UK DTR Submission

5 May 2021
Market Announcements Office
ASX Limited
Level 4
20 Bridge Street
SYDNEY NSW 2000
Australia and New Zealand Banking Group Limited (ABN 11 005 357 522)
(“ANZBGL”) - Half-Yearly Financial Report submission under the Disclosure 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 ANZ’s 2021 Half Year Results for the six-month
period ended 31 March 2021. 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 applicable
exchanges, including the Australian Securities Exchange and the New Zealand Stock
Exchange today.
Yours faithfully
Simon Pordage
Company Secretary
Australia and New Zealand Banking Group Limited
Corporate Governance
ANZ Centre Melbourne, Level 9, 833 Collins Street, Docklands Vic 3008
GPO Box 254, MELBOURNE VIC 3001 AUSTRALIA
www.anz.com
Approved for distribution by ANZ’s Board of Directors
Australia and New Zealand Banking Group Limited
9/833 Collins Street Docklands Victoria 3008 Australia
ABN 11 005 357 522

Page 1 of 33

5 May 2021

DISCLOSURE AND TRANSPARENCY RULES – HALF-YEARLY FINANCIAL REPORT
SUBMISSION
Australia and New Zealand Banking Group Limited (ABN 11 005 357 522)
(“ANZBGL” or “ANZ”) together with its subsidiaries (the “Group”) – Half-Yearly
Financial Report submission under the Disclosure and Transparency Rules
(“DTR”) of the United Kingdom Financial Conduct Authority

The following attached documents constitute ANZ’s 2021 Half-Yearly Financial Report for
the purposes of the disclosure requirements of DTR 4.2:
• The Condensed Consolidated Financial Statements and Notes to Condensed
Consolidated Financial Statements for the half year ended 31 March 2021, Directors’
Report (including matters included by reference) and Directors’ Declaration (as set out
on pages 76 to 118 of ANZ’s Half Year 31 March 2021 Consolidated Financial Report,
Dividend Announcement and Appendix 4D);

• A description of the principal risks and uncertainties for the remaining six months of
the financial year provided in accordance with DTR 4.2.7 R (2); and

• A responsibility statement of the Directors of ANZBGL provided in accordance with DTR
4.2.10 R (3)(b).

Page 2 of 33

ANZ’s Half Year 31 March 2021 Consolidated Financial Report, Dividend
Announcement and Appendix 4D
This document was separately lodged by ANZBGL with the applicable stock exchanges,
including the London Stock Exchange and the Australian Securities Exchange on 5 May
2021.

Page 3 of 33

Principal risks and uncertainties faced by the Group for the remaining six
months of the financial year (DTR 4.2.7 R (2)) (“Principal Risks and
Uncertainties”)


Introduction

The Group’s activities are subject to risks, including risks arising from the coronavirus
pandemic (COVID-19), that can adversely impact its business, operations, results of
operations, reputation, prospects, liquidity, capital resources, financial performance and
financial condition (together, the “Group’s Position”).

The risks and uncertainties described below are not the only ones that the Group may face.
Additional risks and uncertainties that the Group is unaware of, or that the Group currently
deems to be immaterial, may also become important factors that affect it.

If any of the specified or unspecified risks actually occur, the Group’s Position may be
materially and adversely affected, with the result that the trading price of the Group's
equity or debt securities could decline, and investors could lose all or part of their
investment.

Risks related to the Issuer's business activities and industry

1. The COVID-19 pandemic has, and future outbreaks of other communicable
diseases or pandemics may, materially and adversely affect the Group’s Position

The outbreak of the novel strain of coronavirus in late 2019, specifically identified as SARS-
CoV-2, with the disease referred to as “COVID-19”, has resulted in governments worldwide
enacting emergency measures to combat the spread of the virus. Governments including
those in Australia and New Zealand, have imposed wide ranging restrictions on, suspensions
of, or advice against, regional and international travel, events, and meetings and many
other normal activities and undertaken substantial and costly monetary and fiscal
interventions designed to stabilise sovereign nations and financial markets. While certain
restrictions have been lifted or modified, governments may in the foreseeable future
reintroduce prior restrictions or implement and introduce further measures to contain the
pandemic. Further, although globally and domestically COVID-19 vaccines have been
deployed, there are uncertainties associated with the long-term effectiveness and the
success of nation-wide vaccination programmes. Consequently, the full extent of the
duration and severity of the impact of the COVID-19 pandemic, as well as the effectiveness
of the government and central bank response to the pandemic, remain subject to significant
uncertainties.

Major disruptions to community health and economic activity continue to have wide ranging
negative effects across most business sectors in Australia, New Zealand and globally, which
in turn has impacted demand for the Group’s products and services and resulted in a
deterioration of the quality of the Group’s credit portfolio. Additionally, many of the Group’s
borrowers have been and continue to be negatively impacted by the COVID-19 pandemic
and the Group is exposed to an increased risk of credit loss from borrowers, particularly in
the following sectors: transportation (including airlines, shipping, road and rail); ports,
tourism and travel (including accommodation, food and beverage); healthcare; agriculture;
entertainment; education; retail (including e-commerce due to a reduction in logistics
activity); property (particularly shopping malls, office buildings and hotels); construction
and contractors. See Notes 1 and 15 of the condensed consolidated financial statements for
the half year ended 31 March 2021 as set out in the Group’s Half Year 31 March 2021
Consolidated Financial Report, Dividend Announcement and Appendix 4D (“2021 Interim
Financial Statements”).

In response to the COVID-19 pandemic, the Group established a range of accommodations
and measures, such as loan payment deferral, designed to assist its personal and business
customers but there can be no assurance that these accommodations and measures will be
sufficient to prevent or mitigate further hardship, or ensure the delivery of the Group’s

Page 4 of 33

products and services, and there is a risk that the Group’s Position may be materially and
adversely affected. These accommodations and measures, and any future accommodations
and measures while supporting the Group’s customers, may in turn have a negative impact
on the Group’s Position, may negatively impact the Group’s net interest margin, and may
result in the Group assuming a greater level of risk than it would have under ordinary
circumstances and the Group’s Position may be materially and adversely affected as a
result.

Significant requests for assistance from retail and small business customers have been
received by the Group’s customer service team. These requests may grow if there are
further outbreaks and the Group is continuing to address additional resourcing and process
changes to enable it to support its customers. It remains uncertain, at this stage, what
percentage of its lending portfolio will be impacted. Whilst there have been signs of
improvement, in the longer term, asset values may start to deteriorate if a large quantity of
retail and business customers liquidate their investments, which may also be exacerbated
by the cessation of government assistance, either during, or immediately after, the crisis or
due to a decrease in demand for these assets. In both scenarios loan-to-value ratios are
expected to be impacted.

Substantially reduced global economic activity has caused substantial volatility in the
financial markets and such volatility may continue. A deterioration of public finances of
sovereigns in response to COVID-19 may lead to further increased volatility and widening
credit spreads. COVID-19 has also affected, and can be expected to continue to impact, the
Group’s ability to continue its operations without interruption or delays due to closure of and
restricted access to premises, contagion management and travel restrictions. Any related
illness or quarantine of the Group’s employees or contractors or suspension of the Group’s
business operations at its branches, stores or offices could affect the Group’s Position.

The COVID-19 pandemic has also increased geopolitical risk. Continuing tensions between
countries and policy uncertainty could result in further downturns to the domestic and
global economies, which in turn could have a material adverse impact on the Group’s
financial condition or its ability to execute its strategic initiatives.


