ANZ’s plans for acquiring Suncorp have been hotly contested by Bendigo & Adelaide Bank, which contends that it would make a more fitting dance partner for Suncorp’s bank. ANZ and Suncorp are struggling to get the Australian Competition and Consumer Commission to give its blessing to their tie-up.
The ACCC’s preliminary determination concluded the arguments for a tie-up were unconvincing, noting that “a merger [of Suncorp] with a second-tier bank has a realistic prospect of occurring”.
ACCC’s deputy commissioner, Mick Keogh, noted that a merger with Bendigo or BoQ would make more sense and could be completed in a reasonable time frame.
But BoQ’s entanglement with the regulators means it will be sidelined for the forseeable future, leaving Suncorp’s banking business as the only prospective dance partner for Bendigo and Adelaide Bank.
And that is likely to increase the ACCC’s resolve to stymie ANZ’s plans.
It’s clear from the enforceable undertakings that BoQ provided to both APRA and AUSTRAC that the Queensland lender faces a long period when its top priority will be on fulfilling its promises to the two regulators.
As the bank’s enforceable undertaking to APRA makes clear, the financial sector regulator was looking closely at BoQ’s risk management and compliance practices last year, after being notified of several breaches.
By September, it required the bank to appoint an independent expert to delve deeper into the bank’s breaches of prudential standards, and its broader risk management practices.
Meanwhile, APRA rolled up its sleeves and conducted its own prudential review of the bank’s operational risk, compliance and risk culture.
‘Underlying weakness’
In April, the independent expert, KPMG, handed over its report, which “confirmed the underlying weaknesses, and heightened APRA’s concerns about both the seriousness of the underlying weaknesses and BoQ’s ability to remediate them”.
According to the enforceable undertaking with APRA, the design and operation of the bank’s risk management framework “was insufficient for a bank of BoQ’s size and complexity. This was partly due to inadequate controls and over-reliance on manual controls.”
APRA is now putting the heat on BoQ to fix the “underlying weaknesses” in its risk management practices and systems. It’s given the Queensland lender 120 days to submit a remedial action plan to the regulator, as well as forcing it to set aside an extra $50 million in regulatory capital.
What’s more, BoQ is also required to appoint an independent reviewer – approved by APRA – to assess the bank’s progress in implementing the plan’s various measures. The independent reviewer will also opine on whether the changes are effective and sustainable, or whether more work is needed to address the underlying weaknesses.
But BoQ doesn’t only have to exert strenuous efforts to placate APRA. It also has to try to placate AUSTRAC, which is concerned about the bank’s ability to comply with anti-money laundering and counter-terrorism financing laws.
As part of its enforceable undertaking with AUSTRAC, BoQ has committed to developing a remedial action plan to improve its AML/CTF program, which AUSTRAC will monitor. And to ensure there’s no slippage, BoQ has also agreed to engage an external auditor who will report back to AUSTRAC.
Bank of Queensland chief executive Patrick Allaway will have his hands full for the forseeable future rectifying the serious deficiencies in the bank’s risk management systems quickly enough to satisfy the demands of the two regulators.
And that means prospective dance partners are likely to continue to give his bank a wide berth.