the proposed changes to APRA’s capital regulations (contained in
APS111) will affect the measurement of ADI exposures. The implementation date forthese changes has been deferred by APRA from 1 January 2021 to 1 January 2022.

•

In July 2019, APRA announced its decision on loss-absorbing capacity pursuant to which16it will require Australian domestic systemically important banks (“D-SIBs”), including
ANZBGL, to increase their total capital by 3% of risk-weighted assets (“RWA”) by
January 2024. Based on the Group’s capital position as at 30 September 2021 thisrepresents an incremental increase in the total capital requirement of approximately
A$3.7 billion, with an equivalent decrease in other senior funding. APRA has stated thatit anticipates that D-SIBs would satisfy the requirement predominantly with additional
Tier 2 capital. APRA is considering, over the next four years, feasible alternative
methods for raising an additional 1% to 2% of RWA. As part of APRA’s update on the
APS111 consultation in May 2021, APRA has also indicated their intention to work with
the industry and the RBNZ on how the RBNZ’s proposed new definitions of Additional
Tier 1 (“AT1”) and Tier 2 capital could contribute towards the overall loss absorbing
capacity of banking groups. Subject to appropriate strengthening of cross-borderresolution arrangements, APRA could take into account the RBNZ qualifying AT1 andTier 2 capital when determining the financial resources needed to support the orderly
resolution of major banks.
•

Implementation of APRA’s revisions to the capital framework for ADIs, resulting fromthe BCBS Basel III capital reforms and the recommendations of the FSI, will continue
over the coming years. However, in response to the challenging economic
environment resulting from disruption caused by the COVID-19 pandemic, APRA
announced a temporary change to its expectations with regards to ADIs maintainingbank capital ratios at the ‘unquestionably strong’ benchmark of 10.5% for CET1. APRA
advised all banks that during this period of disruption resulting from the COVID-19
pandemic, APRA would not be concerned if banks are not meeting this benchmark as
the current large buffers may be needed to facilitate ongoing lending to the Australianeconomy, provided that they continue to meet their other minimum capitalrequirements.

•

APRA has deferred its scheduled implementation of changes to ADIs risk-weighting
framework and other capital requirements (capital reforms) by one year. The majorityof the capital reforms were initially due for implementation on 1 January 2022, butthese have now been revised to 1 January 2023. In December 2020, APRA released a
consultation paper regarding proposed changes to the capital framework for ADIs
aimed at embedding ‘unquestionably strong’ levels of capital, improving the flexibilityof the framework, and improving the transparency of ADI capital strength. These
proposals replaced previous consultation packages released by APRA in 2018 and2019 in relation to proposed revisions to the capital framework for ADIs. The key
aspects of APRA’s latest proposal, published in December 2020, are:•oIncreased alignment with internationally agreed Basel standards;oImplementing more risk-sensitive risk weights for residential mortgage lending;oIntroduction of the Basel II capital floor that limits the RWA outcome forInternal Ratings-Based (“IRB”) ADIs to no less than 72.5% of the RWA outcome
under the standardised approach;oImproving the flexibility of the capital framework through the introduction of a
default level of the countercyclical capital buffer (“CCyB”) and increasing thecapital conservation buffer (“CCB”) for IRB ADIs;o

Improving the transparency and comparability of ADIs’ capital ratios, including
by requiring IRB ADIs to also publish their capital ratios under the standardised
approach; andoImplementing a Minimum Leverage Ratio for IRB ADIs at 3.5%.

APRA has indicated in their proposals a decrease in RWA, but this would be offset by theincreased capital allocation to regulatory buffers. APRA has also indicated that, as ADIs
are currently meeting the ‘unquestionably strong’ benchmarks, it is not APRA’s intention
to require ADIs to raise additional capital. Accordingly, APRA has therefore sought tocalibrate the proposed capital requirements for ADIs, measured in dollar terms, to beconsistent at an industry level with the existing ‘unquestionably strong’ capitalbenchmarks for ADIs under the current capital framework. The impact of these proposedchanges on individual ADIs (including ANZBGL), however, will vary depending on the final
form of requirements implemented by APRA.

17•Further updates were made by APRA in June and July 2021 in regards to the capitalreforms. APRA provided more details around the timing of implementation of the capitalreforms and updates to RWA calibration, with no substantive changes to the key policy
objectives as outlined in their December 2020 proposals.

•

In response to the COVID-19 pandemic, in April 2020, APRA provided guidance on capitalmanagement, which included an expectation that ADIs seriously consider deferring
decisions on the appropriate level of dividends. In July 2020, APRA provided an updateto their guidance, which included an expectation that ADIs maintain caution on dividends
and, for the remainder of the 2020 calendar year, the ADIs seek to retain at least half of
their earnings when making decisions on capital distributions. In December 2020, APRA
further updated its guidance, whereby from calendar year 2021, APRA will no longer holdbanks to a minimum level of earnings retention but ADIs will need to maintain vigilanceand careful planning in capital management. APRA stated that the onus will be on Boards
to carefully consider the sustainable rate for dividends, taking into account the outlook
for profitability, capital and economic environment.

•

In July 2021, APRA has also announced the regulatory support for banks offering
temporary financial assistance to borrowers impacted by the COVID-19 pandemic. For
these eligible borrowers, ADIs will not need to treat a repayment deferral as a loan
restructuring or the period of deferral as a period of arrears. This temporary prudential
treatment was applicable for eligible loans granted a repayment deferral of up to threemonths from 8 July 2021 to 30 September 2021.

•

The RBNZ has released new capital adequacy requirements for New Zealand banks,
which are set out in the Banking Prudential Requirements (“BPR”) documents, and arebeing implemented in stages during a transition period from October 2021 to July
2028. The net impact on the Group is expected to be an increase in CET1 capital of
approximately A$1.0 billion between 30 September 2021 and the end of the transition
period in 2028 (based on the Group’s 30 September 2021 balance sheet). This
amount could vary over time subject to changes to capital requirements for ANZ New
Zealand (e.g. RWA growth, management buffer requirements), potential dividend
payments and the final form of APS111 implementation.