The ongoing ramifications of COVID-19 remain highly uncertain and, as of the date of this
document, it is difficult to predict the further spread or duration of the pandemic, including
whether there will be further outbreaks and whether and to what extent vaccines or other
medical treatments will be effective in curtailing the effects of COVID-19. All or any of the
negative conditions related to the COVID-19 pandemic described above may cause a further
reduction in demand for the Group’s products and services and/or an increase in loan and
other credit defaults, bad debts, and impairments and/or an increase in the cost of the
Group’s operations. Should these occur, it is likely that they will result in a material adverse
effect on the Group’s Position.

Actions taken by regulators in response to the COVID-19 pandemic have impacted, and may
continue to impact, the Group. As an example, regulators in some overseas jurisdictions
have exercised their powers to prevent banks from declaring dividends or undertaking share
buy- backs.


To the extent the COVID-19 pandemic continues to adversely affect the Group’s Position, it
may also have the effect of heightening many of the other risks described in these Principal
Risks and Uncertainties.

2. Changes in political and general business and economic conditions, including
disruption in regional or global credit and capital markets, may adversely affect
the Group’s Position

The Group’s financial performance is primarily influenced by the political and economic
conditions and the level of business activity in the major countries and regions in which the
Group or its customers or counterparties operate, trade or raise funding including, without
limitation, Australia, New Zealand, the Asia Pacific, the United Kingdom, Europe and the
United States (the “Relevant Jurisdictions”).

Page 5 of 33


The political, economic and business conditions that prevail in the Group’s operating and
trading markets are affected by, among other things, domestic and international economic
events, developments in global financial markets, political perspectives, opinions and
related events and natural disasters.

The COVID-19 pandemic has had, and is expected to continue to have, a significant impact
on the global economy and global markets, as well as on Australia and New Zealand. The
imposition of travel restrictions, border controls, social distancing, quarantine protocols and
other containment measures contributed, and may continue to contribute to a continuing
slowdown in economic conditions across the world and suppress demand for commodities,
interrupt the supply chain for many industries globally, dampen consumer confidence and
suppress business earnings and growth prospects, all of which could contribute to ongoing
volatility in global financial markets. See risk factor 1. “The COVID-19 pandemic has, and
future outbreaks of other communicable diseases or pandemics may, materially and
adversely affect the Group’s Position”.

A deep global recession has occurred and is continuing. Many countries have experienced
large declines in GDP as they restrict activities to manage the spread of the virus, with
sharp increases in unemployment rates. These declines in GDP could be exacerbated by
further outbreaks of the virus. Governments have responded and continue to respond with
fiscal stimulus packages/measures as well as traditional and unconventional monetary
easing and regulatory forbearance that is designed to offset at least some of the worst
effects of the pandemic. While, such stimulus measures did not prevent the decrease in
economic activity stemming from the widespread restrictions aimed at stalling the spread of
the virus, they are seemingly contributing to economic recovery as restrictions are eased. In
some jurisdictions, such as Australia and New Zealand, stimulus measures have been
reduced more recently, though generally this is occurring where the post-pandemic
recovery is well advanced.

The impact of this shock on credit losses and asset values continues to be very uncertain.
Many of the policies that have been put in place are designed to ‘hibernate’ parts of the
economy, at different times, so that activity can resume when the pandemic subsides. Even
as some economies recover, however, there is considerable uncertainty about the length of
these periods of hibernation, the most appropriate economic structure once the crisis has
passed and the overall impact on confidence to invest in the future. While the future impact
of the economic disruption caused by COVID-19, and the governmental responses to it,
remain uncertain, the Group may be materially adversely affected by a protracted downturn
in economic conditions globally and, in particular, in Australia and New Zealand.

Even before COVID-19, the impact of the global financial crisis in 2007 and its aftermath
continued to affect regional and global economic activity, confidence and capital markets.
Prudential authorities implemented increased regulations in an attempt to mitigate the risk
of such events recurring, although there can be no assurance that such regulations will be
effective. The Group believes that the global financial crisis has also had a lasting effect on
consumer and business behaviour in advanced economies, including the major countries
and regions in which the Group or its customers or counterparties operate. Consumers in
recent years have reduced their savings rates in the face of weak income growth, while
businesses have been reluctant to invest and inflation has remained low. The escalation in
geopolitical risks has also contributed to vulnerability in consumer and business behaviour.
Monetary authorities responded to the global financial crisis by introducing close to zero or
below zero interest rates across most countries, and the major central banks took
unconventional steps to support growth and raise inflation.

Global political conditions that impact the global economy have led to, and may continue to
result in extended periods of increased political and economic uncertainty and volatility in
the global financial markets, which could adversely affect the Group’s Position. Recent
examples of events that have affected (and may continue to affect) global political
conditions include the United Kingdom ceasing to be a member of the EU and the EEA on 31
January, 2020 (commonly referred to as “Brexit”), and global trade developments relating
to, among other things, the imposition or threatened imposition of trade tariffs and levies

Page 6 of 33

by major countries, including the United States, China and other countries that are
Australia’s significant trading partners and allies.

The transitional period relating to the United Kingdom’s withdrawal ended on 31 December
2020. Since 1 January 2021, aspects of the relationship between the United Kingdom and
the EU have been governed by the EU-UK Trade and Cooperation Agreement (the “TCA”),
but the TCA is in effect only on a provisional basis; and it is not certain that it will
permanently regulate the relationship between the United Kingdom and the EU. Further, the
scope of the TCA is limited, for example, it does not establish arrangements for the
provision of financial services between the EU and the United Kingdom. Consequently,
uncertainties remain relating to certain aspects of the United Kingdom’s future economic,
trading and legal relationships with the EU and with other countries. The actual or potential
consequences of Brexit, and the associated uncertainty, could adversely affect economic
and market conditions in the United Kingdom, in the EU and its member states and
elsewhere, and could contribute to instability in global financial markets. In anticipation of
Brexit, the Group made changes to the structure of its business operations in Europe.
However, in light of the continuing uncertainties arising from Brexit, including as noted
here, there can be no assurance that those changes will be sufficient to address the
financial, trade and legal implications of Brexit; and the Group is subject to the risk that
additional changes may be required to address further issues that arise as Brexit continues
to develop.

Trade, and broader geopolitical, relationships between the United States and some of its
trading partners, such as China, remain volatile. The implementation of further protectionist
policies by Australia’s key trading partners and allies may adversely impact the demand for
Australian exports and may lead to declines in global economic growth. In particular, China
is one of Australia’s major trading partners and a significant driver of commodity demand
and prices in many of the markets in which the Group and its customers operate. Any
heightening of geopolitical tensions and the occurrence of events that adversely affect
China’s economic growth and Australia’s economic relationship with China, including the
implementation of additional tariffs and other protectionist trade policy, could have
adversely affect Australian economic activity, and, as a result, could adversely affect the
Group’s Position.

Politics in the U.S. has also become more polarised in recent years, and continue to be a
potential source of additional instability. Such global political conditions have contributed to
economic uncertainty and volatility in the global financial markets and have negatively
impacted and could continue to negatively impact consumer and business activity within the
markets in which the Group or its customers or counterparties operate, or result in the
introduction of new and/or divergent regulatory frameworks that the Group will need to
adhere to.

Political 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
may adversely affect the Group’s Position. These conditions may also adversely affect the
Group’s ability to raise medium or long-term funding in the international capital markets.

