The ANZ Bank’s report of a Review Committee
(pdf) which examined the Bank’s involvement in Securities Lending and
its relationship with Broker clients including the Opes Prime group has some important risk management lessons:
- your staff need to fully understand the products they deal in.
- you need to understand and manage all the risks in your business. In particular you need to identify unacceptable reputational and financial risks.
- Lack of a proper control environment: the Equity Finance business lacked an appropriate control framework, in particular with respect to credit limits and conditions relating to the quality and quantity of securities accepted by the Equity Finance business and the loan-to-value ratios applied to those securities.
- Poor accountability and ‘management by committee’: there was a lack of individual accountability within the line and risk management responsible for the Equity Finance business, with responsibility for many decisions resting with committees. This was compounded by deficiencies in the structure and management of the relevant committees.
- Failure to identify and act on warning signs: various concerns relating to the processes, personnel and systems utilised in the Equity Finance and Securities Lending businesses and the risks associated with these businesses were identified by various staff and in the course of internal audit reviews. However, they were not addressed in a timely or effective manner. There was a history of procrastinating on decisions to either invest in systems to remedy issues or to exit the business.
- Failure to report relevant issues to the Chief Executive Officer and Board: the gravity of the issues relating to the Equity Finance business should have been, but were not, properly brought to the attention of the Chief Executive Officer and Board.
- Breaches of ANZ employee conduct policies.
The weaknesses in the management and oversight of the Equity Finance
business within ANZ’s Securities Lending unit meant that ANZ did not
adequately identify and manage the range of risks which arose from the
operation of a business of this nature.
ANZ recognises that the legacy of its involvement in Equity Finance
may well be with the Bank for many years through legal cases that it
will continue to defend and also the impact of these issues on its