•

Additionally, under changes outlined in the BPRs, from 1 January 2022 there will be a
12.5% reduction in the regulatory capital recognition of ANZ New Zealand’s existing
Additional Tier 1 capital instruments, including its NZ$500 million of mandatory
convertible perpetual subordinated securities (“Capital Notes”). As a result, ANZ New
Zealand has determined that a Regulatory Event (as defined in the deed poll for the
Capital Notes dated 23 February 2015 as amended and restated on 26 June 2019)has occurred in respect of the Capital Notes. The occurrence of a Regulatory Eventmeans that ANZ New Zealand may choose to redeem the Capital Notes at its
discretion. A redemption of the Capital Notes is subject to certain conditions, including
approval from the RBNZ and the APRA. No decision has been made on whether ANZ
New Zealand will redeem the Capital Notes (subject to the regulatory approvals).

•

In March 2021, the RBNZ announced that its restrictions on dividends put in place inApril 2020 would be eased. The updated restrictions allow ANZ New Zealand to pay up
to 50% of its earnings as dividends to its shareholder. This restriction will remain inplace until 1 July 2022, at which point the RBNZ intends to remove the restrictions
completely, subject to no significant worsening in economic conditions. Further, inMarch 2021, the RBNZ announced that it would remove the restrictions on redemptionof non-CET1 capital instruments. However, as the restriction was in place in May
2020, ANZ New Zealand was not permitted to redeem its Capital Notes on the
Optional Exchange Date (25 May 2020) and did not exercise its option to convert in
May 2020. Refer above for discussion on the Capital Notes.

Recalibration of ASIC’s Regulatory Priorities
Australian Securities and Investments Commission (“ASIC”) announced on 23 March 2020,
that it will focus its regulatory efforts on challenges created by the COVID-19 pandemic.
Since then, ASIC has afforded priority to matters where there is the risk of significant
consumer harm, serious breaches of the law, risks to market integrity and time-criticalmatters. This included a focus on loan deferral programs and customers dealing with18