Geopolitical instability, including potential or actual conflict, occurring around the world,
such as the ongoing unrest and conflicts in Ukraine, the Democratic People’s Republic of
Korea (“North Korea”), Hong Kong, Myanmar, Syria, Egypt, Afghanistan, Iraq, Iran,
Nicaragua, Belarus 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 consequently, the Group’s ability to continue operating or trading in an
affected country or region which in turn may adversely affect the Group’s Position.

Should difficult economic conditions in markets in which the Group or its customers or
counterparties operate develop or persist, asset values in the housing, commercial or rural
property markets could decline, unemployment could rise and corporate and personal
incomes could suffer. Deterioration in global markets, including equity, property, currency
and other asset markets, may impact the Group’s customers and the security the Group

Page 7 of 33

holds against loans and other credit exposures, which may impact the Group’s ability to
recover loans and other credit exposures.

The Group’s financial performance may also be adversely affected if the Group is unable to
adapt its 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 or its customers or counterparties operate.

3. Competition in the markets in which the Group operates may adversely affect the
Group’s Position

The markets in which the Group operates are highly competitive and could become even
more so. Competition is expected to increase, including from non-Australian financial
service providers who continue to expand in Australia, and from new non-bank entrants or
smaller providers.

Examples of factors that may affect competition and negatively impact the Group’s Position
include:
• entities that the Group competes with, including those outside of Australia and New
Zealand, could be subject to lower levels of regulation and regulatory activity. This
could allow them to offer more competitive products and services, including because
those lower levels give them a lower cost base and/or the ability to attract employees
that the Group would otherwise seek to employ;
• digital technologies and business models are changing customer behaviour and the
competitive environment and 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 licences and/or by partnering with
existing providers;
• 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 described below) may lead to increased competition (see risk factor
16 “Regulatory changes or a failure to comply with laws, regulations or policies may
adversely affect the Group’s Position”).

The impact on the Group of an increase in competitive market conditions or a technological
change that puts the Group’s business platforms at a competitive disadvantage, especially
in the Group’s main markets and products, could lead to a material reduction in the Group’s
market share, customers and margins and adversely affect the Group’s Position.

Increased competition for deposits may increase the Group’s cost of funding. If the Group is
not able to successfully compete for deposits, the Group would be forced to rely more
heavily on other, less stable or more expensive forms of funding, or to reduce lending. This
may adversely affect the Group’s Position.

Economic disruptions could have a significant impact on competition in the financial services
sector over the medium-term due to funding cost and provision increases, structurally low
interest rates, insufficient liquidity, implementation of business continuity plans, changes to
business strategies and temporary regulatory safe harbours. The low-growth environment
will likely lead to heightened competitive intensity and margin compression.

In response to the COVID-19 pandemic, the Australian Government and its agencies have
sought to lower lending and funding costs for both banks and non-banks. These actions may

Page 8 of 33

support providers that compete with the Group. Given the importance of a functioning and
competitive banking sector, and the Australian Government’s ongoing desire to pursue a
pro-growth agenda in response to the economic disruption caused by the COVID-19
pandemic, it is anticipated that over the longer-term the level of competition in financial
services will remain a focus area for the Australian Government. Policy reform in this area
may result in increased competitive pressure in the Group’s key markets which may
adversely affect the Group’s Position.


4. Changes in the real estate markets in Australia, New Zealand or other markets
where the Group does business may adversely affect the Group’s Position

Residential and commercial property lending, together with real estate development 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 (investment and development).

Since 2009, the world’s major central banks have embarked upon unprecedented monetary
policy stimulus. The resulting weight of funds searching for yield continues to be a
significant driver underlying property markets in the Group’s core property jurisdictions
(Australia, New Zealand, Singapore and Hong Kong). However, although values for
completed tenanted properties and residential house prices, particularly in metro east coast
Australian and New Zealand markets, rose steadily until 2018, the fall in Australian house
prices in 2018 was the largest since the global financial crisis. In the latter part of 2019 and
early 2020, property prices across Australia had started to increase, and although this trend
was disrupted by COVID-19 (see risk factor 1 “The COVID-19 pandemic has, and future
outbreaks of other communicable diseases or pandemics may, materially and adversely
affect the Group’s Position”), property prices in Australia are rising again. Similarly, New
Zealand residential property prices have increased in recent months.

As a response to such increases, the NZ Government announced a range of initiatives aimed
to prevent a housing bubble. Specifically, the NZ government mandated that the Reserve
Bank of New Zealand (the “RBNZ”) consider the impact on housing when making monetary
and financial policy decisions; created a NZ$3.8 billion fund to accelerate housing supply in
the short to medium term; doubled the application of the ‘bright-line’ test (which is akin to
a capital gains tax on investment property sale); removed interest deductibility for future
investors and phased out its application on existing residential investments; and pledged to
assist Kāinga Ora in borrowing an additional $2 billion to increase land acquisition and boost
housing supply. Measures such as those taken by the NZ Government, as well as other
measures to curb and control the social and economic impacts of the COVID-19 could, along
with a number of other medium-term factors, such as increased unemployment levels, drive
a decline in residential property prices.

Despite initial concerns about the negative impacts of COVID-19 and the threat of a long-
term recession, most commercial property markets have been resilient in large part due to
government stimulus, record low interest rates and strong liquidity (debt and equity)
seeking long term defensive assets. However, some segments of the market have
experienced more direct and ongoing consequences of COVID-19, especially with respect to
mobility, international and domestic tourism, including discretionary retail, hotel
accommodation, student accommodation and large scale inner city residential development.
In these segments cash flows have been impaired and are more volatile, which impacts
serviceability and asset valuations. Further, there may also be longer term consequences
for B & C Grade office buildings as new blended working arrangements start to impact
occupiers’ longer term decisions about space requirements. In this context, the Group
could be impacted in a number of ways:
• some commercial assets could be further impacted by weakening tenancy credit
profiles and increasingly volatile property cash flows from lease renewals at lower
rates, rental abatements, increased incentives and tenancy defaults impacting
serviceability and increasing refinance risk;

Page 9 of 33

• declining asset prices in certain segments could impact customers, counterparties and
the value of security (including residential and commercial property) the Group holds
against these loans, impacting the Group’s ability to recover amounts owed if
customers or counterparties were to default. A decline in valuations will also
contribute to increasing refinance risk. Valuations will be impacted by the combined
effect of reduction in rental income and softening in yields (risk adjusted returns and
implicit rental growth), notwithstanding the low interest rate environment;
• liquidity concerns arising from an emerging capital gap as existing loans are
refinanced or new loans are financed within existing senior lending risk appetite
parameters but against lower valuations, creating a need for additional equity
contributions from owners or developers or alternative sources of funding. This
creates an additional cash flow risk for borrowers and the potential for non-bank
financiers to disintermediate;
• declining demand for the Group’s residential lending products due to buyer concerns
about decreases in values that may make the Group’s lending products less attractive
to potential homeowners and investors; and
• a material decline in residential housing prices may also cause losses in the Group’s
residential development portfolio if customers who are pre-committed to purchase
these dwellings are unable or unwilling to complete their contracts and the Group is
forced to re-sell these dwellings at a loss.

Separately, a highly competitive construction sector with declining profit margins, could
impact contractor and sub-contractor cash flow and liquidity, which presents an indirect
risk to the Group’s commercial property development financing activities.

Longer term, given a prolonged period of asset price inflation and record low interest
rates, the Group’s portfolio of commercial property loans may become more susceptible to
a sudden and material increase in interest rates, which could cause a decline in interest
coverage ratios and asset values, which could increase refinance risk and necessitate
equity contributions towards debt reduction.

