UK DTR Submission

Australia and New Zealand Banking Group Limited ABN 11 005 357 522





5 November 2018


Company Announcements
Australian Securities Exchange
Level 4
20 Bridge Street
SYDNEY NSW 2000



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


The attached UK DTR Submission will be lodged by ANZBGL with the London Stock
Exchange (“LSE”) today, together with the Group’s Annual Report and ANZBGL’s 2018
Financial Statements for the year ended 30 September 2018. This UK DTR Submission
has been prepared by ANZBGL in order to comply with the applicable periodic reporting
requirements of DTR 4 of the Disclosure and Transparency Rules of the United Kingdom
Financial Conduct Authority in connection with certain debt securities issued by ANZBGL.
For completeness, in addition to lodgement with the LSE, ANZBGL is lodging this UK DTR
Submission with the Australian Securities Exchange (“ASX”) 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

Australia and New Zealand Banking Group Limited ABN 11 005 357 522
5 November 2018
DISCLOSURE AND TRANSPARENCY RULES – ANNUAL FINANCIAL
REPORT SUBMISSION
Australia and New Zealand Banking Group Limited (“ANZBGL” or
the “Company”) together with its subsidiaries (“ANZ” or the “Group”) –
Annual Financial Report submission under the Disclosure and
Transparency Rules (“DTR”) of the United Kingdom Financial Conduct
Authority
The following attached documents constitute ANZ’s 2018 Annual Financial Report for
the purposes of the disclosure requirements of DTR 4.1:
The Group’s 2018 Annual Report for the year ended 30 September 2018
;
The
Company’s 2018 Financial Statements for the year ended 30 September 2018;
A description of the principal risks and uncertainties for the Group provided in
accordance with DTR 4.1.8 (2); and
A responsibility statement of the Directors of ANZBGL provided in accordance with
DTR 4.1.12 (3)(b).
1

ANZ’s 2018 Annual Report and ANZBGL’s 2018 Financial Statements
These documents were separately lodged by ANZ with applicable stock exchanges,
including the
London Stock Exchange and the Australian Securities Exchange, on
5 November 2018.
2

1.Introduction
The Group’s activities are subject to risks that can adversely impact its business, operations and
financial condition. 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 business, operations, financial condition,
or reputation could be materially and adversely affected. In this section, where we refer to the
impact on the Group’s business, operations and financial condition and similar references, such
references include the impact on the business prospects of the Group.
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 business, operations and financial condition
The Group’s financial performance is primarily infl uenced by t
he pol
it
i
cal and ec
onomic conditions
and the level of business act ivity in t he major countries and regions in which the Group operates
or trades namely Australia, New Zealand, the Asia Pacifi c, Europe and the Unit ed Stat es.
The economic and busi
ness conditions that prevail in the Group’s major o perating and trading
markets
are affected by, among other things, domestic and international economic events, polit ical
events and natural disast
ers, and by movements and events that occur in global financial markets.
For example, the global financial crisis that commenced in 2007 saw a sudden and prolonged
dislo
cation in credit and equity capital markets, a contraction in global econo mic act ivity and the
emergence of many challenges for financial services ins titutions worldwide.
The impact of the global financial crisis and its aftermath cont inue to affect regional and global
economic activity, confidence an
d capital markets. Prudential authorities have implemented and
continue to implement increased regulations in an attempt to mitigate the risk of such events
recurring, although there can be no assurance that such regulati ons will be effective. The Group
believes that the global fi
nancial crisis has also had a lasting effect on consumer and business
behaviour in the advanced economi es, including the major countries and regions in which the
Group operates. Consumers in r ecent yea
rs have reduced their savings rates in t he face of weak
income gro wth, while businesses have been rel uctant to invest and inflation has remained low.
Monetary aut ho rities responded to the glo bal fi nancial crisis by intro ducing zero or near-zero
interest rates across most
countries, and the major central banks took unconventional steps to
support growth and raise infl ation. While some economic factors have recently improved and some
monetary aut ho ri ties have be
gun to increase interest rat es, last ing impacts from the global
fi nancial crisis and the potential
for escalation in geopolitical risks suggest ongoing vulnerability
and potential adjustment of consumer and business behaviour.
Changes in global political conditions, such as the ‘Brexit’ referendum in the Unit ed Kingdom on
June 23, 2016 (and the related negotiations with the European Union), the commencement of
Donald Trump’s pre
sidency in January 2017, and global trade developments relating to, among
other things, the impo sition or threatened impo si tion of trade tariffs and levi es by major countries
have result
ed in increased poli tical and economic uncertainty and volati li ty in the global financial
markets and may continue to do so. Thi s is in part due to the unknown consequences for global
trade, t
he bro ader global economy and financial markets.
Furthermore, since the commencement of Don
ald Trump’s presidency, President Donald Trump
has outlined a political and economi c agenda for the United States that, in certain ways,
significantly differs from previous U.S. trade, tax, fiscal, regulatory and other poli cies. In
part
icular, President Donald Trump has pursued a pro tectionist trade policy which includes a series
of expansive tari ffs, up to and potentially including the enti rety of goods traded bet ween the
Unit
ed States and Chi na, which may result in adverse effects on the eco no my of China, one of
Australia’s major trading pa
rtners and a significant driver of commodity demand and prices in t he
markets in which the Group and i t s customers operate. Anything that adversely affects China’s
economic gro wth could adversely affect Australian economic act ivit y and, as a r esult, the Gro up’s
business, operations and financial condition.
Austral
ian political conditions have progressively shifted over recent years. Shorter tenures for
Prime Ministers appears to have become more entrenched, and the focus on the societal impacts
Principal risks and uncertainties faced by the Group (DTR 4.1.8 (2))
3

of the financial sector, and other business sectors as well, has sharpened. The banking tax and
Royal Commission have been initiated in this environment. The Royal Commission process itself
appears to have exacerbated this shift, suggesting a sustained period of focus on the financial
sector in Australia.
Politica
l and economic uncertainty has in the past led to declines in market liquidity and activity
levels, volatile market conditions, a contraction of available credit, lower or negative interest rates,
weaker economic growth and reduced business confidence, each of which could adversely affect
the Group’s business, operations and financial condition. These conditions may also adversely
affect the Group’s ability to raise medium or long-term funding in the international capital
markets.
Geopolitical instability, such as threats of, potential for, or actual conflict, occurring around the
world, such as the ongoing unrest and conflicts in Ukraine, North Korea, Syria, Egypt, Afghanistan,
Iraq, Nicaragua and elsewhere as well as the current high threat of terrorist activities, may also
adversely affect global financial markets, general business and economic conditions and the
Group’s ability to continue operating or trading in an affected country or region, which in turn may
adversely affect the Group’s business, operations and financial condition.
Should difficult economic conditions in the Group’s markets eventuate, asset values in the housing,
commercial or rural property markets could decline, unemployment could rise and corporate and
personal incomes could suffer. D eterioration in global markets, including equity, property, currency
and other asset markets, could impact the Group’s customers and the security the Group holds
against loans and other credit exposures, which may impact the Group’s ability to recover loans
and other credit exposures.
The Gr
oup’s financial performance could also be adversely affected if the Group were unable to
adapt 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 and funding costs) could
be incurred because of adverse changes in the economy, general business conditions or the
operating environment in the countries or regions in which the Group operates.
Other
current economic conditions impacting the Group and its customers include:
•changes in the commercial and residential real estate markets in Australia and New
Ze al
and (see risk factor 6 “Weakening of the real estate markets in Australia, New Zealand
or other markets where the Group does business may adversely affect the Group’s
business, operations and financial condition”); and
•the demand for natural resources given that sector is a significant contributor to Australia’s
economy and that sector’s significant exposure to Asia, particularly China and China’s
economic growth (see risk factor 7 “Credit risk may adversely affect the Group’s business,
operations and financial condition”).
Natural
and biological disasters such as, but not restricted to, cyclones (for example, Cyclone
Debbie in March 2017 and Cyclone Marcus in March 2018), floods, droughts, earthquakes and
pandemics, and the economic and financial market implications of such disasters domestically and
globally, may negatively affect general business and economic conditions in the countries or
regions in which the Group operates and in turn adversely affect the Group’s business, operations
and financial condition (see risk factor 16: "Impact of future climate change, geological events,
plant, animal and human diseases, and other extrinsic events may adversely affect the Group’s
business, operations and financial condition").
All or an
y of the negative political, business, environmental or economic conditions described
above could cause a reduction in demand for the Group’s products and services and/or an increase
in loan and other credit defaults and bad debts, which could adversely affect the Group’s business,
operations and financial condition.
3.Competition in the markets in which the Group operates may adversely affect the
Group’s business, operations and financial condition
The markets in which the Group operates are highly competitive and could become even more so.
Factors that contribute to competition risk include mergers and acquisitions, changes in customers’
needs, preferences and behaviours, entry of new participants, development of new distribution and
service methods and technologies, increased diversification of products by competitors and
changes in regulation such as the rules governing the operations of banks and non-bank
competitors.
4