hardship. ASIC immediately suspended a number of near-term activities which are not timecritical. These included some consultations, regulatory reports and onsite reviews including
ASIC’s close and continuous monitoring program. In April 2020, ASIC announced further
details of changes to its regulatory work and priorities in light of the COVID-19 pandemic,
including that it has stepped up markets supervision work and that enforcement action willcontinue. However, ASIC stated that there may be changes to the timing and process ofinvestigations it is conducting to take in account the impact of the COVID-19 pandemic. In
May 2020, ASIC announced that it would defer the commencement date of the mortgage
broker best interest duty and remuneration reforms and the design and distribution
obligations by six months to 1 January 2021, and 5 October 2021, respectively.
In August 2021, ASIC released its Corporate Plan for 2021 through 2025, which outlines
ASIC’s vision to achieve a fair, strong and efficient financial system for all Australians,
through four external strategic priorities: (i) promoting economic recovery, including
through better and more efficient regulation, facilitating innovation, and targeting regulatory
and enforcement action to areas of greatest harm; (ii) reducing risk of harm to consumers
exposed to poor product governance and design, and increased investment scam activity ina low-yield environment; (iii) supporting enhanced cyber resilience and cyber security
among ASIC’s regulated population, in line with the whole-of-government commitment to
mitigating cyber security risks; and (iv) driving industry readiness and compliance withstandards set by law reform initiatives (including the Financial Accountability Regime,
reforms in superannuation and insurance, breach reporting, and the design and distribution
obligations). ASIC also stated it intends to take regulatory action during this period toachieve its vision and that its work over the next four years will centre on: changing
behaviours to drive good consumer and investor outcomes; acting against misconduct tomaintain trust and integrity in the financial system; promoting strong and innovative
development of the financial system; and helping Australians to be in control of theirfinancial lives. ASIC also released its new Statement of Intent in response to the AustralianGovernment’s Statement of Expectations. The Statement of Intent covers: support foreconomic goals and COVID-19 pandemic recovery; regulatory co-operation; stakeholder
engagement and guidance; use of regulatory tools; and governance.
Royal Commission
The Royal Commission made 76 recommendations concerning law reform, self-regulatory
standards and the operations of ASIC and APRA, a number of which have already beenaddressed. The Australian Government has stated that it remains focused on completing theimplementation of the remaining recommendations. Following the Royal Commission, there
have been, and continue to be, additional costs and further exposures, including exposuresassociated with further regulator activity or potential customer exposures such as classactions, individual claims or customer remediation or compensation activities. The
recommendations may also lead to adjustments in the competitive environment of theGroup. The outcomes and total costs associated with these possible exposures and changes
remain uncertain and their impact may adversely affect the Group’s Position.
Competition Laws, Regulations and Inquiries
There is a strong focus on the regulation of competition in the Australian and New Zealandfinancial services sectors. In February 2021, the Australian Competition and Consumer
Commission (“ACCC”) announced its enforcement priorities for the year and financial
services has returned as a key priority. The ACCC noted that it would be following throughon the recommendations from the ACCC’s Home Loan Price Inquiry final report which was
released in December 2020. The recommendations included a prompt to encourageborrowers to consider if they could benefit from switching loan providers, changes to themortgage discharge process, and an ongoing role for the ACCC to monitor competition andprices in the home loan market. These changes are likely to result in increased compliancecosts being incurred by the Group. The ACCC has noted it will heavily scrutinise any
mergers or acquisitions, particularly by any of the big four Australian banks and will also
keep a close watch on any issues arising from collections as loan deferral periods come toan end. Increased scrutiny by ACCC may result in an associated increase in costs for theGroup in addition to adversely impacting the Group's ability to grow through theimplementation of potential acquisitions which may in turn, have a negative impact on the19Group's Position.
Product Laws, Regulations and Inquiries
There remains a strong focus on the suitability of products offered by financial services
providers, including the Group. Regulatory policy development and monitoring of
responsible consumer lending has increased significantly, and continues to drive the review
of, and changes to, business practices. If any additional changes in law, regulation or policy
are implemented, as a result of the development and monitoring of responsible consumer
lending, such changes may impact the manner in which the Group provides consumer
lending services in the future that may in some respects adversely affect the Group’s
operations in this area and consequently, the Group’s Position. ASIC published updated
regulatory guidance on responsible lending laws in December 2019. In December 2020, theAustralian Government introduced a bill to make changes to Australia’s credit framework,
including changes to the responsible lending obligations for ADIs, where APRA will continue
to regulate ADIs in relation to existing standards, while ASIC will regulate non ADIs in
relation to new standards. Laws for stricter anti-hawking prohibitions in relation to financial
products and a deferred sales model for add on insurance have recently been passed. The
design and distribution obligation legislation, which came into effect in Australia on 5
October 2021, will introduce requirements on product issuers and distributors to, among
other things, identify appropriate target markets for financial and credit products anddistribute those products so that they likely reach the relevant target market. There are
significant penalties for non-compliance and such legislation could impact the Group’s ability
to issue and market financial products in the future. Increased compliance costs resulting
from financial product distribution requirements may adversely impact the Group’s Position.
Increasing Regulatory Powers, Corporate Penalties and Funding for Regulators
There are increased penalties for breaches of laws in Australia, including the Australianconsumer law, as well as increased powers to regulators and funding for regulators to
enforce breaches. Increasing regulatory powers include ASIC’s product intervention power
and proposed expansions of ASIC directions powers. The Australian Government announced
in March 2019 that ASIC would be provided with more than A$400 million and APRA withmore than A$150 million in additional funding to support enforcement actions and increase
regulation and supervision. The Treasury Laws Amendment (Strengthening Corporate andFinancial Sector Penalties) Act 2019 significantly increased the sanctions applicable to thecontravention of a range of corporate and financial sector obligations. The imposition ofsuch penalties on the Group may adversely affect the Group’s Position.
Senior Executive Accountability Laws and Regulations
There are increasing penalties and specialised rules applicable to senior executives in thebanking sector. The Banking Executive Accountability Regime (“BEAR”) was introduced as a
new responsibility and accountability framework for the directors and most senior executives
in ADI groups. The Australian Government announced in January 2020 that BEAR will be
replaced by the Financial Accountability Regime (“FAR”), which proposes to extend theregime to other APRA-regulated entities. FAR would be jointly administered by APRA and
ASIC and could impose larger civil penalties for any breaches, including for individuals. In
July 2021, Federal Treasury released for consultation draft documents in relation to FAR.
Potential risks to the Group from the BEAR legislation and FAR include the risk of penalties
and the risk to the Group’s ability to attract and retain high-quality directors and senior
executives.
Other government or regulatory interventions in the financial sector
There remain ongoing Australian Government and regulator led inquiries and interventions
into Australia’s banks. These inquiries are wide ranging and could lead to legislative or
regulatory changes or measures that may adversely affect the Group’s Position, including
through taxes and levies. Scrutiny of banks also increased substantially following thecommencement by the Australian Transaction Reports and Analysis Centre (“AUSTRAC”)(the Australian Government financial intelligence agency set up to monitor financialtransactions to identify money laundering, organised crime, tax evasion, welfare fraud and20terrorism financing) of civil penalty proceedings in 2017 and 2019 against two major
Australian banks relating to alleged past and ongoing contraventions of the Anti-Money
Laundering and Counter-Terrorism Financing Act 2006 (Commonwealth). The AustralianParliament’s Joint Standing Committee on Trade and Investment Growth is conducting an
inquiry into the prudential regulation of investment in Australia’s export industries. The
terms of reference focus on prudential standards and practices across banking, insurance
and superannuation and how these are impacting businesses and the rural, regional andnational economies. ANZBGL has appeared twice before the Standing Committee on Tradeand Investment Growth in connection with the inquiry. The Australian Senate SelectCommittee on Australia as a Technology and Financial Centre is considering a range ofissues concerning technology and Australian financial services, including the ‘debanking’ of
fintechs by Australian banks. The impact of the inquiry on ANZBGL, if any, is not yet clear.
See also risk factor 18 “Significant fines and sanctions in the event of breaches of law or
regulation relating to anti-money laundering, counter-terrorism financing and sanctions may
adversely affect the Group’s Position”.
Industry self-regulation
There is continued focus on industry best practice guidance and standards impacting retailand small business banking. Changes to self-regulatory instruments, including industry
codes and practice guidelines, has required Group resources to implement and monitor
compliance. An independent review of the Australian Banking Code is underway with a final
report due in November 2021. The report is expected to include recommendations on which
provisions should be designated ‘enforceable’, pursuant to the Financial Services Royal
Commission recommendation to allow certain industry code provisions to be deemed as‘enforceable code provisions’ (the breach of which would attract civil penalties). ASIC is
required to approve any changes made to the Australian Banking Code.
Open Banking Laws
Open Banking is part of a new consumer data right (‘CDR’) in Australia that came into effect inAugust 2019. The CDR gives customers access to and control over their data and establishes
and seeks to improve consumers’ ability to compare and switch between products and services.
From 1 July 2020, individual customers can request their bank share their data for deposit andtransaction accounts and credit and debit cards and this ability has since been extended to anumber of additional products. It is expected to reduce the barriers to new entrants into thebanking industry in Australia. Open Banking may lead to increased competition that may
adversely affect the Group’s Position.
On 23 December 2020, the Australian Government released the report of the Inquiry into Future
Directions of the Consumer Data Right. The report contains 100 recommendations for the
expansion of the CDR which currently underpins open banking. It includes a recommendation
to enable general action initiation (e.g. opening, managing and closing products) and payment
initiation by accredited persons through the CDR regime. If the recommendations are
implemented by Australian Government this may lead to a further increase in competition. The
Australian Government announced it will respond to the report in calendar year 2021. The
Australian Treasury is also conducting a strategic assessment of the CDR.
Cyber Security
The Australian Government has expressed its commitment to protecting Australian essential
services by improving the security and resilience of critical infrastructure. The Security
Legislation Amendment (Critical Infrastructure) Bill 2020 was introduced in December 2020. If
passed, the bill would create an enhanced regulatory framework for Australia’s criticalinfrastructure that may include banks. The impact on ANZBGL of the bill, if passed, is not yet
clear.
Payments Policy
There are a number of Government bodies considering issues relating to the regulation of
payments in Australia. On 30 August 2021, the Australian Government released the final

21

report of a review into the Australian payments system. The report makes 15
recommendations concerning how payments policy is set in Australia and the powers that
Government would have to implement that policy. The Australian Treasury is expected toconsult on the recommendations ahead of a response being finalised by the AustralianGovernment. The Reserve Bank of Australia (“RBA”) is separately reviewing retail payments
regulation. It released a consultation paper in May 2021 that suggested, among otherthings, that major banks be obligated to issue dual-network debit cards. The Parliamentary
Joint Committee on Corporations and Financial Services is also conducting an inquiry into
mobile payment and digital wallet financial services. The impact of this work on ANZBGL, if
any, is not yet clear.