5. Sovereign risk events may destabilise global financial markets and may adversely
affect the Group’s Position

Sovereign risk is the risk that governments will default on their debt obligations, be unable
to refinance their debts as and when they fall due or nationalise parts of their economy.
Sovereign defaults may adversely impact the Group directly, through adversely impacting
the value of the Group’s assets, or indirectly through destabilising global financial markets,
thereby adversely impacting the Group’s position.

Sovereign risk exists in many economies, including the United States, the United Kingdom,
China, Europe, Australia and New Zealand. Should one sovereign default, there could be a
cascading effect to other markets and countries, the consequences of which, while difficult
to predict, may be similar to or worse than those experienced during the global financial
crisis and subsequent sovereign debt crises. Significant uncertainties exist relating to the
COVID-19 crisis that is currently unfolding globally. These COVID-19 related uncertainties,
combined with pre-existing sovereign risk have been significantly destabilising global
financial markets, and may continue to do so, which in turn could adversely affect the
Group’s Position. For more information on risks relating to the COVID-19 pandemic see risk
factor 1 “The COVID-19 pandemic has, and future outbreaks of other communicable
diseases or pandemics may, materially and adversely affect the Group’s Position”.

6. Market risk events may adversely affect the Group’s Position

Market risk is the risk of loss arising from adverse changes in interest rates, currency
exchange rates, credit spreads, or from fluctuations in bond, commodity or equity prices.
For purposes of financial risk management, the Group differentiates between traded 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

Page 10 of 33

market risk is predominantly interest rate risk in the banking book. Other non-traded
market risks include transactional and structural foreign exchange risk arising from capital
investments in offshore operations and non-traded equity risk. Losses arising from the
occurrence of such market risk events may adversely affect the Group's Position.

As a result of COVID-19, in March 2020 there was a substantial impact to market liquidity
across most asset classes as market volatility significantly increased. For more information
on risks relating to the COVID-19 pandemic see risk factor 1 “The COVID-19 pandemic has,
and future outbreaks of other communicable diseases or pandemics may, materially and
adversely affect the Group’s Position”.

7. Changes in exchange rates may adversely affect the Group’s Position

As the Group conducts business in several different currencies, its businesses may be
affected by movements 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
the New Zealand dollar and U.S. dollar) may adversely affect the Group’s reported earnings.
While the Group has put in place hedges to partially mitigate the impact of currency
changes, there can be no assurance that the Group’s hedges will be sufficient or effective,
and any appreciation in the Australian dollar against other currencies in which the Group
earns its revenue may have an adverse impact upon the Group’s Position.

8. The planned discontinuation of LIBOR and developments affecting other
benchmark rates could have adverse consequences on the Group’s securities
issuances and its capital markets and investment activities

As a result of longstanding global regulatory initiatives, LIBOR (the London Interbank
Offered Rate) is being discontinued as a floating rate benchmark. LIBOR has been the
principal floating rate benchmark in the financial markets, and its planned discontinuation
has affected and will continue to affect the financial markets generally and may also affect
our operations, finances and investments specifically, as described below.

On 5 March 2021, ICE Benchmark Administration Limitation (the “IBA”), the administrator
of LIBOR, and its regulator, the United Kingdom’s Financial Conduct Authority (the “FCA”),
separately announced the dates on which panel bank submissions for all LIBOR settings will
either permanently cease to be published or will cease to be representative of the
underlying market and economic reality the rates are intended to measure (with such
representativeness not being restored). These dates are (a) 31 December 2021, for all
sterling, euro, Swiss franc and Japanese yen settings and the 1-week and 2-month U.S.
dollar settings; and (b) 30 June 2023, for the remaining U.S. dollar settings. Subsequently,
the Alternative Reference Rates Committee (the “ARRC”), the working group convened by
the U.S. Federal Reserve Board and the Federal Reserve Bank of New York to identify risk-
free alternatives to U.S. dollar LIBOR, confirmed the FCA’s announcements constituted a
“Benchmark Transition Event” under ARRC-recommended fallback language with respect to
all U.S. dollar LIBOR settings. The International Swaps and Derivatives Association (“ISDA”)
also confirmed the FCA announcement was an “Index Cessation Event” under the fallbacks
added to derivatives transactions by Supplement 70 to the 2006 ISDA Definitions.

While significant effort has been made to introduce and implement replacement alternative
benchmark rates, vast amounts of loans, mortgages, securities, derivatives and other
financial instruments are linked to the LIBOR benchmark, Any failure to successfully
introduce replacement benchmark rates and implement effective transitional arrangements
to address the discontinuation of LIBOR could result in disruption in the financial markets,
suppress capital markets activities and give rise to litigation claims. In addition, financial
markets, particularly the trading market for LIBOR-based obligations, may generally be
adversely affected by the planned discontinuation of LIBOR and by the remaining
uncertainties regarding LIBOR’s discontinuation, the alternative reference rates that will be
used when LIBOR is discontinued and other reforms related to LIBOR. There is no
assurance that any alternative reference rate will be the economic equivalent of the LIBOR
setting it is intended to replace. Any or all of these matters could have a negative impact

Page 11 of 33

on the Group’s Position and on the value of LIBOR-linked securities or other instruments
which are issued, funded or held by the Group.

A large number of loans, securities, derivatives and other financial instruments to which the
Group is a party currently use LIBOR as a benchmark rate or are otherwise linked to LIBOR.
In some cases, those instruments include terms providing for the relevant interest or
payment calculations to be made by reference to an alternative benchmark rate or on some
other basis in the event of LIBOR’s discontinuation; and such instruments should transition
away from LIBOR in accordance with those terms. In cases where an instrument’s terms do
not include robust fallback provisions or the fallback provisions are considered to be
inadequate, the instrument, may need to be amended to add or amend such provisions in
line with emerging market standards, or other arrangements may have to be made with
regard to such instrument when LIBOR is discontinued. In certain cases, it may not be
possible to amend the relevant terms; and the potential legal, regulatory and other
consequences if this occurs are uncertain. In any event, implementation of existing fallback
provisions or changes made on any other basis may, for example, alter the amounts
payable under the relevant instrument, its value and its liquidity, and may result in a
mismatch between such instrument and any related contract (such as a hedging
agreement). In addition, the process of taking the necessary action with regard to this
large volume of contracts prior to the end of 2021 (for sterling, euro, Swiss franc and
Japanese yen settings, or the 1-week or 2-month U.S. dollar settings) and prior to the end
of June 2023 (for remaining U.S. dollar settings) involves operational risks for the Group.

Other benchmark rates have been, or may be, reformed (for example, EURIBOR). Any such
reforms may cause the relevant benchmarks to perform differently than in the past, or the
reforms made to the rate may have other consequences which cannot be fully anticipated.

If a benchmark
is discontinued, there may or may not be a suitable, similar alternative
reference rate and there may be adverse consequences in transitioning to an alternative
rate. Any of these developments, and any future initiatives with regard to the regulation of
benchmarks, could result in adverse consequences to the return on, value of and market for
loans, mortgages, securities, derivatives and other financial instruments whose returns are
linked to any such benchmark, including those issued, funded or held by the Group; and
could result in widespread dislocation in the financial markets, engender volatility in the
pricing of securities, derivatives and other instruments, and suppress capital markets
activities, all of which could have adverse effects on the Group’s Position.

9. Acquisitions and/or divestments may adversely affect the Group’s Position

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.

