30 April 2020
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”) - Half-Yearly 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 ANZ’s 2020 Half Year Results for the six month
period ended 31 March 2020. This UK DTR Submission has been prepared by ANZBGL inorder to comply with the applicable periodic reporting requirements of DTR 4 of theDisclosure and Transparency Rules of the United Kingdom Financial Conduct Authority inconnection with certain debt securities issued by ANZBGL. For completeness, in addition
to lodgement 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
Company Secretary’s Office
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
9/833 Collins Street Docklands Victoria 3008 Australia
ABN 11 005 357 522

30 April 2020
DISCLOSURE AND TRANSPARENCY RULES – HALF-YEARLY FINANCIAL REPORTSUBMISSION
Australia and New Zealand Banking Group Limited (ABN 11 005 357 522)(“ANZBGL” or “ANZ”) together with its subsidiaries (the “Group”) – Half-Yearly
Financial Report submission under the Disclosure and Transparency Rules(“DTR”) of the United Kingdom Financial Conduct Authority
The following attached documents constitute ANZ’s 2020 Half-Yearly Financial Report forthe purposes of the disclosure requirements of DTR 4.2:•

The Condensed Consolidated Financial Statements and Notes to Condensed
Consolidated Financial Statements for the half year ended 31 March 2020, Directors’
Report (including matters included by reference) and Directors’ Declaration (as set
out on pages 78 to 122 of ANZ’s Half Year 31 March 2020 Consolidated Financial
Report, Dividend Announcement and Appendix 4D);•

A description of the principal risks and uncertainties for the remaining six months of
the financial year provided in accordance with DTR 4.2.7 R (2); and•A responsibility statement of the Directors of ANZBGL provided in accordance withDTR 4.2.10 R (3)(b).

Page 1 of 29

ANZ’s Half Year 31 March 2020 Consolidated Financial Report, Dividend
Announcement and Appendix 4D
This document was separately lodged by ANZBGL with the applicable stock exchanges,
including the London Stock Exchange and the Australian Securities Exchange on 30 April
2020.

Page 2 of 29

Principal risks and uncertainties faced by the Group for the remaining six
months of the financial year (DTR 4.2.7 R (2)) (“Principal Risks andUncertainties”)
Introduction
The Group’s activities are subject to risks, including risks arising from the coronavirus
pandemic (COVID-19), 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.
Risks related to the Issuer's business activities and industry
1.

The COVID-19 pandemic has, and future outbreaks of other communicablediseases 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. Due to COVID-19,
governments worldwide, including those in Australia and New Zealand, have imposed wide
ranging restrictions on, suspensions of, or advice against, travel, events, and meetings andmany other normal activities and undertaken substantial and costly monetary and fiscal
interventions designed to stabilise sovereign nations and financial markets. Governments
may in the foreseeable future implement and introduce further measures to contain the
pandemic. The full extent of the duration and impact of the COVID-19 outbreak are
unknown at this time, as is the efficacy of the government and central bank interventions.
Major disruptions to community health and economic activity are having wide ranging
negative effects across most business sectors in Australia, New Zealand and globally, which
in turn has resulted in reduced demand for the Group’s products and services and adeterioration of the quality of the Group’s credit portfolio. Additionally, many of the Group’s
borrowers have been negatively impacted by the COVID-19 pandemic and the Group is
exposed to an increased risk of credit loss from borrowers in the following sectors:
transportation (airlines, shipping, road and rail); ports, tourism and travel (including
accommodation, food and beverage); healthcare; agriculture; retail (including e-commerce
due to a reduction in logistics activity); property (particularly shopping malls and hotels);construction and contractors; and distribution and logistics.
In response to the current COVID-19 pandemic, the Group is establishing a range ofaccommodations and measures designed to assist its personal and business customers but
there can be no assurance that these accommodations and measures will be sufficient toprevent or mitigate further hardship, ensure the delivery of the Group’s products andservices, and there is a risk that the Group’s Position may be materially and adversely
affected. These accommodations and measures, while supporting the Group’s customers,
may in turn have a negative impact on the Group’s Position, negatively impact the Group’s
net interest margin, and may result in the Group assuming a greater level of risk than it
would have under ordinary circumstances and the Group’s Position may be materially andadversely affected as a result.
Significant requests for assistance from retail and small business customers have been
received by the Group’s customer service team. These requests are anticipated to grow inthe short term if the crisis deepens and the Group is addressing additional resourcing andprocess changes to enable it to support its customers. It is uncertain, at this stage, whatpercentage of its lending portfolio will be impacted. In the longer term, asset values may
Page 3 of 29

start to deteriorate if a large quantity of retail and business customers liquidate theirinvestments, 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.
The prospect of substantially reduced global economic activity has caused substantial
volatility in the financial markets and such volatility may continue. A deterioration of publicfinances of sovereigns in response to COVID-19 may lead to further increased volatility andwidening credit spreads. COVID-19 has also affected, and can be expected to continue toimpact, the Group’s ability to continue its operations without interruption or delays due toclosure of and restricted 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’s business operations at its branches, stores or offices could affect the Group’s
Position.
The ramifications of COVID-19 are highly uncertain and, as of the date of this document, it
is difficult to predict the spread or duration of the 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 andother credit defaults, bad debts, and impairments and/or an increase in the cost of theGroup’s operations. Should these occur, it is likely that they will result in a material adverse
effect on the Group’s Position.
Actions taken by regulators in response to the COVID-19 pandemic have impacted, and may
continue to impact, the Group. As an example, regulators in some overseas jurisdictions
have exercised their powers to prevent banks from declaring dividends or undertaking sharebuy- backs. In New Zealand, the RBNZ made the decision to freeze the distribution ofdividends on ordinary shares by all banks in New Zealand during the period of economic
uncertainty caused by COVID-19. This prevents the Group’s subsidiary ANZ Bank New
Zealand Limited (“ANZ New Zealand”) from paying dividends and has a negative impact
on the Group’s Level 1 CET1 capital ratio.
In Australia, APRA has written to the major banks, including the Group, and outlined its
expectation that they should seriously consider deferring decisions on the appropriate levelof dividends until the outlook is clearer.
To the extent the COVID-19 pandemic adversely affects the Group’s Position, it may also
have the effect of heightening many of the other risks described in these Principal Risks andUncertainties.
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, United Kingdom, Europe and the UnitedStates (the “Relevant Jurisdictions”).
The economic and business conditions that prevail in the Group’s major operating andtrading markets are affected by, among other things, domestic and international economic
events, political events and natural disasters, and by movements and events that occur inglobal financial markets.
The COVID-19 pandemic is having, and is expected to continue to have, a significant impact
on the global economy and global markets, as well as on Australia and New Zealand. The
imposition of travel restrictions, border controls, social distancing, quarantine protocols andother containment measures could contribute to a continuing slowdown in economic
conditions across the world and suppress demand for commodities, interrupt the supply
chain for many industries globally, dampen consumer confidence and suppress businessearnings and growth prospects, all of which could contribute to ongoing volatility in global