Outside of Australia:
New Zealand Developments
The New Zealand Government and regulatory authorities have proposed, or have
implemented, significant legislative and regulatory changes for New Zealand financial
institutions. These changes include, among other things: the RBNZ’s reform of capitalrequirements and revised outsourcing policy (BS11), proposed changes to RBNZ’s mortgage
lending standards, proposed conduct regulations for financial institutions under the Financial
Markets (Conduct of Institutions) Amendment Bill, the replacement of the Reserve Bank of
New Zealand Act 1989 and the enactment of the Credit Contracts Legislation Amendment
Act 2019 ("CCLA Act"). Such changes may adversely affect the ANZ New Zealand Group,
potentially impacting its corporate structures, businesses, strategies, capital, liquidity,
funding and profitability, cost structures, and the cost and access to credit for its customers
and the wider economy. This in turn may adversely affect the Group's Position.

Other Offshore Developments
Other offshore regulatory developments include changes to financial regulations in the
United States, changes to senior executive accountability in Singapore, Hong Kong, and theUK, introduction of greater data protection regulations in Europe, implementation of further
phases of the initial margin requirements for uncleared OTC derivatives in a number of theRelevant Jurisdictions and the requirement that banks prepare for the reform of EURIBOR
and the Singapore Interbank Offered Rate (“SIBOR”), and the discontinuation of LIBOR andother such interbank offered rates by transitioning to risk free rates. For further informationin relation to LIBOR risks, see also risk factor 8 “The planned discontinuation of LIBOR anddevelopments affecting other benchmark rates could have adverse consequences on theGroup’s securities issuances and its capital markets and investment activities” above.
A failure by the Group to comply with laws, regulations or policies in any of the Relevant
Jurisdictions could result in regulatory investigations, legal or regulatory sanctions, financial
or reputational loss, litigation, fines, penalties, restrictions on the Group’s ability to dobusiness, revocation, suspension or variation of conditions of relevant regulatory licences orother enforcement or administrative action or agreements (such as enforceable
undertakings) that may adversely affect the Group’s Position.
The impact of the COVID-19 pandemic on the Group’s operations may result in delays to theimplementation of regulatory changes or steps required to address commitments made toregulators or publicly. Any delays will be dependent on how regulators choose to adjust theprioritisation, timing and deployment of their supervisory mandate or legislative change.
Such failures may also result in the Group being exposed to the risk of litigation brought by
third parties (including through class action proceedings). The outcome of any litigation(including class action proceedings) may result in the payment of compensation to third
parties and/or further remediation activities. For information in relation to the Group’s
litigation and contingent liabilities, see risk factor 17 “Litigation and contingent liabilities
may adversely affect the Group’s Position” and Note 33 of the 2021 Financial Statements.

22

17.

Litigation and contingent liabilities may adversely affect the Group’s Position
From time to time, the Group may be subject to material litigation, regulatory actions, legal
or arbitration proceedings and other contingent liabilities that may adversely affect theGroup’s Position.
The Group had contingent liabilities as at 30 September 2021 in respect of the matters
outlined in Note 33 of the 2021 Financial Statements.
Note 33 includes, among other things, descriptions of:•regulatory and customer exposures;•

benchmark/rate actions;•capital raising actions;•consumer credit insurance litigation;•

Esanda dealer car loan litigation;•

OnePath superannuation litigation;•

New Zealand loan information litigation;•

the Royal Commission;•

security recovery actions; and•warranties and indemnities.

In recent years there has been an increase in the number of matters on which the Group
engages with its regulators. There have also been significant increases in the nature andscale of regulatory investigations, surveillance and reviews, civil and criminal enforcement
actions (whether by court action or otherwise), formal and informal inquiries, regulatory
supervisory activities and the quantum of fines issued by regulators, particularly against
financial institutions both in Australia and globally. The Group has received various notices
and requests for information from its regulators as part of both industry-wide and Groupspecific reviews and has also made disclosures to its regulators at its own instigation. The
nature of these interactions can be wide ranging and, for example, include or have included
a range of matters including responsible lending practices, regulated lending requirements,
product suitability and distribution, interest and fees and the entitlement to charge them,customer remediation, wealth advice, insurance distribution, pricing, competition, conduct
in financial markets and financial transactions, capital market transactions, anti-money
laundering and counter-terrorism financing obligations, reporting and disclosure obligations
and product disclosure documentation. There may be exposures to customers which are
additional to any regulatory exposures. These could include class actions, individual claims
or customer remediation or compensation activities. The outcomes and total costs
associated with such reviews and possible exposures remain uncertain.
There is a risk that contingent liabilities may be larger than anticipated or that additional
litigation, regulatory actions, legal or arbitration proceedings or other contingent liabilities
may arise.
18.

Significant fines and sanctions in the event of breaches of law or regulation
relating to anti-money laundering, counter-terrorism financing and sanctions may
adversely affect the Group’s Position
Anti-money laundering (“AML”), counter-terrorism financing (“CTF”) and sanctions
compliance have been the subject of significant regulatory change and enforcement inrecent years. The increasingly complicated environment in which the Group operates hasheightened these operational and compliance risks. Furthermore, the increasedtransparency of the outcomes of compliance breaches by financial institutions both
domestically and globally and the related fines and settlement sums mean that these risks
continue to be an area of focus for the Group.
In recent years, there has been an increase in action taken by key AML/CTF regulators