Integration (or separation) of an acquired (or divested) business can be complex and costly,
sometimes including combining (or separating) relevant accounting and data processing
systems, and management controls, as well as managing relevant relationships with
employees, customers, regulators, counterparties, suppliers and other business partners.

Integration (or separation) efforts could create inconsistencies in standards, controls,
procedures and policies, as well as diverting management attention and resources. There is
also the risk of counterparties making claims in respect of completed or uncompleted
transactions against the Group that could adversely affect the Group’s Position. There can
also be no assurance that any acquisition (or divestment) would have the anticipated
positive results around cost or cost savings, time to integrate and overall performance. All
or any of these factors 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). Further, there is a risk that completion of an agreed transaction may not occur
whether in the form originally agreed between the parties or at all, including due to failure
of the counterparty to satisfy its completion conditions or because other completion

Page 12 of 33

conditions such as obtaining relevant regulatory or other approvals are not satisfied. Should
any of these integration or separation risks occur, this could adversely affect the Group’s
Position.

Transactions that the Group has previously announced but not yet completed include a
proposed merchant acquiring joint venture arrangement with Worldline, a European
payment systems provider. The transaction, which remains subject to regulatory and other
approvals and card scheme arrangements between ANZ and Worldline, is expected to be
completed in late 2021.


Risks related to the Issuer's financial situation

10. Credit risk may adversely affect the Group’s Position

As a financial institution, the Group is exposed to the risks associated with extending credit
to other parties, including incurring credit-related losses that can occur as a result of 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 risk of credit-related losses has increased as a result of the impact of COVID-19. The
risk of credit-related losses may further increase as a result of a number of factors,
including deterioration in the financial condition of the economies in which the Group or its
customers or counterparties operate, a sustained high level of unemployment in the markets
in which the Group or its customers or counterparties operate, more expensive imports into
Australia and New Zealand due to the reduced strength of the Australian and New Zealand
dollars relative to other currencies, a deterioration of the financial condition of the Group’s
customers or counterparties, a reduction in the value of assets the Group holds as
collateral, and a reduction in the market value of the counterparty instruments and
obligations it holds.

Less favourable business or economic conditions, whether generally or in a specific industry
sector or geographic region, as well as the occurrence of events such as natural disasters or
pandemics, could cause customers or counterparties to fail to meet their obligations in
accordance with agreed terms.

Some of the Group’s customers and counterparties in or with exposures to the below
mentioned sectors are increasingly vulnerable:
• industries impacted by the COVID-19 pandemic particularly those referred to in risk
factor 1. “The COVID-19 pandemic has, and future outbreaks of other communicable
diseases or pandemics may, materially and adversely affect the Group’s Position”.
• industries exposed to the unwind of government stimulus packages and/or timing of
the opening of borders (both domestic and international) as well as industries reliant
on consumer discretionary spending;
• the Commercial property sector (including construction and contractors) which is
exposed to a decline in investor demand for large scale inner city apartment buildings
and a material decline in net migration. In some markets, contractors and sub-
contractors may face cash flow / liquidity issues over the next 12-24 months as
current projects run off and their forward books are diminished. Projects are
expected to be more competitively bid with tighter profit margins;
• industries at risk of sanctions, geopolitical tensions or trade disputes (e.g. technology,
agriculture and communications) and/or declining global growth and disruption to
global supply chains;
• customers and industries exposed to disruption from physical climate risk (e.g.
bushfires, flood, storm and drought), and transition risk (e.g. industry exposed to
carbon reduction requirements and resulting changes in demand for goods and
services or liquidity). For more information on climate-related risks, see risk factor 27
“Impact of future climate events, geological events, plant, animal and human

Page 13 of 33

diseases, and other extrinsic events may adversely affect the Group’s Position”; and
• industries exposed to the volatility of the United States Dollar as well as the Australian
Dollar and New Zealand Dollar.

The decision by the Group to provide customers impacted by the COVID-19 pandemic the
option of suspending or deferring certain mortgage or loan repayments may lead to an
increase in the level of credit risk related losses. There can be no guarantee that at the
conclusion of the deferral or suspension period, customers will be able to recommence their
loan repayment obligations, leading to a potential increase in credit risk related losses,
which could have a material adverse effect on the Group’s Position. See Notes 1 and 15 of
the 2021 Interim Financial Statements.

The Group is also subject to the risk that its rights against third parties may not be
enforceable in certain circumstances, which may result in credit losses. Should material
credit losses occur to the Group’s credit exposures, this may adversely affect the Group’s
Position.

Credit risk may also arise from certain derivative, clearing and settlement contracts that 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.

In addition, 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
incomplete, inaccurate or materially misleading.

The Group holds provisions for credit impairment that are determined based on current
information and subjective and complex judgements of the impairment within the Group’s
lending portfolio. 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 may adversely affect the Group’s Position.

11. Challenges in managing the Group’s capital base could give rise to greater
volatility in capital ratios, which may adversely affect the Group’s Position

The Group’s capital base is critical to the management of its businesses and access to
funding. Prudential regulators of the Group include, but are not limited to, APRA, the 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 and the RBNZ for
the ANZ New Zealand Group to maintain adequate regulatory capital.

Under current regulatory requirements, risk-weighted assets and expected loan losses
increase as counterparty’s risk grade worsens. These regulatory capital requirements are
likely to compound 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 business as well as from its investment in associates), (ii) increased asset growth,
(iii) changes in the value of the Australian dollar against other currencies in which the Group
operates (particularly the New Zealand dollar and U.S. dollar) that impact risk weighted
assets or the foreign currency translation reserve, (iv) changes in business strategy
(including acquisitions, divestments and investments or an increase in capital intensive

Page 14 of 33

businesses), and (v) changes in regulatory requirements.

APRA and the RBNZ have implemented prudential standards to accommodate Basel 3.
Certain other regulators have either implemented or are in the process of implementing
regulations, including Basel 3, that seek to strengthen, among other things, the liquidity
and capital requirements of banks, funds management entities and insurance entities,
though there can be no assurance that these regulations have had or will have their
intended effect. These regulations, together with risks arising from any regulatory changes
(including those arising from APRA’s response to the remaining Financial System Inquiry
(“FSI”) recommendations, further changes from APRA’s “unquestionably strong”
requirements, the requirements of the BCBS, the RBNZ’s review of capital requirements and
the RBNZ’s amendments to ANZ New Zealand's Conditions of Registration in response to the
COVID-19 pandemic, to (among other things) not permit ANZ New Zealand to make
distributions other than discretionary payments payable to holders of AT1 capital
instruments), are described in risk factor 16 "Regulatory changes or a failure to comply with
laws, regulations or policies may adversely affect the Group’s Position". Any inability of the
Group to maintain its regulatory capital may have a material adverse effect on the Group's
Position.

12. The Group’s credit ratings could change and adversely affect the Group’s ability to
raise capital and wholesale funding and constrain the volume of new lending,
which may adversely affect the Group’s Position

The Group’s credit ratings have a significant impact on both its access to, and cost of,
capital and wholesale funding. They may also be important to customers or counterparties
when evaluating the Group’s products and services. Credit ratings and rating outlooks may
be withdrawn, qualified, revised or suspended by credit rating agencies at any time. The
methodologies used by ratings agencies to determine credit ratings and rating outlooks may
be revised in response to legal or regulatory changes, market developments or for any
other reason.