Page 4 of 29

financial markets. See risk factor 1 “The COVID-19 pandemic has, and future outbreaks ofother communicable diseases or pandemics may, materially and adversely affect theGroup’s Position.”
A deep global recession is probable. Many countries are facing large declines in GDP in thefirst half of the year, with sharp increases in unemployment rates. Governments are
responding with enormous fiscal stimulus as well as monetary easing and regulatory
forbearance that is designed to offset at least some of the worst impact of the shock.
Nevertheless, the Group believes that such stimulus is unlikely to prevent the drop in
economic activity stemming from the widespread lockdowns aimed at stalling the spread ofvirus.
The impact of this shock on credit losses and asset values is very uncertain. Many of thepolicies being put in place are designed to ‘hibernate’ large parts of the economy so that
activity can resume when the pandemic subsides. However, there is considerable
uncertainty about both the length of this hibernation and the most appropriate economic
structure once the crisis has passed. While the impact of the economic disruption caused by
COVID-19, and the governmental responses to it, remain uncertain, the Group may bematerially adversely affected by a protracted downturn in economic conditions globally and,in particular, in Australia and New Zealand.
The Australian bushfires in late 2019 and early 2020 also impacted a small portion of theGroup’s customers who are suppliers to the agricultural sector as well as those who residein and operate businesses within regional and fire impacted communities.
Even before the bushfires and COVID-19, the impact of the global financial crisis in 2007
and its aftermath continue to affect regional and global economic activity, confidence andcapital markets. Prudential authorities implemented increased regulations in an attempt tomitigate the risk of such events recurring, although there can be no assurance that such
regulations will be effective. The Group believes that the global financial crisis has also hada lasting effect on consumer and business behaviour in advanced economies, including the
major countries and regions in which the Group or its customers or counterparties operate.
Consumers in recent years have reduced their savings rates in the face of weak income
growth, while businesses have been reluctant to invest and inflation has remained low. The
potential for escalation in geopolitical risks has also contributed to vulnerability in consumer
and business behavior. Monetary authorities responded to the global financial crisis byintroducing close to zero or below zero interest rates across most countries, and the major
central banks took unconventional steps to support growth and raise inflation.
This policy history has been an important precedent for the policy response to COVID-19.
The changed behavior of consumers and businesses, higher debt levels and reduced
monetary policy buffers also leave economies more vulnerable to disruptions that mightdevelop from natural disasters such as bushfires or the transmission of new diseases.
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. Recent
examples of events that have affected global political conditions include the United
Kingdom’s vote to leave the European Union (“EU”) in a referendum (commonly referred toas “Brexit”) in 2016, resulting in the United Kingdom formally leaving the EU on 31 January
2020, and global trade developments relating to, among other things, the imposition or
threatened imposition of trade tariffs and levies by major countries, including by those that
are Australia’s significant trading partners. Such global political conditions have contributed
to economic uncertainty and volatility in the global financial markets have negatively
impacted and could continue to negatively impact consumer and business activity within themarkets in which the Group or its customers or counterparties operate, or result in the
introduction of new and/or divergent regulatory frameworks that the Group will need toadhere to.
Although there has been a de-escalation in trade tensions between the United States andsome of its trading partners, such as China, in recent months, there is the prospect of a re-Page 5 of 29

escalation as the U.S. presidential election campaign progresses. The election is scheduled
for November 2020. The implementation of further protectionist policies by Australia’s key
trading partners and allies may adversely impact the demand for Australian exports andmay lead to declines in global growth.
In anticipation of Brexit, the Group made changes to the structure of its business operations
in Europe, however the financial, trade and legal implications of Brexit remain uncertain andits impact may be more severe than expected given that the terms of United Kingdom’s
future trading relationship with the EU are still not known and given the lack of comparable
precedent. As a result, there can be no assurance that the changes the Group has made to
the structure of its business operations in Europe will be sufficient to address the financial,trade and legal implications of Brexit, and the Group is subject to the risk that further
changes may be required as a result of the final terms of Brexit.
Political and economic uncertainty has in the past led to declines in market liquidity andactivity levels, volatile market conditions, a contraction of available credit, lower or negativeinterest rates, weaker economic growth and reduced business confidence, each of which
may adversely affect the Group’s Position. These conditions may also adversely affect theGroup’s ability to raise medium or long-term funding in the international capital markets.
Geopolitical instability, including potential or actual conflict, occurring around the world,such as the ongoing unrest and conflicts in Ukraine, North Korea, Hong Kong, Syria, Egypt,Afghanistan, Iraq, Iran, Nicaragua and elsewhere, as well as the current high threat ofterrorist activities, may also adversely affect global financial markets, general business andeconomic conditions and consequently, the Group’s ability to continue operating or tradingin an affected country or region which in turn may adversely affect the Group’s Position.
Should difficult economic conditions in markets in which the Group or its customers or
counterparties operate develop or persist, 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.
The Group’s financial performance may also be adversely affected if the Group is unable toadapt 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.
All or any of the negative political, business or economic conditions described above may
cause a reduction in demand for the Group’s products and services and/or an increase inloan and other credit defaults and bad debts, which may adversely affect the Group’s
Position.
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 evenmore so.
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 different levels of regulation and regulatory activity. This
could allow them to offer more competitive products and services, including because
those different levels 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 thePage 6 of 29

•

•

•

competitive 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 licences 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 toprovide financial services; andOpen 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.
The current COVID-19 pandemic and future economic disruptions could have a significant
impact on competition in the financial services sector over the medium-term due to funding
cost and provision increases, structurally low interest rates, insufficient liquidity,
implementation of business continuity plans, temporary suspension of issuance of newbanking licenses, changes to business strategies and temporary regulatory safe harbours.
Further, the Australian Government and its agencies have sought to lower lending andfunding costs for both banks and non-banks. These actions may support providers thatcompete with the Group
Given the importance of a functioning and competitive banking sector, and the AustralianGovernment’s current 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 thelevel of competition in financial services will remain a focus area for the Government.
Possible future policy reform in this area may result in increased competitive pressure in theGroup’s key markets which may adversely affect the Group’s Position.
4.