For example:
•changes in the financial services sector in Australia and New Zealand have made it possible
for non-banks to offer products and services traditionally provided by banks, such as
payments, home loans, and credit cards. Digital technologies and business models are
changing customer behaviour and the competitive environment. Emerging competitors are
increasingly utilising new technologies 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 traditionally provided by banks, including by obtaining banking licenses and/or by
partnering with existing providers;
•banks organised in jurisdictions outside Australia and New Zealand are subject to different
levels of regulation and some of these banks may have lower cost structures that may
make them more competitive in the markets where the Group operates;
•consumers and businesses may choose to transact using, or to invest in, new forms of
currency (such as cryptocurrencies) in relation to which the Group may choose not to
provide financial services; and
•Open Banking (as defined below) may lead to increased competition (see risk factor 4
“Regulatory changes or a failure to comply with laws, regulations or policies may adversely
affect the Group’s business, operations, financial condition and reputation”).
Increasing competition for customers could also potentially lead to a compression in the Group’s
net interest margins or increased advertising and related expenses to attract and retain
customers.
The Group relies on deposits to fund a significant portion of its balance sheet. The Group competes
with banks and other financial services firms for such deposits. Increased competition for deposits
could increase the Group’s cost of funding. To the extent that the Group is not able to successfully
compete for deposits, the Group would be forced to rely more heavily on other, less stable or more
expensive forms of funding, or to reduce lending. This may adversely affect the Group’s business,
operations, or financial condition.
The im
pact on the Group of an increase in competitive market conditions or a technological change
that puts the Group’s business platforms at a competitive disadvantage, especially in the Group’s
main markets and products, would potentially lead to a material reduction in the Group’s market
share, customers and margins, which would adversely affect the Group’s business, operations and
financial condition.
4.Regulatory changes or a failure to comply with laws, regulations or policies may
adversely affect the Group’s business, operations, financial condition and reputation
The Gr
oup’s businesses and operations are highly regulated. The Group is therefore subject to a
substantial number of laws, regulations and policies in the numerous jurisdictions in which it
carries on business and obtains funding and is supervised by a number of different regulatory and
supervisory authorities. These jurisdictions include, without limitation, Australia, New Zealand, the
United States, Europe and countries in the Asia Pacific region.
In A
ustralia, these regulatory and supervisory authorities include, among others, the Australian
Prudential Regulation Authority (“APRA”), the Reserve Bank of Australia (“RBA”), the Australian
Securities and Investments Commission (“ASIC”), the Australian Securities Exchange (“ASX”), the
Australian Competition and Consumer Commission (“ACCC”), the Australian Transaction Reports
and Analysis Centre (“AUSTRAC”) the Australian Taxation Office (“ATO”) and the Office of the
Australian Information Commissioner(“OAIC”). In New Zealand, the Reserve Bank of New Zealand
(“RBNZ”) and the Financial Markets Authority (“FMA”) have supervisory oversight of the Group’s
New Zealand businesses. Prudential regulatory and supervisory authorities such as APRA and
RBNZ have extensive administrative, practical and investigative powers over the Group’s
businesses. The Group is also subject to regulation and supervision by a number of bodies outside
of Australia and New Zealand.
The r
egulation and supervision of financial services groups such as the Group is increasingly
extensive and complex in Australia and the other jurisdictions where the Group conducts business
and raises funds. This is particularly the case in the areas of consumer credit and consumer
protection (including in the design and distribution of financial products), conduct, funding,
liquidity, derivatives, capital adequacy, provisioning, competition, mortgage pricing, remuneration,
privacy, data protection, data access, prudential regulation, anti-bribery and corruption, anti-
5

money laundering and counter-terrorism financing, economic and trade sanctions and executive
accountability. The resources allocated to the regulation and supervision of financial services
groups, such as the Group has also increased in recent years.
Changes to laws, regulations and policies in Australia and the other jurisdictions where the Group
conducts business and raises funds may materially and adversely affect the Group’s business,
operations, financial condition and reputation. Such changes may impact the corporate structures,
businesses, strategies, capital, liquidity, funding and profitability and the cost structures of the
Group and the cost and access to credit for customers of the Group, and the wider economy.
Examples of recent changes to laws, regulations and policies, or developments that may lead to
future changes include, without limitation:
•Prudential Developments: Implementation of APRA’s revisions to the capital and liquidity
framework for Australian Authorised Deposit-taking Institutions (“ADI”), resulting from the
Basel Committee on Banking Supervision (“BCBS”) Basel 3 capital and liquidity reforms
and the recommendations of the Financial System Inquiry (“FSI”), will continue over the
coming years.
Consis
tent with the FSI’s recommendation that the capital ratios of ADIs should be
“unquestionably strong”, effective from July 2016, APRA increased the capital
requirements for Australian residential mortgage exposures for ADIs accredited to use the
Internal Ratings Based (“IRB”) approach to credit risk (including the Group).
Subsequently, on 19 July 2017, APRA released an information paper outlining APRA’s
conclusions with respect to the quantum and timing of capital increases that will be
required for ADIs to achieve “unquestionably strong” capital ratios. APRA indicated that, in
the case of the four major Australian banks (including the Group), it expects that the
increased capital requirements will translate into the need for an increase in Common
Equity Tier-1 (“CET1”) capital ratios, on average, of around 100 basis points above their
December 2016 levels. In broad terms, that equates to a benchmark CET1 capital ratio,
under the current capital adequacy framework, of at least 10.5 per cent. APRA also stated
that ADIs should, where necessary, initiate strategies to increase their capital strength to
be able to meet these capital benchmarks by 1 January 2020 at the latest.
In February 2018, APRA released two discussion papers that commenced APRA’s
consultation on:
-revisions to the capital framework that will produce “unquestionably strong” capital
ratios. The discussion paper summarises APRA’s proposal regarding risk-based
capital approach for credit, market and operational risk following finalisation of
these requirements by the BCBS in December 2017. While the final forms of these
proposals will only be determined later in 2020, the Group expects the
implementation of any revisions to the current requirements will result in further
changes to the risk weighting framework for certain asset classes and other risk
types (such as market and operational risks). APRA has announced that it does not
expect that the changes to the risk weights will necessitate further increases in
capital for ADIs, although this could vary by ADI depending on the final
requirements; and
-the design and application of a minimum leverage ratio requirement as a
complement to the risk-based capital framework proposal above. APRA has
proposed a minimum leverage ratio requirement of 4% (Basel minimum is 3%).
Further to the above, APRA released a discussion paper in August 2018 on adjustments to
the overall design of the capital framework to improve transparency, international
comparability and flexibility of the ADI capital framework. The focus of the proposals is on
the presentation of the capital ratios to facilitate comparability whilst recognising the
relative capital strength of ADI and measures to enhance supervisory flexibility in times of
financial stress. APRA’s consultation for the above is currently taking place with final
prudential standards planned to be made available by 2020. APRA has proposed an
implementation date of 2021, which is one year earlier than the BCBS’s equivalent, with no
phase-in arrangements
.
APRA’s prudential standards may also be further supplemented by yet to be released
proposals to implement other key FSI recommendations including to implement a
minimum total loss absorbing capacity requirement where certain senior debt could be
“bailed in” to recapitalise a stressed financial institution.
6