23

against “reporting entities” (in Australia, a “reporting entity” constitutes a legal entity thatprovides at least one “designated service” to a customer, such as opening a bank account orproviding a loan). AUSTRAC continues to publicly communicate its view that many reporting
entities in Australia have underinvested in systems and controls required to identify,
mitigate and manage their AML/CTF risks.
In late 2019, AUSTRAC commenced civil penalty proceedings against a major Australianbank relating to alleged past reporting contraventions of the Australian Anti-Money
Laundering and Counter-Terrorism Financing Act 2006. In September 2020, an agreed
statement of facts was filed in Federal Court resulting in a civil penalty of A$1.3 billion being
imposed against the bank. This is the largest financial penalty imposed on a financial
institution in Australia’s history (almost twice the amount of the previous largest AUSTRAC
financial penalty) confirming AUSTRAC’s continued efforts to penalise significant noncompliance with the AML/CTF regime. Additionally, since 2018 AUSTRAC has had the power
to issue infringement notices pursuant to which it can impose significant penalties. It has
used this approach twice issuing infringement notices to reporting entities despite thenumber of breaches in each case being relatively small (less than 100). Further, AUSTRAC
and other regulators have exhibited a willingness to promptly exercise their enforcement
powers by instituting civil penalty proceedings.
Similarly, the RBNZ has stated that its appetite for taking formal enforcement action forbreaches of the New Zealand Anti-Money Laundering and Countering Financing of Terrorism
Act 2009 has increased, and the propensity for other regulators (including in Asia and thePacific) to take action for non-compliance with their local AML/CTF laws has increased. In
August 2021, the High Court of New Zealand handed down judgment in a civil casecommenced by the RBNZ against a New Zealand retail bank for breaches of the New
Zealand AML/CTF laws, imposing a penalty of NZ$3.5 million. The breaches concerned
failures in the bank’s risk assessment processes and maintenance of its AML/CTF
programme. This is the first civil case brought by the RBNZ. In addition, in August 2021, the
RBNZ issued a formal warning to the New Zealand branch of a major Australian bank for
failing to report Prescribed Transactions as required by the AML/CTF legislation. The formal
warning relates to approximately 7,800 reports of outgoing international wire transfers.
While the COVID-19 pandemic continues to evolve at different paces in many of thejurisdictions in which the Group operates, close monitoring of the levels and types offinancial crimes continues across the Group. To date, the most notable impact has been thechanging types of scams with criminals targeting vulnerable customers using the COVID-19
pandemic as a cover, as well as identity theft and false applications for Government
support. There is a continuing risk that the management of alerts for potential money
laundering or terrorism financing activities may be slowed due to both resource availability
and/or changed working arrangements.
The risk of non-compliance with AML/CTF and sanction laws remains high given the scaleand complexity of the Group and the lack of clarity around some mandatory reporting
requirements. Emerging technologies, such as virtual currency issuers/exchangers andwallet providers as well as increasingly complex remittance arrangements via fintechs andother disruptors, may limit the Group’s ability to track the movement of funds, develop
relevant transaction monitoring, and meet reporting obligations. Additionally, thecomplexity of the Group’s technology, and the increasing frequency of changes to systems
that play a role in AML/CTF and sanctions compliance puts the Group at risk of inadvertently
failing to identify an impact on the systems and controls in place. A failure to operate arobust program to report the movement of funds, combat money laundering, terrorism
financing, and other serious crimes may have serious financial, legal and reputational
consequences for the Group and its employees.
Consequences can include fines, criminal and civil penalties, civil claims, reputational harmand limitations on doing business in certain jurisdictions. These consequences, individuallyor collectively may adversely affect the Group’s Position. The Group’s foreign operations
may place the Group under increased scrutiny by regulatory authorities, and subject theGroup to increased compliance costs.

24

19.

Changes in monetary policies may adversely affect the Group’s Position
Central monetary authorities (including the RBA, the RBNZ, the United States Federal
Reserve, the Bank of England and the monetary authorities in the Asian jurisdictions inwhich the Group operates) set official interest rates or take other measures to affect thedemand for money and credit in their relevant jurisdictions. In addition, in somejurisdictions, currency policy is also used to influence general business conditions and thedemand for money and credit. These measures and policies can significantly affect theGroup’s cost of funds for lending and investing and the return that the Group will earn on
those loans and investments. These factors impact the Group’s net interest margin and canaffect the value of financial instruments it holds, such as debt securities and hedging
instruments. The measures and policies of the central monetary authorities can also affect
the Group’s borrowers, potentially increasing the risk that they may fail to repay loans.
Many central monetary authorities have actively reduced official interest rates injurisdictions in which the Group operates and are currently considering, implementing or
expanding the use of unconventional monetary policies. Central banks worldwide, including
the RBA, the U.S. Federal Reserve and the RBNZ cut interest rates during 2019 in response
to slowing economic growth and again in 2020 in response to emerging risks from the
COVID-19 pandemic. On 3 November 2020, the RBA cut the cash rate target to a historic
low rate of 0.1%, in response to the ongoing effect of the COVID-19 pandemic on theAustralian economy. The RBNZ also cut the New Zealand Official Cash Rate to a record lowof 0.25% in March 2020, although this was subsequently increased to 0.50% in October
2021. Continued low or negative interest rates would likely put pressure on the Group’s
interest margins and adversely affect the Group’s Position.
Changes in interest rates and monetary policy are difficult to predict and may adversely
affect the Group’s Position.

20.

Increasing compliance costs, the risk of heightened penalties and ongoingregulatory scrutiny with respect to the significant obligations imposed by global
customer tax transparency regimes (which are still evolving), may adversely
affect the Group’s Position
There have been mandatory and substantial changes to, and increasing regulatory focus on,compliance by all global Financial Institutions (“FIs”), including the Group, with global
customer tax transparency regimes, including the Foreign Account Tax Compliance Act(“FATCA”), the Organisation for Economic Co-operation and Development’s (“OECD’s”)
Common Reporting Standard (“CRS”) and similar anti-tax avoidance regimes. This includes
enforcement and implementation of detailed rules and frameworks to close down
circumventions and deter, detect and penalise non-compliance.
As an in scope FI, the Group operates in a globally interlinked operating environment. In
this context, the highly complex and rigid nature of the obligations under the various
regimes present heightened operational and compliance risks for the Group. Regulators
around the world continue to mature their compliance framework and have a strong focus
on enforcement of financial penalties, alongside other more general tax risk framework
implications which may result in additional reputational damage in the event of failures.
Accordingly, compliance with global customer tax transparency regimes continues to be a
key area of focus for the Group.
Ongoing OECD government level peer reviews and regulatory FI compliance reviews
continue to increase the scrutiny on FIs, resulting in further tightening of existingobligations and focus on CRS compliance. Each country of adoption is being pushed by theOECD to ensure its penalty regime is sufficient to deter and penalise non-compliance.
Under FATCA and other U.S. Treasury Regulations, the Group could be subject to:•a 30% withholding tax on certain amounts (including amounts payable to customers),
and be required to provide certain information to upstream payers, as well as otheradverse consequences, if the ongoing detailed obligations are not adequately met;

25

and
•

broader compliance issues, significant withholding exposure, competitive
disadvantage and other operational impacts if the FATCA Intergovernmental
Agreements between the United States and the applicable jurisdictions in which theGroup operates cease to be in effect.

Under the CRS, the Group:•

faces challenges in developing countries where the Group has operations, such as the
Pacific region. The local regulators in these countries are generally assisted by a‘partner’ country which may introduce standards that can be challenging to
implement;•

must deal with considerable country specific variations in local law and regulatory
implementation, with significant boarder ‘justified trust’ ramifications and penalties for
non-collection or failed reporting in respect of prescribed customer information; and•along with other FIs, is under increasingly stringent regulatory scrutiny and measures
as regulators have turned their focus from the initial establishment of the CRS to theeffectiveness of FI implementation. This tightening of the regulatory focus can lead tosignificant negative experience for affected customers (including unilateral accountblocking and closure, and potential direct customer penalties), may adversely affect
the Group’s Position and if not similarly implemented by other FIs, may present asignificant competitive disadvantage.