Weakening of 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.
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 metro east coast
Australian and New Zealand markets, 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 andearly 2020, property prices across Australia have started to increase, although continuationof this trend may be impacted by COVID-19 impacts (see risk factor 1 “The COVID-19
pandemic has, and future outbreaks of other communicable diseases or pandemics may,materially and adversely affect the Group’s Position”). The social and economic impacts ofPage 7 of 29

the spread of the COVID-19 pandemic and the related measures in place to control it havethe potential to drive a material decline in residential property prices due to, among otherthings, increased unemployment in Australia and New Zealand which, along with a numberof other potential factors in the medium term, may result in reductions in house prices.
A continued weakening, potentially compounded by the negative impacts of the COVID-19
pandemic crisis as it unfolds, of real estate markets in Australia, New Zealand, and othermarkets where the Group does business could impact the Group in a number of ways. These
include:•declining asset prices could impact customers, counterparties and the value of
security (including residential and commercial property) the Group holds against
these loans, impacting the Group’s ability to recover amounts owing if customers or
counterparties were to default;•
declining demand for the Group’s residential lending products due to buyer concerns
about decreases in values or concerns about rising interest rates that may make theGroup’s lending products less attractive to potential homeowners and investors; and•a material decline in residential housing prices may also cause losses in the Group’s
residential development portfolio if customers who are pre- committed to purchasethese dwellings are unable or unwilling to complete their contracts and the Group isforced to re-sell these dwellings at a loss.
The Group's portfolio of commercial property loans may be particularly susceptible to asset
price deflation, tenancy risk (comprising of underlying income generation from tenancy mix
and vacancy levels), delivery risk and settlement risk, which may result in higher credit
losses, refinance risk and deteriorating security values. A significant decrease in commercial
property valuations or a significant slowdown in the commercial real estate markets in the
Relevant Jurisdictions, or specific sectors, could result in a decrease in new lending
opportunities or lower recovery rates. Furthermore, while there has yet to be a significant
downturn of the real estate markets in the Group’s core property jurisdictions (which
comprises Australia and New Zealand) due to the impact of COVID-19, it is expected overtime that this downturn will occur. At this point, it is unclear as to timing and magnitude ofthis downturn. It is expected however that the longer the pandemic continues the greater
the impact will be. The impacts to both the residential and commercial property portfolios
described above may cause a reduction in demand for the Group’s products and services
and/or increased costs through higher credit losses that may in turn materially andadversely impact the Group’s Position.
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 risk remains in many economies, including the United States, the United
Kingdom, China, Europe, Australia and New Zealand. Should one sovereign default, there
could be a cascading 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. Significant uncertainties exist
relating to the COVID-19 crisis that is currently unfolding globally. These COVID-19 related
uncertainties, combined with pre-existing sovereign risk are significantly destabilising global
financial markets, which in turn could adversely affect the Group’s Position. For more
information on risks relating to the COVID-19 pandemic see risk factor 1 “The COVID-19
pandemic has, and future outbreaks of other communicable diseases or pandemics may,materially and adversely affect the Group’s Position”.

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

Page 8 of 29

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.
Since March 2020, actual and implied market volatility has materially increased and in somecases has exceeded the levels observed during the peak of the global financial crisis in
2007. In addition, market liquidity has reduced and the bid-offer spread has widened acrossmost asset classes. In April 2020, market conditions have improved but the ongoing impact
of COVID-19 on financial markets remains uncertain (see risk factor 1 “The COVID-19
pandemic has, and future outbreaks of other communicable diseases or pandemics may,materially and 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 a change 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 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 further appreciation may have an adverse impact upon the Group’s Position.

8.

The regulation, reform and replacement of benchmark rates could have adverse
consequences on the Group’s securities issuances and its capital markets andinvestment activities
Interest rate, equity, foreign exchange rate and other types of indices which are deemed tobe “benchmarks” including those in widespread and long-standing use, have been thesubject of ongoing international regulatory scrutiny, and initiatives and proposals forreform. Some of these reforms are already effective while others are still to be implemented
or are under consideration. These reforms may cause benchmarks to perform differently
than in the past, or to disappear entirely, or have other consequences which cannot be fully
anticipated.
Any of the benchmark reforms which have been proposed or implemented, or the generalincreased regulatory scrutiny of benchmarks, could also increase the costs and risks ofadministering or otherwise participating in the setting of benchmarks and complying withregulations or requirements relating to benchmarks. Such factors may have the effect of
discouraging market participants from continuing to administer or contribute to certain
benchmarks, trigger changes in the rules or methodologies used in certain benchmarks orlead to the disappearance of certain benchmarks. Any of these developments, and any
future initiatives to regulate, reform or change the administration of benchmarks, could
result in adverse consequences to the return on, value of and market for loans, mortgages,
securities, derivatives and other financial instruments whose returns are linked to any suchbenchmark, including those issued, funded or held by the Group.
Various regulators, industry bodies and other market participants globally are engaged ininitiatives to develop, introduce and encourage the use of alternative rates to replacecertain benchmarks. There is no assurance that these new rates will be accepted or widelyused by market participants, or that the characteristics of any of these new rates will besimilar to, or produce the economic equivalent of, the benchmarks that they seek toreplace. If a particular benchmark were to be discontinued and an alternative rate has notbeen successfully introduced to replace that benchmark, this could result in widespreaddislocation in the financial markets, engender volatility in the pricing of securities,
derivatives and other instruments, and suppress capital markets activities, all of which
could have adverse effects on the Group’s Position. In addition, the transition of a particularbenchmark to a replacement rate could affect hedge accounting relationships between
financial instruments linked to that benchmark and any related derivatives, which could
Page 9 of 29