Given the number of items that are currently open for consultation with APRA, the final
outcome of the FSI including any further changes to APRA’s prudential standards or other
impacts on the Group remains uncertain. Further changes to APRA’s prudential standards
and the final outcome of the FSI could increase the level of regulatory capital that the
Group is required to maintain, restrict the Group’s flexibility, require it to incur substantial
costs and impact the profitability of one or more business lines, which could adversely
affect the Group’s business, operations, financial condition and reputation.
Implementation of the BCBS Basel 3 capital and liquidity reforms will continue over the
coming years. The BCBS has recently finalised its reform on the Basel 3 framework
focussing on reducing excessive variability in the calculation of risk weighted assets which
is now set for implementation from 2022. These reforms form the basis for APRA’s
proposals on revisions to capital framework as described above.
•Bank
ing Executive Accountability Regime (“BEAR”) : BEAR which became effective on 1
July 2018, is a strengthened responsibility and accountability framework for the most
senior and influential directors and executives in ADI groups. Potential risks to the Group
from the BEAR legislation include the risk of penalties and the risk to its ability to attract
and retain high-quality directors and senior executives.
•Treasury Laws Amendment (Design and Distribution Obligations and Product Intervention
Powers) Bill 2018: The Australian Government has proposed new legislation intended to
enhance the regulation of the design and distribution of financial products in Australia and
to provide ASIC with product intervention powers.
•The Financial Sector Legislation Amendment (Crisis Resolution Powers and Other
Measures) Act 2018 (“Crisis Management Act”) passed into law in March 2018. The
Crisis Management Act amended the Banking Act (among other statutes applicable to
financial institutions in Australia) to further enhance APRA’s powers to facilitate the orderly
resolution of the entities it regulates (and their subsidiaries) in times of distress. Additional
powers which could impact the Group, include greater oversight, management and
directions powers in relation to the Group entities which were previously not regulated by
APRA, increased statutory management powers over regulated entities within the Group
and changes which are designed to give statutory recognition to the conversion or write-off
of regulatory capital instruments.
•Anti-Mo
ney Laundering and Counter Terror Financing Compliance: Scrutiny of banks has
increased following the commencement by the AUSTRAC of civil penalty proceedings in
2017 against another major Australian bank relating to alleged past and ongoing
contraventions of the Anti-Money Laundering and Counter-Terrorism Financing Act
2006 (Commonwealth) (see risk factor 5 "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 business, operations, financial
condition and reputation").
•Bank L
evies: The Australian Government imposed a levy on liabilities for certain large
banks, including the Group, with effect from 1 July 2017 (“Major Bank Levy”). There is a
risk that the Australian Government could increase the Major Bank Levy or Australian
State and Territory Governments may introduce similar levies which could adversely affect
the Group’s business operations and financial condition.
•Respon
sible consumer lending: Regulatory policy development and monitoring of
responsible consumer lending has increased significantly in recent years, 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 reviews and changes could adversely affect the
Group’s business, reputation and financial condition.
•Parli
amentary Enquiries: There are several on-going Australian Government inquiries into
Australia’s four major banks. The inquiries could lead to legislative or regulatory changes
or other regulatory or other measures that may adversely affect the Group.
•Finan
cial System Inquiry Report: The final report of the FSI (released on 7 December
2014) concluded a comprehensive inquiry into Australia’s financial system, which was
established by the Australian Government in late 2013. The final report of the FSI included
7

a wide-ranging set of recommendations. In Australia, APRA is responsible for implementing
the final recommendations of the FSI that are aimed at strengthening the resilience of
Australia’s financial system including (among other things) setting capital standards to
ensure that capital ratios of Australian ADIs are “unquestionably strong”.
•Australian Consumer Law: The Australian Parliament passed amendments to the Australian
Consumer Law on 23 August 2018. Amongst other things, the amendments increased
penalties for breaches of consumer law from 1 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 and
information standards.
•Increased ASIC Funding: On 7 August 2018, the Australian Government announced it
would inject a further $70.1 million into the ASIC to ensure it has the resources and
powers needed to combat misconduct in the financial services industry and across all
corporations for the protection of Australian consumers.
•ASIC Enforcement Bill: On 26 September 2018, the Australian Treasury released the
Treasury Laws Amendment (ASIC Enforcement) Bill 2018, which proposes to strengthen
penalties for corporate and financial sector misconduct consistent with the ASIC
Enforcement Review Taskforce recommendations
•ASX Governance Principles and Recommendations: On 2 May 2018, the ASX published
their Corporate Governance Council consultation draft of a proposed fourth edition of
the Principles and Recommendations. The proposed amendments are extensive, and if
implemented, would have a significant change to corporate governance of listed entities.
Submissions to the ASX proposed changes have closed, however the debate on these
proposals will likely be ongoing throughout the remainder of 2018. The Council plans to
release the final version in early 2019, with the new Principles and
Recommendations coming in from 1 July 2019.
•Treasury Laws Amendment (Consumer Data Right) Bill 2018 (to implement “Open
Banking”); Open Banking is part of a new consumer data right in Australia and a key
recommendation of a Productivity Commission Inquiry into data availability and use that
provides consumers with access and control over their data on all products recommended
by the Open Banking Review. Under Open Banking, all major Australian banks (including
the Group) will need to make data available on various products including credit and debit
cards, deposit and transaction accounts by 1 July 2019 and mortgages by 1 February
2020. Data on all products recommended by the Open Banking Review will be available by
1 July 2020. On 15 August 2018, Treasury released draft legislation and explanatory
materials for consultation. The ACCC will be releasing a framework paper on the rules for
Open Banking in the second half of the 2018 calendar year. Open Banking may lead to
increased competition, which could adversely affect the Group’s business, operations and
financial condition.
•Offshore Developments: In addition to the BCBS reforms described above, there have
been a series of other regulatory releases from authorities in various jurisdictions outside
of Australia where the Group operates and raises funds that have proposed significant
regulatory changes for financial institutions. These changes include, among other things:
-proposals for changes to financial regulations in the United States (including
potential legislative changes to the Dodd-Frank Act and potential revision to its
Volcker Rule);
-changes to senior executive accountability in Singapore and Hong Kong;
-introduction of greater data protection regulations in Europe, including the General
Data Protection Regulations which came into effect on 25 May 2018;
-the Markets in Financial Instruments Directive 2 in the European Economic Area;
-amendments to the United Kingdom’s Criminal Finances Bill (which has
extraterritorial reach); and
-implementation of phases 4 and 5 of the initial margin requirements for uncleared
OTC derivatives in various jurisdictions.
In ad
dition, United Kingdom and European authorities may also propose significant
regulatory changes as a result of ‘Brexit’ that may impact the Group.
8

The Australian financial services industry is currently under heightened scrutiny and the Australian
Government, other regulators and parliamentary bodies are increasingly initiating reviews and
inquiries into the industry. For example:

• Royal Commission: The Royal Commission into Misconduct in the Banking, Superannuation
and Financial Services Industry was established on 14 December 2017. The Commission
has been asked to submit its final report by 1 February 2019 (an interim report was
released on 28 September 2018). The Commission is likely to result in additional costs and
may lead to further exposures, including exposures associated with further regulator
activity or potential customer exposures such as class actions, individual claims or
customer remediation or compensation activities. The outcomes and total costs associated
with these possible exposures remain uncertain.