The scale and complexity of the Group, like other FIs, means that the risk of inadvertent
non-compliance with the FATCA, CRS and other tax reporting regimes is high. A failure to
successfully operate the implemented processes could lead to legal, financial andreputational consequences for the Group and its employees. Consequences include fines,
criminal and civil penalties, civil claims, reputational harm, competitive disadvantage, lossof business and constraints on doing business.
On a global scale, natural disasters and the COVID-19 pandemic have resulted in challenges
for staff access to systems, tools and information, and have impacted the delivery of theGroup’s regulatory obligations on requisite timeframes, including mandatory FATCA andCRS regulatory reporting, customer follow-up strategies, resolution and action of regulatory
recommendations, as well as continuous improvement activities required to achieve thezero rate of error expected by regulators. The Group’s global taxation obligations in relation
to the enterprise’s own tax lodgements and payments may similarly be impacted. Whilesome level of leniency from global regulators is anticipated, there is still an increasing riskof additional regulatory scrutiny, associated penalties and reputational ramifications
resulting from any deficiencies or delays in meeting regulatory obligations to the level ofquality and within the timeframes required.
These consequences, individually or collectively, may adversely affect the Group’s Position.
21.

Unexpected changes to the Group’s licence to operate in any jurisdiction may
adversely affect the Group’s Position
The Group is licensed to operate in various countries, states and territories. Unexpectedchanges in the conditions of the licenses to operate by governments, administrations or
regulatory agencies that prohibit or restrict the Group from trading in a manner that waspreviously permitted may adversely impact the Group’s Position.
Internal control, operations and reputational risk

22.

Operational risk events may adversely affect the Group’s Position
Operational risk is the risk of loss and/or non-compliance with laws resulting frominadequate or failed internal processes, people and systems or from external events. Thisdefinition includes legal risk, cyber risk, conduct and culture risk, and the risk ofreputational loss or damage arising from inadequate or failed internal processes, people,

26and/or systems, but excludes strategic risk.
Operational risk categories include but are not limited to:•internal fraud (for example, involving employees or contractors);•

external fraud (for example, fraudulent loan applications or ATM skimming);•

employment practices, loss of key staff, inadequate workplace safety and failure toeffectively implement employment policies;•

impacts on clients, products and business practices (for example, misuse of customer
data or anti-competitive behaviour);•business disruption (including systems failures);•reputational risk (see risk factor 24 “Reputational risk events as well as operational
failures and regulatory compliance failures may give rise to reputational risk, which
may undermine the trust of stakeholders, erode the Group’s brand and adversely
affect the Group’s Position”);•

cyber risk (see risk factors 26 “Disruption of information technology systems or failure
to successfully implement new technology systems could significantly interrupt theGroup’s business, which may adversely affect the Group’s Position” and 27 “Risks
associated with information security including cyber-attacks, may adversely affect theGroup’s Position”);•

conduct and culture risks (see risk factor 25 “Conduct risk events may adversely affect
the Group’s Position”);•

damage to physical assets;•

execution, delivery and process management (for example, processing errors or data
management failures); and•financial crime (see risk factor 18 “Significant fines and sanctions in the event ofbreaches of law or regulation relating to anti-money laundering, counter-terrorism
financing and sanctions may adversely affect the Group’s Position”).

Loss from operational risk events may adversely affect the Group’s Position. Such losses can
include fines, penalties, loss or theft of funds or assets, legal costs, customer compensation,
loss of shareholder value, reputation loss, loss of life or injury to people, and loss ofproperty and/or information.
Pursuant to APRA requirements, the Group must also maintain “operational risk capital”
reserves in the event future operational events occur.
COVID-19 related challenges have resulted in a number of changes to how the Group
undertakes its operations including adapting to remote working arrangements. The Group
always follows the direction of the relevant government authority regarding permitted
places of work. Depending on the environment, this might mean all staff work remotely, or
staff are permitted to work from the office under defined workplace occupancy restrictions.
Although technology has been successfully deployed to ensure remote working capabilities
are available to the relevant staff, greater reliance on digital channels creates heightenedrisks associated with cyber-attacks and the impact those attacks might have on the Group’ssystems and service availability, which could affect the Group’s technology assets as well as
third party technology suppliers and critical services on which the Group relies, such as
telecommunications operators.
All or any of the impacts described above may cause a reduction in productivity or delays incompleting important activities or increased regulatory scrutiny, which could subsequently
result in customer remediation activities, or fines, all of which may adversely affect theGroup’s Position.
23.

Human Capital Risk, which relates to the inability to attract, develop, motivate andretain the Group’s people to meet current and future business needs, could resultin poor financial and customer outcomes and reduce the ability of the Group to27

deliver against customer and other stakeholders’ expectations
Key executives, employees and Directors play an integral role in the operation of theGroup's business and its pursuit of its strategic objectives. The unexpected departure of anindividual in a key role, or the Group's failure to recruit and retain an appropriately skilled
and qualified person into these roles, could have an adverse effect on the Group’s Position.
These risks may be further exacerbated by the ongoing impacts of the COVID-19 pandemic,
including on employee well-being, social and employment choices.

24.

Reputational risk events as well as operational failures and regulatory compliance
failures may give rise to reputational risk, which may undermine the trust of
stakeholders, erode the Group’s brand and adversely affect the Group’s Position
The Group’s reputation is a valuable asset and a key contributor to the support that it
receives from the community in respect of its business initiatives and its ability to raisefunding or capital.
Reputational risk may arise as a result of an external event or the Group’s actual or
perceived actions and practices, which include operational and regulatory compliance
failures. The occurrence of such events may adversely affect perceptions about the Group
held by the public (including the Group’s customers), shareholders, investors, regulators or
rating agencies. The impact of a risk event on the Group’s reputation may exceed any direct
cost of the risk event itself and may adversely impact the Group’s Position.
The Group may incur reputational damage where one of its practices fails to meet
community expectations which are continually changing and evolving. As these expectations
may exceed the standard required in order to comply with applicable law, the Group may
incur reputational damage even where it has met its legal obligations. A divergence
between community expectations and the Group’s practices could arise in a number ofways, including in relation to its product and services disclosure practices, pricing policies
and use of data. Further, the Group’s reputation may also be adversely affected bycommunity perception of the broader financial services industry. Additionally, reputational
damage may also arise from the Group’s failure to effectively manage risks, enforcement or
supervisory action by regulators, adverse findings from regulatory reviews and failure orperceived failure to adequately respond to community, environmental and ethical issues.
While impacts of the COVID-19 pandemic are ongoing, and the longer-term financial andnon-financial effects are yet to be fully realised, it is possible there may be unintended
consequences from the Group’s actions which may give rise to negative perceptions about
the Group.
Additionally, certain operational and regulatory compliance failures or perceived failures,may give rise to reputational risk. Such operational and regulatory compliance failures
include, but are not limited to:•