adversely affect the Group’s Position.
In July 2017, the Financial Conduct Authority (the “FCA”), which regulates LIBOR,
announced that it will no longer persuade or compel banks to submit rates for the
calculation of LIBOR after 2021. There is no certainty as to whether, or on what basis,
LIBOR will be calculated and published up to or after 2021. In a subsequent announcementin July 2018, the FCA emphasised the need for market participants to transition away from
LIBOR before the end of 2021. Such announcements indicate that the continuation of LIBOR
on the current basis cannot and will not be guaranteed after 2021, and there is a
substantial risk that LIBOR will be discontinued or modified by the end of 2021. In March
2020, the FCA noted that COVID-19 may impact the timing of some aspects of thetransition programs of many firms, though the central assumption that firms cannot rely on
LIBOR being published after 2021 has not changed.
Vast amounts of loans, mortgages, securities, derivatives and other financial instruments
are linked to the LIBOR benchmark, and any failure by market participants and regulators
to successfully introduce benchmark rates to replace LIBOR and implement effective
transitional arrangements to address the discontinuation of LIBOR could result in disruption
in the financial markets, suppress capital markets activities and give rise to litigation claims,
all of which could have a negative impact on the Group’s Position and on the value of
LIBOR-linked securities or other instruments which are issued, funded or held by the Group.
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 canalso 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.
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.
The risk of credit-related losses may be increased by a number of factors, including
Page 10 of 29

deterioration in the financial condition of the economies in which the Group 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, more expensive imports into Australia
and New Zealand due to the reduced strength of the Australian and New Zealand dollars
relative to other currencies, a deterioration of the financial condition of the Group’s
customers or counterparties, a reduction in the value of assets the Group holds as
collateral, and a reduction in the market value of the counterparty instruments andobligations 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.
For example, the Group’s customers and counterparties in or with exposure to:
•

•
•

•

industries impacted by the COVID-19 pandemic and adverse weather conditions (e.g.
bushfires and drought), particularly: transportation (airlines, shipping, road and rail);
ports, tourism and travel (including accommodation, food and beverage); healthcare;
agriculture; retail (including e-commerce due to a reduction in logistics activity);
property (particularly shopping malls and hotels); construction and contractors; anddistribution and logistics;
the Australian natural resources sector, which is particularly exposed to any prolonged
slowdown in the Chinese economy and could be materially and adversely impacted bya decline in natural resource prices;segments reliant on consumer discretionary spend in the markets in which the Group
operates are exposed to a slowdown in spending levels arising from the potential
impact of COVID-19 and a combination of a slowing housing market, low wage growthand high household debt or a potential loss in consumer confidence including in the
tourism, specialty retail, travel, leisure and the automotive sectors; andsegments exposed to the depreciating Australian Dollar or New Zealand Dollar,
particularly importers and wholesalers.

The recent decision by the Group to provide customers impacted by the COVID-19
pandemic the option of suspending or deferring certain mortgage or loan repayments maylead to an increase in the level of credit risk related losses. There can be no guarantee thatat the conclusion of this 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.
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
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
Page 11 of 29

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, RBNZ andvarious regulators in the United States, the United Kingdom and the countries in the Asia
Pacific region. The Group is required by its primary regulator, APRA and the RBNZ for ANZ
New Zealand (together with its subsidiaries the "ANZ New Zealand Group"), to maintainadequate 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(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 3.
Certain other regulators have either implemented or are in the process of implementing
regulations, including Basel 3, 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 BCBS, the RBNZ’s review of capital requirements andthe RBNZ’s amendments to ANZ New Zealand's Conditions of Registration in response to the
COVID-19 pandemic, to (among other things) not permit ANZ New Zealand to make
distributions other than discretionary payments payable to holders of Additional Tier 1
capital instruments), are described in risk factor 16 "Regulatory changes or a failure tocomply 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 the
Page 12 of 29

credit 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.
In light of the COVID-19 pandemic, Fitch Ratings (“Fitch”) and S&P Global Ratings (“S&P”)
have revised the Group’s ratings and/or outlook as described below.
On 8 April, 2020, Fitch changed its ratings of the Australian major banks and their New
Zealand bank subsidiaries, including the Group, resulting in the Group’s Long-Term Issuer
Default Rating (“IDR”) decreasing one-notch to A+ from AA-. The Outlook on the Group’s
Long-Term IDR remains Negative. The Group’s Short-Term IDR was also downgraded to F1
from F1+. The Group’s subordinated debt was also downgraded to A-.
On 9 April, 2020, S&P revised the outlook on the long-term issuer credit rating for the
Commonwealth of Australia to negative from stable. As a result of the sovereign action, S&P
has also revised the credit rating outlook of the Australian major banks and their New
Zealand bank subsidiaries, including the Group, to negative from stable. S&P reaffirmed theGroup’s ‘AA-’ long-term and ‘A-1+’ short term issuer credit ratings. S&P also reaffirmed all
the ratings on debt issued by the Group, including senior and subordinated debt and hybrid
Tier 1 capital instruments.
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.

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 in market conditions, such as those currently being experienced as the
COVID-19 pandemic unfolds and/or declines in investor confidence in the Group may
materially impact the Group’s ability to replace maturing liabilities and access funding (in atimely and cost effective manner), which may adversely impact the Group’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 it will be exposed to liquidity and funding risk. In suchcases, the Group may be forced to seek alternative funding. The availability of suchalternative funding, and the terms on which it may be available, will depend on a variety ofPage 13 of 29

factors, including prevailing market conditions and the Group’s credit ratings at that time
(which are strongly influenced by Australia’s and New Zealand’s sovereign 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 that 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 15 of thecondensed consolidated financial statements for the half year ended 31 March 2020 as set
out in the Group’s Half Year 31 March 2020 Consolidated Financial Report, Dividend
Announcement and Appendix 4D (“2020 Interim Financial Statements”) are measured atfair value with changes in fair value recognised in earnings or equity.
Generally, in order to establish the fair value of these instruments, the Group relies onquoted market prices or, where the market for a financial instrument is not sufficiently
active, fair values are based on present value estimates or other valuation techniques thatincorporate the impact of factors that would influence the fair value as determined by amarket participant. The fair value of these instruments is impacted by changes in market
prices or valuation inputs that may have a material adverse effect on the Group’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.
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.
In addition, the impact of COVID-19, and the responses of governments and businesses, isconsidered in assessments of the carrying values of the Group’s assets based on
information available at the time. However, the full extent and duration of COVID-19 isuncertain. COVID-19 impacts may affect the assessed recoverability of Group assets infuture periods.