• Productivity Commission: The Productivity Commission, an independent research and
advisory body to the Australian Government, has undertaken an inquiry into competition in
Australia’s financial system. The final report of the Productivity Commission was released
on 3 August 2018. The Australian Government's response to the final report may lead to
regulatory change, which could adversely affect the Group's business, operations and
financial condition.

• Mortgage Price Inquiry: On 9 May 2017, the Federal Treasurer directed the ACCC to
conduct an inquiry into prices charged or proposed to be charged by ADIs affected by the
Major Bank Levy in relation to residential mortgage products. An interim report was
published on 15 March 2018. On 21 June 2018, the Federal Treasurer announced, an
extension to the reporting period for the ACCC’s i nquiry and requested delivery of the final
report by no later than 19 November 2018.

• Foreign Exchange Inquiry: On 2 October 2018, the ACCC commenced an inquiry into
foreign currency conversion services. The ACCC will examine price competition amongst
suppliers of foreign currency conversion services and consider whether there are
impediments to effective competition. The ACCC is expected to provide its final report to
the Federal Treasurer in May 2019.

Any failure by the Group to comply with laws, regulations and policies in the jurisdictions in which
it operates and obtains funds may adversely affect the Group’s business, operations, financial
condition and reputation. This may include regulatory investigations, legal or regulatory sanctions,
financial or reputational loss, litigation, fines, penalties, restrictions on the Group’s ability to do
business, revocation, suspension or variation of conditions of relevant regulatory licenses or other
enforcement or administrative action or agreements (such as enforceable undertakings). Such
failures also may 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 28 “Litigation and contingent liabilities may adversely affect the Group’s business,
operations, financial condition and reputation” and Note 33 of consolidated financial statements for
the financial year ended 30 September 2018 as set out in the Group’s 2018 Annual Report (“2018
Financial Statements”).
5. 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 business, operations, financial condition and reputation

Anti-money laundering, counter-terrorist financing and sanctions compliance have been the
subject of significant regulatory change and enforcement in recent years. The increasingly
complicated environment in which the Group operates has heightened these operational and
compliance risks. Furthermore, the upward trend in compliance breaches by global banks and the
related fines and settlement sums mean that these risks continue to be an area of focus for the
Group. Following the AUSTRAC civil penalty proceedings in 2017 against a major Australian bank
relating to alleged past and ongoing contraventions of the AML Act, there may be increased
regulatory scrutiny of other Australian banks, including the Group, and significant changes to the
anti-money laundering regulatory framework. While the full scope of any changes, if any, is not
known, the Group may incur additional costs associated with regulatory compliance that may
adversely affect the Group’s business, operations, financial condition and reputation.

9

The risk of non-compliance with anti-money laundering, counter-terrorist financing and sanction
laws remains high given the scale and complexity of the Group. For example, emerging
technologies, such as cryptocurrencies, could limit the Group’s ability to track the movement of
funds. A failure to operate a robust programme to combat money laundering, bribery and terrorist
financing or to ensure compliance with economic sanctions could have serious financial, legal and
reputational consequences for the Group and its employees. Consequences can include fines,
criminal and civil penalties, civil claims, reputational harm and limitations on doing business in
certain jurisdictions. These consequences, individually or collectively may adversely affect the
Group’s business, operations, financial condition and reputation. The Group’s foreign operations
may place the Group under increased scrutiny by regulatory authorities, and subject the Group to
increased compliance costs.
6.Weakening of the real estate markets in Australia, New Zealand or other markets
where the Group does business may adversely affect the Group’s business,
operations and financial condition
Resid
ential and commercial property lending, together with real estate development and
investment property finance, constitute important businesses of the Group. Major sub-segments
within the Group's lending portfolio include:
•residential housing loans (owner occupier and investment); and
•commercial real estate loans.
Sinc
e 2009, the world’s major central banks have embarked upon unprecedented monetary policy
stimulus. The resulting weight of funds searching for yield continues to drive underlying property
markets in the Group’s core property jurisdictions (Australia, New Zealand, Singapore and Hong
Kong). Values for completed tenanted properties and residential house prices, particularly in metro
east coast Australian and New Zealand markets, have steadily risen until 2018 and began to fall in
the recent months.
Should
the Group’s regulators impose supervisory measures impacting the Group’s residential or
commercial lending, or if Australian home and commercial property price growth subsides or
valuations decline, the demand for the Group’s home and commercial property lending products
may decrease which may adversely affect the Group’s business, operations and financial condition.
Declining asset prices could impact customers and counterparties and the value of the security
(including residential and commercial property) the Group holds against loans which may impair
the Group’s ability to recover amounts owing to the Group if customers or counterparties were to
default. A significant decrease in Australian and New Zealand housing valuations triggered by, for
example, an event or a series of events in the local or global economy or lack of confidence in
market values, and in conjunction with higher cost of living, rising interest rates and/or rising
unemployment, could adversely impact the Group’s home lending activities. In the case of
residential loans, customers with high levels of leverage could show a higher propensity to default,
and in the event of such defaults the decrease in security values, could cause the Group to incur
higher credit losses, which could adversely affect the Group’s financial performance. The demand
for the Group’s home lending products may also decline due to buyer concerns about decreases in
values or concerns about rising interest rates, which could make the Group’s lending products less
attractive to potential homeowners and investors. A material decline in residential housing prices
could also cause losses in the Group’s residential development portfolio if customers who are pre-
committed to purchase these dwellings are unable or unwilling to complete their contracts and the
Group is forced to re-sell these dwellings at a loss.
The G
roup's portfolio of commercial property loans may be particularly susceptible to asset price
deflation, tenancy risk and delivery 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 where the Group does business could
result in a decrease in new lending opportunities or lower recovery rates which may in turn
materially and adversely impact the Group’s business, operations and financial condition.
7.Credit risk may adversely affect the Group’s business, operations and financial
condition
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 a counterparty
being unable or unwilling to honour its contractual obligations. Credit losses can and have resulted
in financial services organisations realising significant losses and in some cases failing altogether.
The Group is also subject to the risk that its rights against third parties may not be enforceable in
10