The Group’s credit ratings or rating outlooks could be negatively affected by a change in the
credit ratings or rating outlooks of the Commonwealth of Australia or New Zealand, the
occurrence of one or more of the other risks identified in this document, a change in ratings
methodologies or by other events. As a result, downgrades in the Group’s credit ratings or
rating outlooks could occur that do not reflect changes in the general economic conditions
or the Group's financial condition. In addition, the ratings of individual securities (including,
but not limited to, certain Tier 1 capital and Tier 2 capital securities and covered bonds)
issued by the Group (and other banks globally) could be impacted from time to time by
changes in the regulatory requirements for those instruments as well as the ratings
methodologies used by rating agencies.

Fitch Ratings (“Fitch”) and S&P Global Ratings (“S&P”) have revised the Group’s ratings
and/or outlook as described below.

On 12 April, 2021, Fitch revised the outlook on the ANZBGL (“ANZ Banking Group Limited”)
and ANZNZ to stable, from negative and affirmed the Group’s and ANZ NZ’s ‘A+’ long-term
and ‘F1’ short term issuer default rating.

On 9 April, 2020, S&P revised the outlook on the long-term issuer credit rating for the
Commonwealth of Australia to negative from stable. As a result of the sovereign action, S&P
has also revised the credit rating outlook of the Australian major banks and their New
Zealand bank subsidiaries, including the Group, to negative from stable. S&P reaffirmed the
Group’s ‘AA-’ long-term and ‘A-1+’ short term issuer credit ratings. S&P also reaffirmed all
the ratings on debt issued by the Group, including senior and subordinated debt and hybrid
Tier 1 capital instruments.

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

Page 15 of 33

Group’s Position.

Credit ratings are not a recommendation by the relevant rating agency to invest in
securities offered by the Group.

13. Liquidity and funding risk events may adversely affect the Group’s Position

Liquidity and funding risk is the risk that the Group is unable to meet its payment
obligations as they fall due (including repaying depositors or maturing wholesale debt) or
that the Group has insufficient capacity to fund increases in assets. Liquidity and funding risk
is inherent in all banking operations due to the timing mismatch between cash inflows 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 may adversely affect the Group’s Position.

Deterioration and volatility in market conditions, including the adverse changes in market
conditions experienced as a result of COVID-19, and/or declines in investor confidence in
the Group may materially impact the Group’s ability to replace maturing liabilities and
access funding (in a timely and cost effective manner), which may adversely impact the
Group’s Position.

The Group raises funding from a variety of sources, including customer deposits and
wholesale funding in domestic and in offshore markets to meet its funding requirements and
to maintain or grow its business generally. Developments in major markets can adversely
affect liquidity in global capital markets. For example, in times of liquidity stress, if there is
damage to market confidence in the Group or if funding inside or outside of domestic
markets is not available or constrained, the Group’s ability to access sources of funding and
liquidity may be constrained and it will be exposed to liquidity and funding risk.

In response to the economic impacts of COVID-19, major central banks including in
Australia and New Zealand have implemented or expanded the use of alternative monetary
policy tools including quantitative easing and certain other facilities that directly provide
funding to banks in their relevant jurisdiction, including the Group. If these tools were to be
withdrawn or significantly reduced unexpectedly the Group may be required to seek
alternative funding.

The availability of 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 at that time (which are strongly influenced by Australia’s and New Zealand’s
sovereign credit rating). Even if available, the cost of these funding alternatives may be
more expensive or on unfavourable terms that may adversely affect the Group’s Position.

14. Changes in the valuation of some of the Group’s assets and liabilities may
adversely affect the Group’s earnings and/or equity, and therefore the Group’s
Position

The Group applies accounting standards that require that various financial instruments,
including derivative instruments, assets and liabilities classified as fair value through other
comprehensive income, and certain other assets and liabilities (as per as per Note 16 of the
2021 Interim Financial Statements are measured 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 valuation techniques that
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 that may have a material adverse effect on the Group’s earnings
and/or equity.

Page 16 of 33

In addition, the Group may be exposed to a reduction in the value of non-lending related
assets as a result of impairments that are recognised in earnings. The Group is required to
test the recoverability of goodwill balances and intangible assets with indefinite useful lives
or not yet available for use at least annually and other non-lending related assets including
premises and equipment, investment in associates, capitalised software and other intangible
assets where there are indicators of impairment.

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

In respect of other non-lending related assets, in the event that an asset is no longer in
use, or that the cash flows generated by the asset do not support the carrying value,
impairment charges may be recorded. This, in conjunction with the other potential changes
above, could impact the Group’s Position.

In making these assessments, the Group considers relevant internal and external
information available. This includes assessing the ongoing impact of COVID-19, and related
responses of governments, regulators and businesses, on the carrying values of the Group’s
assets. There is a high degree of uncertainty associated with the duration and impact of
COVID-19 which may affect the recoverability of Group assets in future periods.

15. Changes to accounting policies may adversely affect the Group’s Position

The accounting policies that the Group applies are fundamental to how it records 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. In addition, the application of
new or revised accounting standards or interpretations may adversely affect the Group’s
Position.

The impact of new accounting standards effective for the first time in the Group’s 2021
fiscal year is outlined in Note 1 of the 2021 Interim Financial Statements.

In some cases, management must select an accounting policy from two or more
alternatives, any of which would comply with the relevant accounting standard or
interpretation and be reasonable under the circumstances, yet might result in reporting
materially different outcomes than would have been reported under the alternative.

Legal and regulatory risk

16. Regulatory changes or a failure to comply with laws, regulations or policies may
adversely affect the Group’s Position

The Group’s businesses and operations are highly regulated. The pace of regulatory change
has accelerated in recent years. The Group is subject to a substantial and increasing
number of laws, regulations and policies, including industry self-regulation, in the Relevant
Jurisdictions in which it carries on business or obtains funding and is supervised by a
number of different authorities in each of these jurisdictions. The volume of changes, and
resources allocated to the regulation and supervision of financial services groups, such as
the Group, and the enforcement of laws against them, including through litigation, has
increased substantially in recent years, including in response to community concern
regarding the conduct of financial services groups in Australia and New Zealand. As a result,
the regulation and supervision of, and enforcement against, financial services groups,
including the Group has become increasingly extensive, complex and costly across the
Relevant Jurisdictions. Such regulation, supervision and enforcement continue to evolve.

Page 17 of 33

COVID-19 has had, and may continue to have an impact on the regulation and supervision
of, and enforcement against, financial services groups such as the Group. Any future
ramifications of COVID-19 remain uncertain and, as of the date of this document, difficult to
predict. There have been delays and deferrals to the implementation of regulatory reforms
in Australia and New Zealand and a re-ranking of priorities, including enforcement priorities.

Such delays and deferrals could impact the Group’s ability to manage regulatory change and
increase the risk of the Group not complying with new regulations when they come into
effect. Governments worldwide have imposed wide ranging restrictions on, suspensions of,
or advice against, travel, events, and meetings and many other normal activities and have
undertaken substantial and costly interventions to stabilise sovereign nations and financial
markets. Governments already have and may continue to implement and introduce further
measures to contain the pandemic.

The ongoing COVID-19 pandemic also has the potential to complicate the Group’s dealings
with its regulators in a number of ways. In particular, disruptions to the Group’s business,
operations, third party contractors and suppliers resulting from the COVID-19 outbreak may
increase the risk that the Group will not be able to satisfy its regulatory obligations or
processes and/or address outstanding issues, potentially increasing the prospect of a
regulator taking adverse action against the Group. Although there is continuing engagement
with regulators with respect to banking industry wide loan repayment deferrals and
assistance to customers to get back to making their repayments, the Group remains
susceptible to regulatory action where it fails to satisfy its regulatory obligations. For more
information on risks relating to the COVID-19 pandemic see risk factor 1 “The COVID-19
pandemic has, and future outbreaks of other communicable diseases or pandemics may,
materially and adversely affect the Group’s Position”.

