ANZ Bank has agreed to pay a record fine of A$240 million after admitting to various forms of misconduct^[1] that occurred “over many years”.

Announced on Monday, the fine marks the culmination of a major investigation by Australia’s corporate regulator, the Australian Securities and Investments Commission (ASIC), into multiple allegations of misconduct across the bank’s retail and institutional divisions.

This penalty still requires approval from the Federal Court. But if it seems an eye-watering sum, that’s because it is the largest fine ASIC has ever sought against a single company.

So, what was this scandal all about? And what could this outcome mean – both for corporate regulation and customers?

What has ANZ admitted to?

According to ASIC, the record penalty being sought relates to admissions of misconduct across four key matters^[2] by ANZ. These are:

1. Handling a federal government bond deal: “Unconscionable” conduct in the management of a $14 billion government bond deal in April 2023, and incorrect reporting of bond trading data to the federal government, “overstating the volumes by tens of billions of dollars over almost two years”.

2. Customer hardship: Not responding to hundreds of customer hardship notices, sometimes for two years or more, nor having adequate hardship procedures.

3. Interest rates: Making false and misleading statements on its savings interest rates, resulting in the wrong rate being paid to “tens of thousands of customers”.

4. Deceased customers: “Failing to refund fees charged to thousands of dead customers” and “not responding to loved ones trying to deal with deceased estates within the required timeframe”.

A huge fine, but not the maximum

At $240 million, the announced penalty is the largest ASIC has ever sought against a company. However, the amount that can be imposed on financial institutions for contraventions of financial services law, such as the ASIC Act^[3] and the National Consumer Credit Protection Act^[4], is astronomically high.

Under provisions in place from 2019, the civil penalty^[5] could have been set at 10% of ANZ’s annual turnover, currently capped at $825 million per contravention.

One point of comparison is the $125 million penalty ordered against Volkswagen in 2019^[6] for misleading consumers about emissions (and later upheld on appeal^[7]). Notably, this was one contravention, not four as the case with the ANZ. And the contravention by Volkswagen related to the prohibition on misleading conduct in the Australian Consumer Law^[8].

ANZ has agreed to the penalty rather than contesting the matter in court. Given the potentially higher penalties that could have been imposed, this may be a sensible, economic strategy, especially given the savings in litigation cost.

But we still might want to think about the outcome for the consumers and the willingness of banks to actually change their systems and processes.

What about customers?

ASIC Chair Joe Longo said^[10] ANZ has betrayed the trust of Australians “time and time again”.

Notably, many of the matters in question in this case relate to misconduct affecting ANZ’s retail customers. On Monday, ANZ Chairman Paul O’Sullivan apologised to customers and said the bank would take action.

But the need for better oversight of customer-facing compliance was raised in 2019, following the banking royal commission^[11]. One of the key recommendations put forth was recommendation 5.6: “changing culture and governance”:

This called on financial services providers, “as often as reasonably possible”, to:

• assess the entity’s culture and its governance
• identify any problems with that culture and governance
• deal with those problems
• determine whether the changes it has made have been effective.

ASIC’s press release noted^[12] the regulator has now brought 11 civil penalties proceedings against ANZ since 2016, including those announced today. ASIC has been investigating financial services providers charging fees for no services since 2016^[13].

That doesn’t look like progress, so customers might reasonably ask what this penalty really means for them.

Where do funds from the fine go?

One issue at stake is monetary compensation for affected customers. The penalty amount is paid to the Commonwealth. Often, ASIC asks a bank to remediate customers as part of an agreement on the penalty that will be awarded.

The documents involved in the application to the court^[14] suggest ANZ is completing the required remediation. Sometimes, the penalty award is followed by litigation or class actions brought by disgruntled customers to obtain compensation.

The other issue is what is sometimes called “corporate culture”, but really means complying with the law. Ideally, if approved by the Federal Court, the sheer size of this penalty should send a strong message to other banks and financial institutions about the importance of being fully compliant with the law.

Notably, ANZ has announced^[15] it will spend $150 million implementing a plan to address shortcomings in its non-financial risk management practices.

We need better systems and processes

Across the rest of the financial services sector, there is also power in the signal ASIC is sending: it will continue to pursue these kinds of misconduct and the reputational loss from any contraventions.

At the end of the day, compliance comes through good systems and processes that are capable of identifying misconduct and then responding in a timely manner. Australia’s banks should not be making “mistakes” of this scale.

Perhaps the AI chatbots being rolled out by the corporate sector^[16] should also be deployed to assist with legal oversight and consumer protection, while retaining robust human oversight.

References

1. ^{^} admitting to various forms of misconduct (www.asic.gov.au)
2. ^{^} four key matters (www.asic.gov.au)
3. ^{^} ASIC Act (www.austlii.edu.au)
4. ^{^} National Consumer Credit Protection Act (www.legislation.gov.au)
5. ^{^} civil penalty (www.asic.gov.au)
6. ^{^} in 2019 (www.accc.gov.au)
7. ^{^} upheld on appeal (www.accc.gov.au)
8. ^{^} Australian Consumer Law (www.legislation.gov.au)
9. ^{^} PR Image/Supplied by ASIC/John Appleyard via AAP (photos.aap.com.au)
10. ^{^} said (www.asic.gov.au)
11. ^{^} banking royal commission (www.royalcommission.gov.au)
12. ^{^} noted (www.asic.gov.au)
13. ^{^} since 2016 (www.asic.gov.au)
14. ^{^} application to the court (www.asic.gov.au)
15. ^{^} announced (www.afr.com)
16. ^{^} rolled out by the corporate sector (www.theguardian.com)