certain circumstances, which could result in credit losses. Should material credit losses occur to
the Group’s credit exposures, this may adversely affect the Group’s business, operations and
financial condition.
Less favourable business or economic conditions, whether generally or in a specific industry sector
or geographic region, or natural disasters, could cause customers or counterparties to fail to meet
their obligations in accordance with agreed terms.
For example, the Group’s customers and counterparties in or with exposure to:
•the Australian natural resources sector which is particularly exposed to any prolonged
slowdown in the Chinese economy could be materially and adversely impacted by a decline
in natural resource prices;
•former government owned and now privatised assets such as electricity distribution
networks, ports, road and rail networks could be materially and adversely impacted if
these assets were being valued at historically high levels due to the value of the capital
and profitability of these investments being vulnerable to changes in government
regulatory policy, interest rate and currency exchange rate movements. Long-term
interest rate and currency hedges are provided by banks, including the Group, to manage
these risks. These long-term hedge exposures have volatile mark to market characteristics
which are unsupported by collateralised security agreements for out of the money
positions. Counterparty insolvency has the potential to expose the Group to large
uncovered derivative liabilities; and
•the dairy industry in Australia and New Zealand, which is particularly exposed to excess
milk production from other developed countries being sold into traditional markets, could
be materially and adversely impacted by a decline in commodity prices.
Cred
it risk may also arise from certain derivative, clearing and settlement contracts the Group
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.
The ri
sk of credit-related losses may also be increased by a number of factors, including
deterioration in the financial condition of the economies in which the Group operates, a sustained
high level of unemployment in the markets in which the Group operates, 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
counterparties, a reduction in the value of assets the Group holds as collateral, and a reduction in
the market value of the counterparty instruments and obligations it holds.
In ad
dition, in assessing whether to extend credit or enter into other transactions with customers
and/or counterparties, the Group relies on information provided by or on behalf of 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 G
roup holds provisions for credit impairment. The amount of these provisions is determined by
assessing the extent of impairment inherent within the Group’s lending portfolio, based on current
information. This process, which is critical to the Group’s financial condition and results, requires
subjective and complex judgements, including forecasts of how current and future economic
conditions might impair the ability of borrowers to repay their loans. However, if the information
upon which the assessment is made proves to be inaccurate or if the Group fails to analyse the
information correctly, the provisions made for credit impairment may be insufficient, which could
adversely affect the Group’s business, operations and financial condition.
8.Challenges in managing the Group’s capital base could give rise to greater volatility
in capital ratios, which may adversely affect the Group’s business, operations and
financial condition
The G
roup’s capital base is critical to the management of its businesses and access to funding.
Prudential regulators of the Group include, but are not limited to, APRA, RBNZ and various
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, to maintain adequate regulatory capital.
Under c
urrent regulatory requirements, risk-weighted assets and expected loan losses increase as
a counterparty’s risk grade worsens. These regulatory capital requirements are likely to compound
11

the impact of any reduction in capital resulting from lower profits in times of stress. As a result,
greater volatility in capital ratios may arise and may require the Group to raise additional capital.
There can be no certainty that any additional capital required 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 the insurance and
funds management businesses 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 and (iv) changes in business strategy (including
acquisitions, divestments and investments or an increase in capital intensive businesses).

APRA has now implemented prudential standards to accommodate Basel 3. Certain other
regulators have either implemented or are in the process of implementing regulations, including
Basel 3, which 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 their intended effect. Some of these regulations, together
with any risks arising from any regulatory changes (including those arising from APRA’s response
to the remaining FSI recommendations, further changes from APRA’s “unquestionably strong”
requirements or the requirements of the BCBS), are described in risk factor 4 "Regulatory changes
or a failure to comply with laws, regulations or policies may adversely affect the Group’s business,
operations or financial condition and reputation".
9. The Group’s credit ratings could change and adversely affect the Group’s ability to
raise capital and wholesale funding and constrain the volume of new lending which
may adversely affect the Group’s business, operations, financial condition and
reputation

The Group’s credit ratings have a significant impact on both its access to, and cost of, capital and
wholesale funding. Credit ratings may be withdrawn, qualified, revised or suspended by credit
rating agencies at any time. Rating outlooks may also be revised 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 revised at any time in response to a change
in the credit rating of the Commonwealth of Australia or the occurrence of one or more of the
other risks identified in this document or any other reason.

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 by changes in the regulatory requirements for those
instruments as well as the ratings methodologies used by rating agencies.

Any future downgrade or potential downgrade to the Group’s credit ratings or rating outlooks may
reduce access to capital and wholesale debt markets, which could lead to an increase in funding
costs, constraining the volume of new lending and affect the willingness of counterparties to
transact with the Group, which may adversely affect the Group’s business, operations, financial
condition and reputation.

Credit ratings are not a recommendation by the relevant rating agency to invest in securities
offered by the Group.
10. Operational risk events may adversely affect the Group’s business, operations and
financial condition

Operational risk is the risk of loss and/or non-compliance with laws resulting from inadequate or
failed internal processes, people and systems or from external events. This definition includes legal
risk, and the risk of reputational loss or damage arising from inadequate or failed internal
processes, people, systems, management of data and data integrity, but excludes strategic risk.

Operational risk is typically classified into risk event type categories to measure and compare risks
on a consistent basis. Examples of operational risk events according to category are as follows:


12

•internal fraud: fraud involving employees, contractors or any internal party to the Group
who acts by deception or with dishonesty to obtain property belonging to another or obtain
financial advantage for themselves or cause any financial disadvantage to the Group or
others. This includes financial planners and/or authorised representatives (and their
employees) of dealer groups owned or controlled by ANZ;
•external fraud: fraudulent acts or attempts which originate from outside the Group more
commonly associated with digital banking, lending, and cards products. Specific threats
include ATM skimming, malware and phishing attacks and fraudulent applications and
transactions, where financial advantage is obtained;
•employment practices and workplace safety: employee relations, diversity and
discrimination, and health and safety risks to the Group’s employees;
•loss of key staff or inadequate management of human resources including the Chief
Executive Officer (“CEO”) and the management team of the CEO;
•clients, products and business practices: risk of market manipulation or anti-competitive
behaviour, failure to comply with disclosure obligations, product defects, incorrect advice,
money laundering and misuse or unauthorised disclosure of customer information;
•business disruption (including systems failures): risk that the Group’s banking operating
systems are disrupted or fail;
•damage to physical assets: risk that a natural disaster or terrorist or vandalism attack
damages the Group’s buildings or property; and
•execution, delivery and process management: is associated with losses resulting from,
among other things, process errors made by the Group’s employees caused by inadequate
or poorly designed internal processes, or the poor execution of standard processes,
vendor, supplier or outsource provider errors or failed mandatory reporting errors.
Loss from operational risk events could adversely affect the Group’s business, operations and
financial condition. Such losses can include fines, penalties, loss or theft of funds or assets, legal
costs, customer compensation, loss of shareholder value, reputation loss, loss of life or injury to
people, and loss of property and/or information.
11. Reputational risk events as well as operational failures and regulatory compliance
failures may give rise to reputational r isk which may adversely affect the Group’s
business, operations and financial condition
Repu
tational risk may arise as a result of an external event or the Group’s own actions, which
include operational and regulatory compliance failures, and 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 business, operations and financial
condition.
The G
roup 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 our 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.
Addit
ionally, certain operational and regulatory compliance failures may give rise to reputational
risk. Such operational and regulatory compliance failures include, but are not limited to:
•failures in customer on-boarding where customer identification obligations are not fulfilled;
•new failures related to new product development;
•failures related to ongoing product monitoring activities;
•failures related to ‘suitability’ requirements when products are sold outside of the target
market;
•market manipulation or anti-competitive behaviour;
•failure to comply with disclosure obligations;
•inappropriate crisis management/response to a crisis event;
•inappropriate handling of customer complaints;
•inappropriate third party arrangements;
•privacy breaches; and
•unexpected risks (e.g. credit, market, operational or compliance).
13