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 must exercise
judgement in selecting and applying many of these accounting policies so that they not only
comply with the applicable accounting standards or interpretations but that they also reflect
the most appropriate manner in 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 misstatement of 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 2020
Page 14 of 29

financial year is outlined in Note 1 of the 2020 Interim 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 to the Group and be reasonable under the circumstances, yet might result inreporting materially different outcomes than would have been reported under thealternative.
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 Group is subject to a
substantial and increasing number of laws, regulations and policies, including industry selfregulation, in the Relevant Jurisdictions in which it carries on business or obtains funding
and is supervised by a number of different authorities in each of these jurisdictions. The
volume of, and resources allocated to the regulation and supervision of financial services
groups, such as the Group, and the enforcement of laws against them, 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, theregulation and supervision of, and enforcement against, financial services groups, including
the Group has become increasingly extensive, complex and costly across the Relevant
Jurisdictions. Such regulation, supervision and enforcement continue to evolve.
The exact ramifications of COVID-19 on the regulation and supervision of, and enforcement
against, financial services groups such as the Group are highly uncertain and, as of the dateof this document, difficult to predict. There is some evidence of delays and proposed delays
to the implementation of regulatory reforms in Australia and New Zealand and a re-rankingof priorities, including enforcement priorities. Governments worldwide have imposed wide
ranging restrictions on, suspensions of, or advice against, travel, events, and meetings andmany other normal activities and undertaken substantial and costly interventions tostabilise sovereign nations and financial markets. Governments may in the foreseeable
future implement and introduce further measures to contain the pandemic.
The current and ongoing COVID-19 pandemic also has the potential to complicate theGroup’s dealings with its regulators in a number of ways. In particular, disruptions to theGroup’s business, operations, third party contractors and suppliers resulting from the
COVID-19 outbreak increase the risk that the Group will not be able to satisfy its regulatory
obligations or processes and/or address outstanding issues, potentially increasing theprospect of a regulator taking adverse action against the Group.
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
RBNZ’s prudential standards could increase the level of regulatory capital that the Group isrequired 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:•

APRA is impacted by the evolving situation surrounding COVID-19. Certain
engagements are being cancelled, deferred or restructured to limit direct contact.
APRA has limited members of its supervision team from attending its office. Primaryareas of interest include the impact on funding and liquidity, markets, operational
resilience and payments.

•

In October 2019, APRA released a discussion paper on draft revisions to theprudential standard APS111 “Capital Adequacy: Measurement of Capital” (“APS111”)
for consultation. The most material change from APRA’s proposal is in relation to the
Page 15 of 29

treatment of capital investments for each banking and insurance subsidiary at Level 1,
with the tangible component of the investment changing from a 400% risk weightingto: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.

ANZBGL is reviewing the implications for its current investments. The net impact on
the Group is unclear and will depend upon a number of factors including thecapitalisation of the affected subsidiaries at the time of implementation, the final formof the prudential standard, as well as the effect of management actions being pursuedthat have the potential to materially offset the impact of these proposals. Based on
ANZBGL’s current investment as at 31 March 2020 in its affected subsidiaries and in
the absence of any offsetting management actions, the above proposals imply areduction in ANZBGL’s Level 1 CET1 capital ratio of up to approximately A$2.5 billion(approximately 75 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 of 1 January 2021 for these changes is currently under review by APRA in linewith their announcement to suspend public consultation on revisions to prudential
standards that are currently underway or upcoming, with no plans forrecommencement before 30 September 2020.
•

In August 2019, APRA announced that it will amend APS222 “Associations withRelated Parties” 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% ofLevel 1 Tier 1 capital, and aggregate exposures from 150% of Level 1 total capital to75% 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 affectthe measurement of ADI exposures. The implementation date for these changes has
been deferred by APRA to 1 January 2022 (12 month deferral from initial
implementation date of 1 January 2021).

•

In July 2019, APRA announced its decision on loss-absorbing capacity pursuant towhich it will require Australian domestic systemically important banks (“D- SIBs”),
including ANZBGL, to increase their total capital by 3% of risk-weighted assets by
January 2024. Based on the Group’s capital position as at 31 March 2020, thisrepresents an incremental increase in the total capital requirement of approximately
A$9 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 risk weighted assets.

•

Implementation of APRA’s revisions to the capital framework for ADIs, resulting fromthe Basel Committee on Banking Supervision (“BCBS”) Basel 3 capital reforms andthe recommendations of the FSI, will continue over the coming years. However in
response to the challenging economic environment resulting from disruption caused
by COVID-19, APRA announced a temporary change to its expectations with regards
to ADIs maintaining bank 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 Australian economy, provided that they continue to meet their otherminimum capital requirements.

•

Additionally, as further support for ADIs in dedicating time and resources to maintaintheir operations and support customers, APRA has also deferred its scheduled
implementation of changes to ADIs risk-weighting framework and other capitalrequirements (capital reforms) by one year. The majority of the capital reforms were
initially due for implementation on 1 January 2022, but these have now been revised
to 1 January 2023. APRA has announced that it does not expect that the changes tothe risk weights, when implemented, will necessitate further increases in capital for
ADIs, although this could vary by ADI depending on the final requirements.

•

In December 2019, the RBNZ released its final capital requirements for New Zealandbanks, on the back of the consultation process on the paper titled “Capital Review
Paper 4: How much capital is enough?” released in December 2018. The net impact
Page 16 of 29

on the Group is an increase in CET1 capital of approximately A$3 billion over theseven year transition period. The RBNZ has delayed the commencement date of theincreased capital requirements by 12 months to 1 July 2021 in response to theuncertainties from the COVID-19 pandemic.
•

With effect from 2 April 2020, the RBNZ amended ANZ New Zealand's Conditions ofRegistration to (among other things) not permit ANZ New Zealand to make
distributions other than discretionary payments payable to holders of Additional Tier 1
capital instruments. This restriction applies to all New Zealand-incorporated banks,and is intended to support the stability of the financial system during the COVID-19
pandemic. The RBNZ also informed ANZ New Zealand, and other locally incorporated
banks, that they should not redeem capital instruments at this time. Accordingly ANZ
New Zealand will not be permitted to redeem its NZ$500 million of mandatory
convertible perpetual subordinated securities in May 2020 (“Capital Notes”),
although ANZ New Zealand can continue making coupon payments on those Capital
Notes (subject to certain conditions). The terms of the Capital Notes provide for theirconversion into a variable number of ANZBGL ordinary shares in May 2022 (subject tocertain conditions). Conversion would result in an increase in the Group’s CET1 capital(approximately 12bps at Level 2). ANZ New Zealand has announced that it will not be
exercising its option to convert the Capital Notes in May 2020.