In Australia:

Prudential Developments

Developments in prudential regulation continue to impact the Group in a material way.
Given the number of items that are currently open for consultation with APRA and the
RBNZ, the potential impacts on the Group remain uncertain. Further changes to APRA’s or
the RBNZ’s prudential standards 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/or impact the profitability of one or more business lines any of which may adversely
affect the Group’s Position. Particular points include:

• APRA continues to be impacted by the evolving situation arising from COVID-19
although certain engagements have resumed as a result of eased restrictions. Primary
areas of interest include the impact on funding and liquidity, markets, operational
resilience and payments.
• In October 2019, APRA released a discussion paper on draft revisions to the
prudential standard APS111 “Capital Adequacy: Measurement of Capital” (“APS111”)
for consultation. The most material change from APRA’s proposal is in relation to the
treatment of capital investments for each banking and insurance subsidiary at Level 1,
with the tangible component of the investment changing from a 400% risk weighting
to:
o 250% risk weighting up to an amount equal to 10% of ANZBGL’s net Level 1
Common Equity Tier 1 (“CET1”) capital; and
o the remainder of the investment will be treated as a CET1 capital deduction.
• ANZBGL continues to review the implications of APRA’s proposal for its current
investments. The net impact on the Group is unclear and will depend upon a number
of factors including the capitalisation of the affected subsidiaries at the time of
implementation, the final form of the prudential standard, as well as the effect of
management actions being pursued that have the potential to materially offset the
impact of these proposals. Based on ANZBGL’s current investment as at 30
September 2020 in its affected subsidiaries and in the absence of any offsetting

Page 18 of 33

management actions, the above proposals imply a reduction in ANZBGL’s Level 1
CET1 capital ratio of up to approximately A$2.5 billion (approximately 70 basis
points). There would be no impact on the Group’s Level 2 CET1 capital ratio arising
from these proposed changes. The proposed implementation date of 1 January 2021
for these changes is currently under review by APRA and is expected to be delayed to
1 January 2022. In a further update during November 2020, APRA announced, that
until the new APS111 is finalised and implemented, APRA will require any new or
additional equity investments in banking and insurance subsidiaries, where the
amount of that new or additional investments takes the aggregate value of the
investment above 10% of an ADI’s CET1 capital, to be fully funded by equity capital
at the ADI parent company level. This treatment would apply to the proportion of the
new or additional investment that is above 10% of an ADI’s CET1 capital.
• In August 2019, APRA announced that it will amend APS222 “Associations with
Related Entities” to reduce the limits for Australian ADIs’ individual entity exposure to
related ADIs (or overseas equivalents) from 50% of Level 1 total capital to 25% of
Level 1 Tier 1 capital, and aggregate exposures from 150% of Level 1 total capital to
75% of Level 1 Tier 1 capital. As exposures are measured net of capital deductions,
the proposed changes to APRA’s capital regulations (contained in APS111) will affect
the measurement of ADI exposures. The implementation date for these changes has
been deferred by APRA from 1 January 2021 to 1 January 2022.
• In July 2019, APRA announced its decision on loss-absorbing capacity pursuant to
which it will require Australian domestic systemically important banks (“D- SIBs”),
including ANZBGL, to increase their total capital by 3% of risk-weighted assets by
January 2024. Based on the Group’s capital position as at 31 March 2021 this
represents an incremental increase in the total capital requirement of approximately
A$4.0 billion, with an equivalent decrease in other senior funding. APRA has stated
that it anticipates that D-SIBs would satisfy the requirement predominantly with
additional Tier 2 capital. APRA is considering, over the next four years, feasible
alternative methods for raising an additional 1% to 2% of risk weighted assets.
• Implementation of APRA’s revisions to the capital framework for ADIs, resulting from
the BCBS Basel 3 capital reforms and the recommendations of the FSI, will continue
over the coming years. However, in response to the challenging economic
environment resulting from disruption caused by COVID-19, APRA announced a
temporary change to its expectations with regards to ADIs maintaining bank capital
ratios at the “unquestionably strong” benchmark of 10.5% for CET1. APRA advised all
banks that during this period of disruption resulting from the COVID-19 pandemic,
APRA would not be concerned if banks are not meeting this benchmark as the current
large buffers may be needed to facilitate ongoing lending to the Australian economy,
provided that they continue to meet their other minimum capital requirements.
• APRA has deferred its scheduled implementation of changes to ADIs risk-weighting
framework and other capital requirements (capital reforms) by one year. The majority
of the capital reforms were initially due for implementation on 1 January 2022, but
these have now been revised to 1 January 2023. In December 2020, APRA released a
consultation paper regarding proposed changes to the capital framework for ADIs
aimed at embedding ‘unquestionably strong’ levels of capital, improving the flexibility
of the framework, and improving the transparency of ADI capital strength. These
proposals replaced previous consultation packages released by APRA in 2018 and
2019 in relation to proposed revisions to the capital framework for ADIs. The key
aspects of APRA’s latest proposal, published in December 2020 proposals are:
o Increased alignment with internationally agreed Basel standards;
o Implementing more risk-sensitive risk weights for residential mortgage lending;
o Introduction of the Basel II capital floor that limits the RWA outcome for IRB
ADIs to no less than 72.5% of the RWA outcome under the standardised
approach;
o Improving the flexibility of the capital framework through the introduction of a
default level of the countercyclical capital buffer (“CCyB”) of 100 basis points of
RWA and increasing the capital conservation buffer (“CCB”) for IRB ADIs by 150
basis points (from 250 basis points to 400 basis points);