Damage to the Group’s reputation may have wide-ranging impacts, including adverse effects on
the Group’s profitability, capacity and cost of sourcing funding, increased regulatory scrutiny and
availability of new business opportunities. The Group’s ability to attract and retain customers could
also be adversely affected if the Group’s reputation is damaged, which could adversely affect the
Group’s business, operations and financial condition.
12. Conduct-related risk events or behaviours may adversely affect the Group’s
business, operations, financial condition and reputation
The Group defines conduct-related risk as the risk of loss or damage arising from the failure of 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 (for example, advice that is not
commensurate with a customer’s needs and objectives or appetite for risk);
•the representation of, or disclosure about, a product or service which is inaccurate, or does
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.
The G
roup is regulated under various legislative regimes in the countries in which it operates that
provide for customer protection in relation to advisory, marketing and sales practices. These may
include, but are not limited to, appropriate management of conflicts of interest, appropriate
accreditation standards for staff authorised to provide advice about financial products and services,
disclosure standards, standards for ensuring adequate assessment of client/product suitability,
quality assurance activities, adequate record keeping, and procedures for the management of
complaints and disputes.
There
has been an increasing regulatory and community focus on conduct-related risk globally.
For example, in Australia the Royal Commission has been established to inquire into misconduct by
financial services entities (see risk factor 4 “Regulatory changes or a failure to comply with laws,
regulations or policies may adversely affect the Group’s business, operations, financial condition
and reputation” and risk factor 28 “Litigation and contingent liabilities may adversely affect the
Group’s business, operations, financial condition and reputation”).
Conduct-related risk events may expose the Group to regulatory actions, restrictions or conditions
on banking licences and/or reputational consequences which could adversely affect the Group's
business, operations, financial condition and reputation.
13. 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 business, operations and financial condition
The Gr
oup and its service offerings (including digital banking) are highly dependent on information
technology systems. Therefore, there is a risk that these information technology systems, or the
services the Group uses or is dependent upon, might fail, due to hardware or software failure, as
well as unauthorised access or use.
Most of th
e Group’s daily operations are computer-based and information technology systems are
essential to maintaining effective communications with customers. The Group is also conscious
that threats to information technology systems are continuously evolving and that cyber threats
and risk of attacks are increasing. The Group may not be able to anticipate or implement effective
measures to prevent or minimise disruptions that may be caused by all cyber threats because the
techniques used can be highly sophisticated and those perpetuating the attacks may be well-
resourced. The exposure to systems risks includes the complete or partial failure of information
technology systems, or data centre infrastructure, the inadequacy of internal and third-party
information technology systems due to, among other things, failure to keep pace with industry
14

developments and the inability of the existing systems to effectively accommodate growth,
prevent unauthorised access and integrate existing and future acquisitions and alliances.

To manage these risks, the Group has disaster recovery and information technology governance in
place. However, there can be no guarantee that the steps the Group is taking in this regard will be
effective and any failure of these systems could result in business interruption, customer
dissatisfaction, legal or regulatory breaches and liability and ultimately loss of customers, financial
compensation, damage to reputation and/or a weakening of the Group’s competitive position,
which could affect the Group’s business, operations and financial condition.

In addition, the Group has an ongoing need to update and implement new information technology
systems, in part to assist the Group in satisfying regulatory demands, ensuring information
security, enhancing digital banking services for the Group’s customers and integrating the various
segments of the Group’s business. For example, the Group has recently implemented voice
biometrics for customer transactions on mobile devices, implemented the industry New Payments
Platform and working towards implementing the new Open Banking regime. The Group may not
implement these projects effectively or execute them efficiently, which could lead to increased
project costs, delays in the ability to comply with regulatory requirements, failure of the Group’s
information security controls or a decrease in the Group’s ability to service its customers. ANZ New
Zealand relies on the Group to provide a number of information technology systems, and any
failure of the Group’s systems could directly affect ANZ New Zealand.
14. Risks associated with information security including cyber-attacks, may adversely
affect the Group’s business, operations, financial condition and reputation

Information security means protecting information and information technology systems from
unauthorised access, use, disclosure, disruption, modification, perusal, inspection, recording or
destruction. As a bank, the Group handles a considerable amount of personal and confidential
information about its customers and its own internal operations, including in Australia, New
Zealand, India, the United States, Europe, Singapore and China.

The Group operates in multiple countries and the risks to its systems are inherently higher in
certain countries where, for example, political threats or targeted cyber-attacks by terrorist or
criminal organisations are greater.

The Group employs a team of information security experts who are responsible for the
development and implementation of the Group’s Information Security Policy. The Group also uses
third parties to process and manage information on its behalf, and any failure by such third parties
could adversely affect the Group’s business.

The Group is conscious that threats to information technology systems are continuously evolving
and that cyber threats, including but not limited to, cyber compromise, advanced persistent
threats, distributed denial of service, malware and ransomware attacks, and the risk of such
attacks are increasing, and as such the Group may be unable to develop policies and procedures to
adequately address or mitigate such risks. Accordingly, information about the Group and/or its
clients may be inadvertently accessed, inappropriately distributed or illegally accessed or stolen.

The Group may not be able to anticipate or to implement effective measures to prevent or
minimise damage that may be caused by all information security threats because the techniques
used can be highly sophisticated and those perpetuating the attacks may be well resourced. Any
unauthorised access of the Group’s information technology systems or unauthorised use of its
confidential information could potentially result in disruption of the Group’s operations, breaches of
privacy laws, regulatory sanctions, legal action, and claims for compensation or erosion to the
Group’s competitive market position, which could adversely affect the Group’s business,
operations, financial conditions and reputation.
15. Disruption to electricity markets and gas markets may adversely affect the Group’s
business, operations and financial condition

During 2016 and 2017, there have been various events in Australia that have affected retail,
commercial and industrial electricity and gas users. These events include the closure of the
Hazelwood coal power station in Victoria, black-outs in South Australia and export demand for
Queensland liquefied natural gas.


15

Some of these events resulted in higher electricity and gas prices, as well as disruption to
electricity and gas markets. The cost of sustained high prices may flow through to business and
consumers. The potential inability of businesses to pass through this cost increase to customers
may lead to credit risk associated with the Group’s customers. The impact of higher electricity cost
for consumers could lead to reduced consumption and indirectly impact the demand for goods and
services, contributing to lower business profitability. Higher electricity costs may also increase the
Consumer Price Index and influence upward adjustments to interest rate settings.

The Australian federal government and the South Australian state government have invested in
energy storage schemes to assist in minimising disruption. The Australian federal government has
also enacted legislation to preserve gas supply to local markets. Potential disruption to the energy
network may have a negative impact on the Group’s credit exposure to in the energy supply chain.
These effects may adversely affect the Group’s customers or the Group’s collateral position in
relation to credit facilities extended to such customers, which may adversely affect the Group’s
business, operations and financial condition.
16. Impact of future climate change, geological events, plant, animal and human
diseases, and other extrinsic events may adversely affect the Group’s business,
operations and financial condition

The Group and its customers are exposed to climate related events, including climate change.
These events include severe storms, drought, fires, cyclones, hurricanes, floods and rising sea
levels. The Group and 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.

Depending on their severity, events such as these may temporarily interrupt or restrict the
provision of some local 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 may
adversely affect the Group’s business, operations and financial condition.
17. Liquidity and funding risk events may adversely affect the Group’s financial
performance, liquidity, capital resources, business, operations and financial
condition

Liquidity 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) or that the Group has insufficient
capacity to fund increases in assets. Liquidity risk is inherent in all banking operations due to the
timing mismatch between cash inflows and cash outflows.

Reduced liquidity could lead to an increase in the cost of the Group’s borrowings and constrain the
volume of new lending, which could adversely affect the Group’s profitability. Deterioration in
investor confidence in the Group could materially impact the Group’s cost of borrowing, and the
Group’s ongoing operations and funding.

The Group raises funding from a variety of sources, including customer deposits and wholesale
funding in Australia and offshore markets to meet its funding obligations and to maintain or grow
its business generally. In times of liquidity stress, if there is damage to market confidence in the
Group or if funding inside or outside of Australia is not available or constrained, the Group’s ability
to access sources of funding and liquidity may be constrained and it will be exposed to liquidity
risk. In any such cases, the Group may be forced to seek alternative funding. The availability of
such alternative funding, and the terms on which it may be available, will depend on a variety of
factors, including prevailing market conditions and the Group’s credit ratings (which are strongly
influenced by Australia’s sovereign credit rating). Even if available, the cost of these funding
alternatives may be more expensive or on unfavourable terms, which could adversely affect the
Group’s financial performance, liquidity, capital resources, business, operations and financial
condition.
Since the advent of the global financial crisis in 2007, developments in major markets (including
the United States, Europe and China) have adversely affected the liquidity in global capital
markets and increased funding costs, for significant periods, compared with the period
immediately preceding the global financial crisis.