failures related to fulfilment of identification obligations;•failures related to new product development;•

failures related to ongoing product monitoring activities;•

failures related to suitability requirements when products are sold outside of thetarget market;•

market manipulation or anti-competitive behaviour;•

failure to comply with disclosure obligations;•inappropriate crisis management/response to a crisis event;•

inappropriate handling of customer complaints;•

inappropriate third party arrangements;•

privacy breaches; and28

•unexpected risks (e.g. credit, market, operational or compliance).

Damage to the Group’s reputation may have wide-ranging impacts, including adverse
effects on the Group’s profitability, capacity and cost of funding, increased regulatory
scrutiny, regulatory enforcement actions, additional legal risks and availability of new
business opportunities. The Group’s ability to attract and retain customers could also be
adversely affected if the Group’s reputation is damaged, which may adversely affect theGroup’s Position.
25.

Conduct risk events may adversely affect the Group’s Position
The Group defines conduct risk as the risk of loss or damage arising from the failure of theGroup, its employees or agents to appropriately consider the interests of consumers, theintegrity of the financial markets, and the expectations of the community in conducting theGroup’s business activities.
Conduct risks include:•

the provision of unsuitable or inappropriate advice to customers;•

the representation of, or disclosure about, a product or service which is inaccurate, ordoes not provide adequate information about risks and benefits to customers;•a failure to deliver product features and benefits in accordance with terms,
disclosures, recommendations and/or advice;•a failure to appropriately avoid or manage conflicts of interest;•

inadequate management of complaints or remediation processes;•a failure to respect and comply with duties to customers in financial hardship; and•unauthorised trading activities in financial markets, in breach of the Group’s policies
and standards.

There has been an increasing regulatory and community focus on conduct risk, including inAustralia and New Zealand. The Group has a centralised and dedicated team tasked with
undertaking a variety of customer remediation programs, including to address specificconduct issues identified in Group reviews. Conduct risk events may expose the Group to
regulatory actions, restrictions or conditions on banking licenses and/or reputational
consequences that may adversely affect the Group's Position. It is possible that remediation
programs may not be implemented appropriately or may lead to further remediation work
being required, resulting in litigation, regulatory action and/or increasing cost to the Group,
all of which may adversely affect the Group’s Position.
For further discussion of the increasing regulatory focus on conduct risk, see risk factor 16“Regulatory changes or a failure to comply with laws, regulations or policies may adversely
affect the Group’s Position” and risk factor 17 “Litigation and contingent liabilities may
adversely affect the Group’s Position”.
26.

Disruption of information technology systems or failure to successfully implement
new technology systems could significantly interrupt the Group’s business, which
may adversely affect the Group’s Position
The Group’s day-to-day activities and its service offerings (including digital banking) arehighly dependent on information technology (“IT”) systems. Disruption of IT systems, or theservices the Group uses or is dependent upon, may result in the Group failing to meet its
compliance obligations and/or customers’ banking requirements.
The Group has an ongoing obligation to maintain its IT systems and to identify, assess andrespond to risk exposures caused by the use of technology including IT asset lifecycle, IT
asset project delivery, technology resilience, technology security, use of third parties, dataretention/restoration or business rules and automation. Inadequate responses to these risk
exposures could lead to unstable or insecure systems or a decrease in the Group’s ability toservice its customers, increased costs, and non-compliance with regulatory requirements,

29

which may adversely affect the Group’s Position. As an example, in response to the COVID19 pandemic, more of the Group’s staff and third-party contractors are working remotely orfrom alternative work sites, which has put additional stress on the Group’s productivity andremote access to systems.
The Group has incident response, disaster recovery and business continuity measures inplace designed to ensure that critical IT systems will continue to operate during both shortterm and prolonged disruption events for all businesses across the Group’s network,
including ANZ New Zealand, which relies on the Group to provide a number of IT systems. A
failure of the Group’s systems may affect ANZ’s network, which may in turn, adversely
affect the Group’s Position. The COVID-19 pandemic has highlighted that thesearrangements must cater for vast and improbable events, and ensure critical information
systems can be supported and accessed by a large number of technology and business
users for extended periods. If such measures cannot be effectively implemented, this may
adversely affect the Group’s Position.
In addition, the Group must implement and integrate new technology systems, mostnotably Cloud technologies, into the existing technology landscape to ensure that theGroup’s technology environment is cost-effective and can support evolving customer
requirements. Inadequate implementation and integration of these systems, incorrect
assessments of the risks they pose or improper management of the supply chain for new
technologies may adversely affect the Group’s Position.
This risk factor should be read in conjunction with risk factor 27 “Risks associated withinformation security including cyber-attacks, may adversely affect the Group’s Position” asinformation security breaches and cyber-attacks have the potential to result in the
disruption of information technology systems.

27.

Risks associated with information security including cyber-attacks, may adversely
affect the Group’s Position
The primary focus of information security is to protect information and technology systems
from disruptions to confidentiality, integrity or availability. As a bank, the Group handles aconsiderable amount of personal and confidential information about its customers and its
own internal operations, from the multiple geographies in which the Group operates. This
information is processed and stored on both internal and third party hosted environments.
Any failure of security controls operated by the Group or its third parties could adversely
affect the Group’s business.
The risks to systems and information are inherently higher in certain countries where, forexample, political threats or targeted cyber-attacks by terrorist or criminal organisations are
greater.
The Group is conscious that cyber threats, such as advanced persistent threats, distributed
denial of service, malware and ransomware, are continuously evolving, becoming moresophisticated and increasing in volume. The COVID-19 pandemic has increased the numberof staff working offsite for an extended period, which may increase information security
risks to the Group. Cyber criminals may attempt to take advantage through pursuing
exploits in end point security, spreading malware, and increasing phishing attempts.
Additionally, failures in the Group’s cybersecurity policies, procedures or controls, could
result in loss of data or other sensitive information (including as a result of an outage) andmay cause associated reputational damage. Any of these events could result in significant
financial losses (including costs relating to notification of, or compensation for customers),
regulatory investigations or sanctions or may affect the Group’s ability to retain and attract
customers, and thus may adversely affect the Group’s Position.