Recalibration of ASIC’s Regulatory Priorities
ASIC announced on 23 March 2020 that it will focus its regulatory efforts on challenges
created by COVID-19. Until at least 30 September 2020, the other matters that ASIC will
afford priority are where there is the risk of significant consumer harm, serious breaches ofthe law, risks to market integrity and time-critical matters. ASIC is committed to working
constructively and pragmatically with the firms it regulates, and is mindful those firms may
encounter difficulties in complying with their regulatory obligations due to the impact of
COVID-19. ASIC has immediately suspended a number of near-term activities which are nottime-critical. These include consultation, regulatory reports and reviews including ASIC’s
close and continuous monitoring programme.
Royal Commission
The Royal Commission made 76 recommendations concerning law reform, self-regulatory
standards and the operations of ASIC and APRA. Some recommendations have already been
implemented and the Australian Government Treasury has stated that most of theremainder are proposed to be implemented between 2020 and 2022. In addition, the Royal
Commission has led or may lead to regulators commencing investigations into various
financial services entities, including the Group. Depending on how the recommendations are
implemented by the Australian Government and followed by regulatory agencies, they could
result in additional costs and may lead to further exposures, including exposures associatedwith further regulator activity or potential customer exposures such as class actions,individual claims or customer remediation or compensation activities. The recommendations
may also lead to adjustments in the competitive environment of the Group. The outcomes
and total costs associated with these possible exposures and changes remain uncertain andtheir 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 financial services sector. In
October 2019, the Australian Government directed the Australian Competition & Consumer
Commission (“ACCC”) to immediately commence an inquiry into home loan pricing of the
major Australian banks, which includes the Group. The ACCC released its interim report withrespect to the inquiry on 27 April 2020 and reviewed factors influencing interest rate setting
decisions and the pricing of mortgages, however the interim report did not containrecommendations. The final report is expected to examine the impediments consumers facewhen switching lenders and will provide recommendations focused on driving further
competition in the home loan market. In light of the COVID-19 pandemic, the timeframe of
the inquiry’s final report has been extended to 30 November 2020. In July 2019, the ACCC
released its final report of its Digital Platforms Inquiry. This report recommended reforms to
privacy and certain consumer protections. The Australian Government is consulting on theserecommendations. A final report from the ACCC on customer loyalty schemes was released

Page 17 of 29

in December 2019. Legislative, regulatory or supervisory changes in response to theserecommendations could adversely affect the 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. The design anddistribution obligation legislation will introduce requirements on product issuers anddistributors to, among other things, identify appropriate target markets for financial andcredit products and distribute 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 Corporate Penalties and Funding for Regulators
There are increased penalties for breaches of laws in Australia, as well as increased funding
for regulators to prosecute breaches. The Australian Consumer Law was amended toincrease penalties for breaches of consumer law from September 2018. The increased
penalties relate to unconscionable conduct, false or misleading representations about goods
or services, unfair practices, the safety of consumer goods and product-related services andinformation standards. The Australian Government announced in March 2019 that ASIC
would be provided with more than A$400 million and APRA with more than A$150 million in
additional funding to support enforcement, regulation and supervision. The Treasury Laws
Amendment (Strengthening Corporate and Financial Sector Penalties) Act 2019 significantly
increased the sanctions applicable to the contravention of a range of corporate and financial
sector obligations. The imposition of such penalties on the Group may adversely affect theGroup’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 and directors / senior executives to increaseaccountability. FAR would be jointly administered by APRA and ASIC and could impose
larger civil penalties for any breaches. 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 AUSTRAC of civil penalty proceedings in 2017 and 2019 against two
major Australian banks relating to alleged past and ongoing contraventions of the AntiMoney Laundering and Counter-Terrorism Financing Act 2006 (Commonwealth).
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, is requiring considerable Group resources to implement andmonitor compliance. A new Australian Banking Code came into effect from July 2019, withfurther changes to certain retail and small business products and processes being
Page 18 of 29

introduced by March 2020. Industry guidance on working with vulnerable customers is also
evolving. Such changes may impact the products that the Group is able to offer to its
customers and the operational costs associated with delivery, which may adversely impact
the Group’s Position. Draft legislation implementing key recommendations of the Financial
Services Royal Commission includes legislation under which certain industry code provisions(including the Banking Code of Practice) can be deemed as ‘enforceable code provisions’,
the breach of which would attract civil penalties.
Open Banking Laws
Open Banking is part of a new consumer data right in Australia that was made law in August
2019. The consumer data right it establishes seeks to improve consumers’ ability tocompare and switch between products and services. It is proposed to apply to the banking
sector from July 2020 and 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.
Outside of Australia:
New Zealand Developments
There have been a series of releases from New Zealand regulatory authorities that haveproposed significant regulatory changes for New Zealand financial institutions. Thesechanges include, among other things: the RBNZ’s reform of capital requirements, the
RBNZ’s revised outsourcing policy, ANZ New Zealand's revised conditions of registration, theenactment of the Financial Services Legislation Amendment Act 2019 and replacement of
the Financial Advisers Act 2008, proposed conduct regulations for financial institutions under
the Financial Markets (Conduct of Institutions) Amendment Bill, the New Zealand
Government review and proposed 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 andprofitability, cost structures, and the cost and access to credit for its customers and thewider economy. This in turn may adversely affect the Group's Position. However, in
response to COVID-19, the RBNZ announced in March 2020 that it would defer externalfacing work on most of its regulatory initiatives for an initial period of 6 months, and would
delay the start date for the increased capital requirements for New Zealand banks by 12months. The RBNZ has also extended the transition period for its revised outsourcing policyby 12 months, and there have been delays to the commencement of the CCLA Act. The New
Zealand Government has determined that the RBNZ, the FMA and New Zealand banks
provide an essential service and can continue to operate, but must operate in a way thatminimises the risk of COVID-19 transmission.
Other Offshore Developments
Other offshore regulatory developments include changes to financial regulations in the
United States (including legislative changes to the Dodd-Frank Act and potential revision to
its Volcker Rule), changes to senior executive accountability in Singapore, Hong Kong, andthe United Kingdom, changes to English and European law in connection with Brexit,
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 SIBOR, and the discontinuation of LIBOR and other such interbank offered rates bytransitioning to risk free rates.
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 toPage 19 of 29