16

More recently, the provision of significant amounts of liquidity by major central banks globally has
helped mitigate near term liquidity concerns, although no assurance can be given that such
liquidity concerns will not return, particularly when this liquidity is incrementally withdrawn by
central banks. The manner in which this process unfolds over the coming years will be a major
determinant of market conditions and a deterioration in market conditions may limit the Group’s
ability to replace maturing liabilities and access funding in a timely and cost-effective manner
necessary to fund and grow the Group’s businesses.
18. Changes in monetary policies may adversely affect the Group’s business, operations
and financial condition

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 in which the Group
operates) set official interest rates or take other measures to affect the demand for money and
credit in their relevant jurisdictions. For instance, the U.S. Federal Reserve increased interest rates
in December 2016, March, June and December 2017, and March, June and September 2018,
though the Australian Reserve Bank lowered interest rates in May 2016 and August 2016 and has
since kept the interest rates on hold. In addition in some jurisdictions, currency policy is also used
to influence general business conditions and the demand for money and credit. These measures
and policies can significantly affect the 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 can affect 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. Changes in interest rates and monetary policy are difficult to predict and may adversely
affect the Group’s business, operations and financial condition.
19. Acquisitions and/or divestments may adversely affect the Group’s business,
operations and financial condition

The Group regularly examines a range of corporate opportunities, including acquisitions and
divestments, with a view to determining whether those opportunities will enhance the Group’s
strategic position and financial performance.

Divestments that the Group has announced from 30 September 2017 to the date of this Principal
Risk and Uncertainties document include:
• OnePath Pensions and Investments (“P&I”) and aligned dealer group businesses (“ADGs”)
in Australia;
• ANZ’s interest in Metrobank Card Corporation;
• One Path life insurance business in Australia;
• One Path life insurance business in New Zealand;
• ANZ’s 55% interest in Cambodian joint venture ANZ Royal Bank; and
• ANZ’s retail, commercial, small-medium sized enterprise banking businesses in Papua New
Guinea.

In relation to sale of P&I and ADGs to IOOF, on 1 October 2018 ANZ completed the divestment of
ADGs to IOOF and entered into a debt note to transfer a partial economic interest in the expected
economics of its P&I business to IOOF from 2 October 2018. Legal completion of the P&I business
is expected to occur during the 2019 calendar year.

The transactions above remain subject to regulatory approvals and other completion conditions.

During the fiscal year ended 30 September 2018:
• the Group completed the divestment of its interest in Metrobank Card Corporation;
• the Group completed the divestment of a 20% interest in Shanghai Rural Commercial
Bank;
• the Group finalised the sale of its retail and wealth businesses in Indonesia, Taiwan and
Vietnam (in addition to China, Singapore and Hong Kong which completed during the
preceding financial year); and
• the Group announced in March 2018 it was exploring a range of options for UDC Finance's
future, including a possible initial public offering (IPO) of ordinary shares. The Group
advised on 31 October 2018 that it will not be pursuing an IPO following the completion of
a strategic review of this business. It may still consider a sale in the future, and has
decided to put on hold sale discussions and focus on continuing to grow the business.
17

There can be no assurance that any acquisition (or divestment) would have the anticipated
positive results, including results relating to the total cost of integration (or separation), the time
required to complete the integration (or separation), the amount of longer-term cost savings, the
overall performance of the combined (or remaining) entity, or an improved price for the Group’s
securities. Additionally, there are risks relating to the completion of any particular transaction
occurring, including counterparty and settlement risk, or the non-satisfaction of any completion
conditions (for example, relevant regulatory or third party approvals). The Group’s operating
performance, risk profile and capital structure may be affected by these corporate opportunities
and there is a risk that the Group’s credit ratings may be placed on credit watch or downgraded if
these opportunities are pursued.

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. This could adversely affect the Group’s ability to
conduct its business successfully and impact the Group’s operations or results. Additionally, there
can be no assurance that employees, customers, counterparties, suppliers and other business
partners of newly acquired (or retained) businesses will remain post-acquisition (or post-
divestment), and the loss of employees, customers, counterparties, suppliers and other business
partners could adversely affect the Group’s operations or results. Further, there is a risk that
completion of an agreed transaction may not occur, including due to failure of the counterparty to
satisfy its completion conditions or because other completion conditions such as obtaining relevant
regulatory approvals are not satisfied.
20. Sovereign risk events may destabilise global financial markets and may adversely
affect the Group’s liquidity, business, operations and financial condition

Sovereign risk is the risk that foreign 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
and Australia. 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.
Such events could destabilise global financial markets and adversely affect the Group’s liquidity,
business, operations and financial condition.
21. Market risk events may adversely affect the Group’s business, operations and
financial condition

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 and non-traded market risks.
Traded market risks principally arise from the Group’s trading operations in interest rates, foreign
exchange, commodities and securities. The non-traded market risk is predominantly interest rate
risk in the banking book. Other non-traded markets risks include transactional and structural
foreign exchange risk arising from capital investments in offshore operations and non-traded
equity risk.
22. Changes in exchange rates may adversely affect the Group’s business, operations
and financial condition

As the Group conducts business in several different currencies, its businesses may be affected by a
change in currency exchange rates. Additionally, as the Group’s annual and interim reports are
prepared and stated in Australian dollars, any appreciation in the Australian dollar against other
currencies in which the Group earns revenues (particularly to the New Zealand dollar and U.S.
dollar) may adversely affect the Group’s reported earnings.

The Group has put in place hedges to partially mitigate the impact of currency changes, but there
can be no assurance that the Group’s hedges will be sufficient or effective, and any further
appreciation could have an adverse impact upon the Group’s earnings.

18

23. Unexpected changes to the Group’s license to operate in any jurisdiction may
adversely affect the Group’s business, operations and financial condition

The Group is licensed to operate in various countries, states and territories. Unexpected changes
in the conditions of the licenses to operate by governments, administrations or regulatory agencies
which prohibit or restrict the Group from trading in a manner that was previously permitted may
adversely impact the Group’s business, operations and financial condition.
24. Insurance risk events may adversely affect the Group’s business, operations and
financial condition

Insurance risk is the risk of loss due to unexpected changes in current and future insurance claim
rates. The Group is exposed to insurance risk events, predominantly in the Group’s life insurance
business in Australia which is a Discontinued Operation, the sale of which is expected in early
financial year 2019. In the Group’s life insurance business, insurance risk arises primarily through
mortality (death) and morbidity (illness and injury) risks being greater than expected and, in the
case of annuity business, should annuitants live longer than expected. If the Group incurs losses
due to insurance risk events, such losses may adversely affect the Group’s business, operations
and financial condition.
25. Increasing compliance costs, the risk of heightened penalties and ongoing regulatory
scrutiny with respect to the significant obligations imposed by global tax reporting
regimes (which are still evolving), may adversely affect the Group’s business,
operations, financial condition and reputation

There have been important and substantial changes to, and increasing regulatory focus on,
compliance by all global financial institutions, including the Group, with global tax reporting
regimes, including the United States Foreign Account Tax Compliance Act (“FATCA”), the OECD’s
Common Reporting Standard (“CRS”) and similar anti-tax avoidance regimes. Current regulatory
focus also includes enforcement and the due implementation of detailed global tax reporting rules
and frameworks to close down the circumvention of global tax reporting regimes and enforcement
in the case of non-compliance.