28.

Modelling risks may adversely affect the Group’s Position
As a large financial institution, the Group relies on a number of models for material business30

decisions including but not limited to calculating capital requirements, provision levels,
customer compensation payments and stressing exposures. If the models used prove to beinadequately designed, implemented or maintained or based on incorrect assumptions or
inputs this may adversely impact the Group’s Position.
Environmental, social and governance risks
29.

Impact of future climate events, geological events, plant, animal and humandiseases, and other extrinsic events may adversely affect the Group’s Position
The Group and its customers are exposed to climate-related events. These events include
severe storms, drought, fires, cyclones, hurricanes, floods and rising sea levels. The Groupand its customers may also be exposed to other events such as geological events (including
volcanic seismic activity or tsunamis), plant, animal and human diseases or a pandemic
such as COVID-19, which is causing significant impacts on the Group’s operations and its
customers.
Parts of Australia are prone to, and have recently experienced, extreme climate events suchas severe drought conditions, bushfires in 2019/2020, and severe flooding in 2021. The
impact of these events can be widespread, extending beyond primary producers tocustomers of the Group who are suppliers to the agricultural sector, and to those who residein, and operate businesses within, impacted communities. The impact of these losses on theGroup may be exacerbated by a decline in the value and liquidity of assets held ascollateral, which may impact the Group’s ability to recover its funds when loans default.
Depending on their frequency and severity, these extrinsic events may continue to interrupt
or restrict the provision of some local services such as the Group branch or business centres
or Group services, and may also adversely affect the Group’s financial condition or collateralposition in relation to credit facilities extended to customers, which in turn may adversely
affect the Group’s Position.
New regulations or guidance relating to climate change, as well as the perspectives ofshareholders, employees and other stakeholders regarding climate change, may affectwhether and on what terms and conditions the Group engages in certain activities or offer
certain products.

30.

The Group’s risk management framework may fail to manage all existing risks
appropriately or detect new and emerging risks fast enough, which could
adversely affect the Group’s Position
Risk management is an integral part of the Group’s activities and includes the identificationand monitoring of the Group’s risk appetite and reporting on the Group’s risk profile andeffectiveness of identified controls. However, there can be no assurance that the Group’s
risk management framework will be effective in all instances including in respect of existingrisks, or new and emerging risks that the Group may not anticipate or identify in a timely
manner and/or for which its controls may not be effective. Failure to manage risks
effectively could adversely impact the Group’s reputation or compliance with regulatory
obligations.
The effectiveness of the Group’s risk management framework is also connected to theestablishment and maintenance of a sound risk management culture, which is supported byappropriate remuneration structures. A failure in designing or effectively implementing
appropriate remuneration structures, could have an adverse impact on the Group’s risk
culture and effectiveness of the Group’s risk management frameworks.
The Group seeks to continuously improve its risk management frameworks. It has
implemented, and regularly reviews, its risk management policies and allocates additional
resources across the Group to manage and mitigate risks (including conduct risk). However,such efforts may not insulate the Group from future instances of misconduct and noassurance can be given that the Group’s risk management framework will be effective. A
failure in the Group’s risk management processes or governance could result in the Groupsuffering unexpected losses and reputational damage, and failing to comply with regulatory31

obligations, which could adversely affect the Group’s Position.
While these principles continue to underpin the Group’s risk management framework, theongoing COVID-19 pandemic requires the Group to continue to maintain good practices anda robust risk management framework as its operational activities continue to evolve, so as
to manage the impacts of the pandemic both to its workforce and customers. In thesecircumstances, a failure in the Group’s risk management processes or governance could
adversely affect the Group’s Position.
31.

Risks associated with lending to customers that could be directly or indirectly
impacted by climate risk may adversely affect the Group’s Position
The risks associated with climate change are subject to increasing regulatory, political andsocietal focus, including in Australia and New Zealand. APRA has released a draft prudential
practice guide that is designed to assist regulated entities (including the Group) in
managing climate-related risks and opportunities as part of their existing risk management
and governance frameworks. APRA is also conducting its first climate vulnerability
assessment in calendar year 2021 to (i) assess banks’ potential financial exposure toclimate risk; (ii) understand how banks may adjust business models and implement
management actions in response to different scenarios; and (iii) foster improvement inclimate risk management capabilities. If enacted in New Zealand, the Financial Sector(Climate-related Disclosures and Other Matters) Amendment Bill will require ANZBGL and
ANZ New Zealand, as ‘climate reporting entities’, to annually prepare, seek independent
assurance for and make public disclosures on the management of, and effects of climatechange to their business, in accordance with climate-related disclosure standards, to beissued by the External Reporting Board. Embedding climate change risk into the Group’s
risk management framework in line with APRA’s and other stakeholders’ expectations andadapting the Group’s operation and business strategy to address both the risks andopportunities posed by climate change and the transition to a low carbon economy, could
have a significant impact on the Group.
The Group’s most material climate-related risks result from its lending to business and retailcustomers, including credit-related losses incurred as a result of a customer being unable orunwilling to repay debt, or impacting the value and liquidity of collateral, which may
adversely affect the Group’s Position. The risk to the Group through credit-related issues
with the Group’s customers could result directly from climate-related events, and indirectlyfrom changes to laws, regulations, or other policies such as carbon pricing and climate risk
adaptation or mitigation policies, which may impact the customer’s supply chain.

32

Responsibility statement of the Directors of ANZBGL in accordance with Rule4.1.12 (3)(b) of the Disclosure and Transparency Rules of the United Kingdom
Financial Conduct Authority
The Directors of Australia and New Zealand Banking Group Limited confirm to the best of
their knowledge that:
ANZ’s 2021 Annual Financial Report (as defined on page 1 of this DTR Annual Financial
Report submission) includes:(i)a fair review of the development and performance of the business and the positionof the Group and the undertakings included in the consolidation taken as a whole;
together with(ii)

a description of the principal risks and uncertainties faced by the Group.

Signed in accordance with a resolution of the Directors.

Paul D O’Sullivan
ChairmanShayne C ElliottManaging Director

27 October 2021

33