regulators or publicly. Any delays will be dependent on how regulators choose to adjust theprioritization, 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 20 of the 2020 Interim Financial
Statements.
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 April 2020 in respect of the matters outlined in
Note 20 of the 2020 Interim Financial Statements.
Note 20 includes, among other things, descriptions of:•regulatory and customer exposures;•bank fees litigation and periodical payment remediation and ASIC action;•
benchmark/rate actions;•capital raising actions;•consumer credit insurance litigation;•
franchisee litigation;•
the Royal Commission; and•security recovery actions.
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 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, currently include a rangeof matters including responsible lending practices, regulated lending requirements, productsuitability 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 andcounter-terrorism financing obligations, reporting and disclosure obligations and productdisclosure 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 has
Page 20 of 29

heightened 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
against “regulated entities” (in Australia, ”regulated entities” constitute a legal entity thatprovides one of around fifty designated services to a customer, such as opening a bankaccount or providing a loan). In addition AUSTRAC has publically communicated its viewthat Reporting Entities in Australia have under invested 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. This matter is currently subject tocourt proceedings and is the second such action taken against a major Australian bank in
the past two and a half years. Similarly, the RBNZ has stated that its appetite for taking
formal enforcement action for breaches of the New Zealand Anti-Money Laundering andCountering Financing of Terrorism Act 2009 has increased, and the propensity for otherregulators (including in Asia and the Pacific) to take action for non-compliance with theirlocal AML/CTF laws has increased.
While the COVID-19 pandemic continues to evolve at different paces in many of thejurisdictions in which the Group operates, it is expected that financial crime will increase.
Examples of this include potential fraud and scams with criminals targeting vulnerable
customers using COVID-19 as a cover, as well as identity theft and false applications for
Government support. There is a risk that the management of alerts for potential money
laundering or terrorism financing activities may also be slowed due to both resource
availability and/or changed working arrangements. This, and the likelihood of challenges inaccessing customers for information and identification, may warrant discussion with theregulators within the different jurisdictions within which the Group operates, to garner theirsupport for temporary changes to rules or guidance. It is not expected that this will increase
the risk of fines or penalties, however the Group will need to ensure adequate arrangements
to remain compliant with AML/CTF laws.
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.
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 the
Page 21 of 29

Group’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 been actively reducing official interest rates,
including the RBA, RBNZ and other authorities in jurisdictions in which the Group operates
and are currently implementing or considering unconventional monetary policies. Central
banks worldwide, including the RBA, the U.S. Federal Reserve and the Reserve Bank of New
Zealand have cut interest rates during 2019 in response to slowing economic growth andagain in early 2020 in response to emerging risks to growth from COVID-19. On 19 March
2020, the RBA cut the cash rate to the Australian historic low rate of 0.25%, in response to
the significant effect of the COVID-19 outbreak on the Australian economy. Low or negativeinterest 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
tax reporting 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 tax
transparency reporting regimes, including the U.S. Foreign Account Tax Compliance Act(“FATCA”), the OECD’s Common Reporting Standard (“CRS”) and similar anti-tax
avoidance regimes. This includes enforcement and implementation of detailed global tax
reporting rules and frameworks to close down global tax reporting regime circumventions
and deter, detect and penalise non-compliance.
As a global financial institution, the Group operates in a high volume and globally interlinked
operating environment. In this context, the highly complex and rigid nature of theobligations under the various global tax reporting regimes present heightened operationaland compliance risks for the Group. This may be coupled with the current increased
regulatory scrutiny on global financial institutions (including the Group), the increasing
trend in compliance breaches by global financial institutions and related fines for noncompliance in general. Accordingly, compliance with global tax reporting regimes willcontinue to be a key area of focus for the Group.
Increasing OECD Government level peer reviews and other regulatory financial institution
compliance review requirements are increasing scrutiny on financial institutions, resulting infurther tightening of existing obligations and focus on CRS compliance. Each country of
adoption is being pushed 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;
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 toPage 22 of 29

implement;•

must deal with considerable country specific variations in local law and regulatory
implementation, with significant local regulatory 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 turn their focus from the initial establishment of the CRS to its effective
implementation. This tightening of the regulatory focus can lead to significant
negative experience for affected customers (including unilateral account blocking andclosure), may adversely affect the Group’s Position and if not similarly implemented
by other FIs, may present a significant 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, COVID-19 challenges may result in limited staff access to systems, tools
and information, and/or impact on the delivery of regulatory obligations to requisite
timeframes, including mandatory customer follow-up strategies, resolution and action ofregulatory recommendations, as well as continuous improvement activities to achieve thezero rate of error expected by regulators. The Group’s global taxation obligations in relation
to the enterprise’s own tax lodgments and payments may similarly be impacted. Whilesome level of leniency from global regulators is anticipated, there is still a risk of associatedpenalties and reputational ramifications resulting from any deficiencies or delays in meeting
regulatory obligations.
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, and the risk of reputational loss or damage arising frominadequate or failed internal processes, people, and/or systems, but excludes strategic risk.
Operational risk events include:•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);•damage to physical assets; and•execution, delivery and process management (for example, processing errors or data
management failures).
Loss from operational risk events may adversely affect the Group’s Position. Such losses canPage 23 of 29

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.
On a global scale, COVID-19 challenges has resulted in a number of changes in terms of
how the Group is undertaking its operations. For the majority of the organisation, theGroup’s focus was to enable a work from home capability to allow all functions to continue
to operate normally. However, no assurance can be given that the steps being taken will beadequate, nor can the Group predict the level of disruption which may occur. The decision
to move over 80% staff globally (and over 90% in Australia, excluding frontline branchstaff) to work from home, required some updates to existing systems to support asignificantly higher volume of users than had previously been planned.
Other challenges that the Group may face include:••

Limited staff access to systems, tools and information, and/or impact on the deliveryof customer services and regulatory obligations to requisite timeframes, including the
day to day operations of the institution, financial reporting, management andoversight of internal controls, and resolution and action of regulatory
recommendations; andOngoing availability of staff to undertake their requisite activities that may result fromloss of physical access to branches or offices or due to health related issues.

All or any of the impacts described above may cause a reduction in productivity or delays incompleting important activities, which could subsequently result in customer remediation
activities, or fines, all of which may adversely affect the Group’s Position.
23.

Reputational risk events as well as operational failures and regulatory compliance
failures may give rise to reputational risk, which may adversely affect the Group’s
Position
Reputational risk may arise as a result of an external event or the Group’s own actions,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. 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 of ways, 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 by community perception of the broader financial services
industry.
While the extent of the impacts of COVID-19 are yet to be fully realized, 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 may give rise to
reputational risk. Such operational and regulatory compliance failures include, but are notlimited 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;

Page 24 of 29

•
•
•
•
•
•
•

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; andunexpected 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 and availability of new business opportunities. The Group’s ability to attract andretain customers could also be adversely affected if the Group’s reputation is damaged,
which may adversely affect the Group’s Position.
24.