As a global financial institution, the Group operates in a high volume and globally interlinked
operating environment. The highly complex and rigid nature of the obligations under the various
global tax reporting regimes in this context present heightened operational and compliance risks
for the Group. This may be coupled with the current increased regulatory scrutiny of global
financial institutions (including the Group) and the increasing trend in compliance breaches by
global financial institutions and related fines for non-compliance in general. Accordingly,
compliance with global tax reporting regimes will continue to be a key area of focus for the Group.

The scale and complexity of the Group, like other global financial institutions, 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 and
reputational consequences for the Group and its employees. Consequences include fines, criminal
and civil penalties, civil claims, reputational harm, competitive disadvantage, loss of business and
constraints on doing business. These consequences, individually or collectively, could adversely
affect the Group’s business, operations, financial condition and reputation.

FATCA requires financial institutions globally to undertake ongoing and extensive customer based
obligations, including collecting and providing information on account holders who are identified as
U.S. citizens or tax residents to the U.S. Internal Revenue Service (“IRS”), either directly or via
local tax authorities.

If the ongoing detailed obligations under FATCA are not adequately met, the Group and/or
customers could be subject to a 30 percent withholding tax on certain amounts payable to them.
Under a related but separate set of obligations under FATCA, the US could also require the Group
to provide certain information to upstream US payers and the Group could face adverse
consequences where it does not do so in line with the applicable rules and regulations.

The Group is also reliant upon Intergovernmental Agreements (“IGAs”) between the U.S. and the
applicable jurisdictions in which the Group’s related entities and subsidiaries are organized
continuing to be in effect. Otherwise the Group may also be subject to broader compliance issues,
significant withholding exposure, competitive disadvantage and other operational impacts.


19

The CRS provides for the Automatic Exchange of (financial account) Information in tax matters.
Over 100 jurisdictions have committed to implement the CRS which now impacts the vast majority
of the Group’s business globally. Early implementation phases are progressing in many countries in
which the Group has operations, for example, Australia, New Zealand, Cayman Islands, Hong
Kong, Japan, Singapore and the United Kingdom.

Implementation is also required, but presents unique challenges in, developing countries where
the Group has operations, such as in the Pacific region. The local regulators in these countries are
generally assisted by a ‘partner’ country which may introduce standards which can be challenging
to implement.

CRS requirements, though similar to FATCA in spirit, have considerable country by country
variations and may have more significant and negative customer experience ramifications. For
example, CRS requires a higher standard of compliance in many respects, such as collection of
self-certification at the point of account opening, with significant penalties for non-collection or
failed reporting in respect of prescribed customer information.

As one example of tightening regulatory focus, the OECD and certain countries the Group operates
within are now moving to mandate blocking (and eventual closure) of accounts where any aspect
of the detailed requirements for collection have not been met (e.g. failure to provide the requisite
tax identification number(s)). Along with being a significant negative experience for the relevant
customers, this could adversely effect on the Group’s business, operations, financial condition and
reputation (and if not similarly implemented by financial institution counterparts, significant
competitive disadvantage).

Ongoing OECD peer review and other regulatory review activities are also already resulting in
further extension and expansion of existing obligations together with increased focus on
compliance with the CRS pushing each country of adoption to ensure that its penalty regime is
sufficiently adequate to deter financial institution, intermediary and customer non-compliance.

In line with other global financial institutions, the Group has made, and is expected to continue to
make, significant investments in order to ensure ongoing compliance with the extensive and
evolving requirements of FATCA, the CRS, avoidance and loophole model rules and the various
other in-country tax reporting initiatives in each country within its global network.
26. Changes in the valuation of some of the Group’s assets and liabilities may have a
material adverse effect on the Group’s earnings and/or equity

The Group applies accounting standards which require that various financial instruments, including
derivative instruments, assets and liabilities classified as held for sale (where fair value is lower
than the carrying values) and certain other assets and liabilities (as per Note 17 of the 2018
Financial Statements) are recognised at fair 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 on quoted
market prices or, where the market for a financial instrument is not sufficiently active, fair values
are based on present value estimates or other accepted valuation techniques which incorporate
the impact of factors that would influence the fair value as determined by a market participant.
The fair value of these instruments is impacted by changes in market prices or valuation inputs
which could 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 which are recognised in earnings. The Group is required to assess the
recoverability of goodwill balances at least annually and other non-financial assets including
premises and equipment, investment in associates, capitalised software and other intangible
assets (including acquired portfolio of insurance and investment business and deferred acquisition
costs) where there are indicators of impairment.

For the purpose of assessing the recoverability of the goodwill balances, the Group uses either a
discounted cash flow or a multiple of earnings calculation. Changes in the assumptions upon which
the calculation is based, together with expected changes in future cash flows, could materially
impact this assessment, resulting in the potential write-off of a part or all of the goodwill balances.

In respect of other non-financial assets, in the event that an asset is no longer in use, or that the
cash flows generated by the asset do not support the carrying value, impairment may be recorded.
20

27. Changes to accounting policies may adversely affect the Group’s financial position
and results of operations

The accounting policies that the Group applies are fundamental to how it records and reports 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 and results of operations. In addition, the application of new or revised
accounting standards or interpretations could adversely affect the Group’s financial position and
results of operations. The impact of new accounting standards effective for the Group’s 2019
financial year is outlined in Note 1 of the 2018 Financial Statements.

In some cases, management must select an accounting policy from two or more alternatives, any
of which might comply with the relevant accounting standard or interpretation to the Group and be
reasonable under the circumstances, yet might result in reporting materially different outcomes
than would have been reported under the alternative.
28. Litigation and contingent liabilities may adversely affect the Group’s business,
operations, financial condition and reputation

From time to time, the Group may be subject to material litigation, regulatory actions, legal or
arbitration proceedings and other contingent liabilities which may adversely affect the Group’s
business, operations and financial condition.

The Group had contingent liabilities as at September 30, 2018 in respect of the matters outlined in
Note 33 of the 2018 Financial Statements.

Note 33 includes, among other things, descriptions of:
 bank fees litigation;
 benchmark/rate actions;
 capital raising actions;
 franchisee litigation;
 regulatory and customer exposures;
 the Royal Commission into Misconduct in the Banking, Superannuation and Financial
Services Industry; 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 been significant increases in the nature and scale of regulatory
investigations and reviews, enforcement actions (whether by court action or otherwise) and the
quantum of fines issued by regulators, particularly against financial institutions both in Australia
and globally. The Group also instigates engagement with its regulators. The nature of these
interactions can be wide ranging and, for example, currently include a range of matters including
responsible lending practices, product suitability, wealth advice, pricing and competition, conduct
in financial markets and capital market transactions and product disclosure documentation . The
Group has received various notices and requests for information from its regulators as part of both
industry-wide and Group-specific reviews and has also made disclosures to its regulators at its own
instigation. 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.
21

Responsibility statement of the Directors of ANZBGL in accordance with Rule
4.1.12 (3)(b) of the Disclosure and Transparency Rules of the United Kingdom
Financial Conduct Authority
The Directors of Australia and New Zealand Banking Group Limited confirm to the best of
their knowledge that:
ANZ’s 2018 Annual Financial Report (as defined on page 1 of this DTR Annual Financial
Report submission) includes:
(i)a fair review of the development and performance of the business and the
position of the Group and the undertakings included in the consolidation taken as
a whole; together with
(i
i)a description of the principal risks and uncertainties faced by the Group.
Signed in accordance with a resolution of the Directors.
David M Gonski, AC Shayne C Elliott
Chairman Director
30 October 2018
22