Conduct-related risk events or behaviours may adversely affect the Group’s
Position
The Group defines conduct-related risk as the risk of loss or damage arising from the failureof the Group, its employees or agents to appropriately consider the interests of consumers,
the integrity of the financial markets, and the expectations of the community in conducting
the Group’s business activities.
Conduct-related risks can result from:•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;•
sales and/or promotion processes (including incentives and remuneration for staff
engaged in promotion, sales and/or the provision of advice);•the provision of credit, outside of the Group’s policies and standards; and•trading activities in financial markets, outside of the Group’s policies and standards.
There has been an increasing regulatory and community focus on conduct-related risk
globally and in particular, in Australia and New Zealand. For example, the Group is currently
undertaking a variety of customer remediation programs, of which some relate to conduct
issues that have been identified from reviews to date and these reviews remain on-going.
Conduct-related risk events may expose the Group to regulatory actions, restrictions orconditions on banking licences and/or reputational consequences that may adversely affect
the Group's Position. 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.
The COVID-19 pandemic has led to rapid changes to employees working remotely which
may impact employee behavior and / or Group systems and processes, which in turn may
result in customer detriment, impact market integrity, or cause the Group to fail to live up
to community expectations.
For further discussion of the increasing regulatory focus on conduct-related 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”.

25.

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) are

Page 25 of 29

highly dependent on information technology systems. Therefore, there is a risk that
disruption of information technology systems, or the services the Group uses or isdependent upon, will result in the Group failing to meet customers’ banking requirements
and/its compliance obligations.
Threats to information technology systems are continuously evolving and cyber threats andthe risk of attacks are increasing. The attacks against organizations can range from simple
attacks up to state owned attacks, which are generally much more sophisticated. The Groupmay not be able to anticipate or implement effective measures to prevent or minimise
disruptions caused by cyber threats due to the techniques used being highly sophisticatedand those perpetuating the attacks being well-resourced.
The Group has an ongoing obligation to maintain its information technology systems, toensure their currency and resiliency and to enhance business capabilities and digital banking
services for the Group’s customers. The Group may not discharge systems support,
maintenance, or changes effectively or efficiently, which could lead to unstable or insecuresystems or a decrease in the Group’s ability to service its customers, increased costs, andnon-compliance with regulatory requirements, which may adversely affect the Group’s
Position. As an example, in response to the COVID-19 pandemic, more of the Group’s staff
and third party contractors are required to work remotely or from alternative work sites,
which has put additional stress on the Group’s information technology systems.
The Group has Disaster Recovery and Business Continuity measures in place to ensure thatcritical information technology systems will continue to operate during prolonged disruption
events. The recent COVID-19 pandemic event has highlighted that these arrangements
must cater for vast and improbable events, like a global pandemic, and ensure criticalinformation systems can be supported and accessed by a large number of multijurisdictional technology and business users for an extended period. If such measures
cannot be effectively implemented, then this may adversely affect the Group’s Position.
In addition, ANZ New Zealand relies on the Group to provide a number of information
technology systems. A failure of the Group’s systems may affect ANZ New Zealand, which
may in turn, adversely affect the Group's Position.
26.

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 across multiple geographies that 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 current COVID-19 pandemic has increased thenumber of staff working offsite for an extended period, which may increase information
security risks to the Group. Cyber criminals may attempt to take advantage throughpursuing exploits in end point security, spreading malware, and increasing phishingattempts.
Any failure in the Group’s cybersecurity policies, procedures or controls, may result in major
business disruption, an inability to deliver customer services, or loss of data or othersensitive information (including as a result of an outage) and may cause associatedreputational damage. Any of these events could result in significant financial losses
Page 26 of 29

(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.
Environmental, social and governance risks
27.

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. The ongoing outbreak of COVID-19 has resulted in a widespread health crisis
that could continue to adversely affect the economies and financial markets of many
countries, including Australia, resulting in an economic downturn that could affect the Groupand its customers. See risk factor 1 “The COVID-19 pandemic has, and future outbreaks ofother communicable diseases or pandemics may, materially and adversely affect theGroup’s Position” for further details regarding the different impacts from COVID-19.
Depending on their severity, these extrinsic events may continue to interrupt or restrict theprovision of some local services such as the Group branch or business centers or Group
services, and may also adversely affect the Group’s financial condition or collateral position
in relation to credit facilities extended to customers, which in turn may adversely affect theGroup’s Position.

28.

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 all of the Group’s activities and includes theidentification and monitoring of the Group’s risk appetite and reporting on the Group’s risk
exposure and effectiveness of identified controls. However, there can be no assurance that
the Group’s risk management framework will be effective in all instances including inrespect of existing risks, or new and emerging risks that the Group has not anticipated or
identified, and 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. If the remuneration structures are not designed or
implemented effectively, then this 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 framework. 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 reputation damage, and failing to comply with regulatory
obligations, which could adversely affect the Group’s Position.
While these principles still continue to underpin the Group’s risk management framework,
the ongoing COVID-19 pandemic requires the Group to continue to maintain good practices
and a robust risk management framework as its operational activities continue to evolve tomanage 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.

Page 27 of 29

29.

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. Embedding climate change risk into the Group’s risk management framework
in line with expectations, and adapting the Group’s operation and business strategy toaddress both the risks and opportunities 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.
The risk to the Group through credit-related issues with the Group’s customers could result
directly from climate-related events, and indirectly from changes to laws, regulations, orother policies such as carbon pricing and climate risk adaptation or mitigation policies,
which may impact the customer’s supply chain. This may result in credit-related losses as aresult of the customer being unable or unwilling to repay debt, which may adversely affect
the Group’s Position.

Page 28 of 29

Responsibility statement of the Directors of ANZBGL in accordance with DTR
4.2.10 R (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 2020 Half-Yearly Financial Report (as defined on page 1 of this DTR half-yearlyfinancial report submission) includes a fair review of:(i)an indication of the important events that have occurred during the first six
months of the financial year, and their impact on the Condensed Consolidated
Financial Statements; and(ii)

a description of the principal risks and uncertainties for the remaining six monthsof the financial year.

Signed in accordance with a resolution of the Directors.

David M Gonski, AC
ChairmanShayne C Elliott
Director

29 April 2020

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