Page 19 of 33

o Improving the transparency and comparability of ADIs’ capital ratios, including
by requiring IRB ADIs to also publish their capital ratios under the standardised
approach; and;
o Implementing a Minimum Leverage Ratio for IRB ADIs at 3.5%.
• APRA has indicated in their proposals a decrease in RWA by approximately 10% for IRB
ADIs, but this would be offset by the increased capital allocation to regulatory buffers.
APRA has also indicated that, as ADIs are currently meeting the ‘unquestionably strong’
benchmarks, it is not APRA’s intention to require ADIs to raise additional capital.
Accordingly, APRA has therefore sought to calibrate the proposed capital requirements
for ADIs, measured in dollar terms, to be consistent at an industry level with the existing
‘unquestionably strong’ capital benchmarks for ADIs under the current capital framework.
The impact of these proposed changes on individual ADIs (including ANZBGL), however,
will vary depending on the final form of requirements implemented by APRA.
• In response to COVID-19, in April 2020 APRA provided guidance on capital management,
which included an expectation that ADIs seriously consider deferring decisions on the
appropriate level of dividends. In July 2020, APRA provided an update to their guidance,
which included an expectation that ADIs maintain caution on dividends and, for the
remainder of the 2020 calendar year, the ADIs seek to retain at least half of their earnings
when making decisions on capital distributions. In December 2020, APRA further updated
its guidance, whereby from the 2021 calendar year, APRA will no longer hold banks to a
minimum level of earnings retention but ADIs will need to maintain vigilance and careful
planning in capital management. APRA stated that the onus will be on Boards to carefully
consider the sustainable rate for dividends, taking into account the outlook for
profitability, capital and economic environment. The Group’s interim dividend of 25 cents
per share (paid to shareholders on 30 September 2020) and 2020 final dividend of 35
cents per share (paid on 16 December 2020) took into account the July 2020 guidance.
• The RBNZ has completed a comprehensive review of the capital adequacy framework
for registered banks in New Zealand, and released its final decisions on key
components of the capital review in December 2019. The net impact on the Group is
an increase in CET1 capital of approximately A$2.1 billion over the transition period.
The RBNZ has delayed the start date for the increase in bank capital arising from the
capital reforms for New Zealand incorporated banks to July 2022. Some other aspects
of the capital reforms will proceed from 1 July 2021, including the rules around capital
instruments. The conclusion of the transition period is 1 July 2028. The
implementation timetable may be revised if deemed necessary by the RBNZ. The net
impact will be reduced by approximately A$0.5 billion if ANZ New Zealand’s NZ$500
million Capital Notes are converted into new Group ordinary shares in May 2022
(described further below).
• On 31 March 2021, the RBNZ announced that it would ease the dividend restrictions
to allow for a maximum of 50% of bank earnings to be paid as dividends to
shareholders. The 50% dividend restriction will remain in place until 1 July 2022, at
which point the RBNZ intends to remove restrictions entirely. The RBNZ also informed
ANZ New Zealand, and other New Zealand-incorporated registered banks, that they
should not redeem capital instruments at this time. Accordingly ANZ New Zealand was
not permitted to redeem its Capital Notes in May 2020, although ANZ New Zealand
can continue making interest payments on those Capital Notes (subject to certain
conditions). Further, ANZ New Zealand announced that it would not exercise its option
to convert the Capital Notes in May 2020. The terms of the Capital Notes provide for
their conversion into a variable number of ANZBGL ordinary shares in May 2022
(subject to certain conditions). Conversion would result in an increase in the Group’s
CET1 capital (approximately 10 basis points) at Level 2.

Recalibration of ASIC’s Regulatory Priorities

ASIC announced on 23 March 2020 that it will focus its regulatory efforts on challenges
created by COVID-19. Since then, ASIC has afforded priority to matters where there is the
risk of significant consumer harm, serious breaches of the law, risks to market integrity and
time-critical matters. This included a focus on loan deferral programs and customers dealing
with hardship. ASIC immediately suspended a number of near-term activities which are not

Page 20 of 33

time-critical. These included some consultation, regulatory reports and onsite reviews
including ASIC’s close and continuous monitoring program. In April 2020, ASIC announced
further details of changes to its regulatory work and priorities in light of COVID-19,
including that it has stepped up markets supervision work and that enforcement action will
continue. However, ASIC stated that there may be changes to the timing and process of
investigations it is conducting to take in account the impact of COVID-19. In May 2020,
ASIC announced that it would defer the commencement date of the mortgage broker best
interest duty and remuneration reforms and the design and distribution obligations by six
months to 1 January, 2021 and 5 October, 2021 respectively. In August 2020, ASIC
released its Corporate Plan for 2020 through 2024 which outlines actions ASIC are taking to
address the impact of the COVID-19 pandemic as well as longer term threats and harms in
the regulatory environment. A key stated consideration of ASIC is to support the long term
recovery of the Australian economy. ASIC’s stated strategic priorities responding to the
COVID-19 pandemic include: (I) protecting consumers from harm at a time of heightened
vulnerability; (ii) maintaining financial system resilience and stability; (iii) supporting
Australian businesses to respond to the effects of the COVID-19 pandemic; (iv) continuing
to identify, disrupt and take enforcement action against the most harmful conduct; and (v)
continuing to build ASIC organisational capacity in challenging times.

Royal Commission

The Royal Commission made 76 recommendations concerning law reform, self-regulatory
standards and the operations of ASIC and APRA, a number of which have already been
addressed. The Government has stated that it remained focused on completing the
implementation of the remaining recommendations. In addition, the Royal Commission has
led or may lead to regulators increasing the scope and frequency of investigations into
various financial services entities, including the Group. The recommendations could also
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 recommendations
may also lead to adjustments in the competitive environment of the Group. The outcomes
and total costs associated with these possible exposures and changes remain uncertain and
their impact may adversely affect the Group’s Position.

Competition Laws, Regulations and Inquiries

There is a strong focus on the regulation of competition in the financial services sector. In
February 2021, the ACCC announced its enforcement priorities for the year and financial
services has returned as a key priority. The ACCC noted that it would be following through
on the recommendations from the ACCC’s Home Loan Price Inquiry final report which was
released in December 2020. The recommendations included a prompt to encourage
borrowers to consider if they could benefit from switching loan providers, changes to the
mortgage discharge process, and an ongoing role for the ACCC to monitor competition and
prices in the home loan market. These changes are likely to result in increased compliance
costs being incurred by the Group. The ACCC has noted it will heavily scrutinize any
mergers or acquisitions, particularly by any of the big four Australian banks and will also
keep a close watch on any issues arising from collections as loan deferral periods come to
an end.

Product Laws, Regulations and Inquiries

There remains a strong focus on the suitability of products offered by financial services
providers, including the Group. Regulatory policy development and monitoring of
responsible consumer lending has increased significantly, and continues to drive the review
of, and changes to, business practices. If any additional changes in law, regulation or policy
are implemented, as a result of the development and monitoring of responsible consumer
lending, such changes may impact the manner in which the Group provides consumer
lending services in the future that may in some respects adversely affect the Group’s
operations in this area and consequently, the Group’s Position. ASIC published updated
regulatory guidance on responsible lending laws in December 2019. In December 2020, the
Government introduced a bill to make changes to Australia’s credit framework, including
changes to the responsible lending obligations for ADIs, where APRA will continue to

Page 21 of 33

regulate ADIs in relation to existing standards, while ASIC will regulate non ADIs in relation
to new standards. Laws for stricter anti-hawking prohibitions in relation to financial products
and a deferred sales model for add on insurance have recently been passed. The design and
distribution obligation legislation, which comes into effect in Australia on October 5, 2021,
will introduce requirements on product issuers and distributors to, among other things,
identify appropriate target markets for financial and credit products and distribute those
products so that they likely reach the relevant target market. There are significant penalties
for non-compliance and such legislation could impact the Group’s ability to issue and market
financial products in the future. Increased compliance costs resulting from financial product
distribution requirements may adversely impact the Group’s Position.

Increasing Regulatory Powers, Corporate Penalties and Funding for Regulators

There are increased penalties for breaches of laws in Australia, including the Australian
consumer law, as well as increased powers to regulators and funding for regulators to
enforce breaches. Increasing regulatory powers include ASIC’s product intervention power
and proposed expansions of ASIC directions powers. The Australian Government announced
in March 2019 that ASIC would be provided with more than A$400 million and APRA with
more than A$150 million in additional funding to support enforcement actions and increase
regulation and supervision. The Treasury Laws Amendment (Strengthening Corporate and
Financial Sector Penalties) Act 2019 significantly increased the sanctions applicable to the
contravention of a range of corporate and financial sector obligations. The imposition of
such penalties on the Group may adversely affect the Group’s Position.

Senior Executive Accountability Laws and Regulations

There are increasing penalties and specialised rules applicable to senior executives in the
banking sector. The Banking Executive Accountability Regime (“BEAR”) was introduced as a
new responsibility and accountability framework for the directors and most senior executives
in ADI groups. The Australian Government announced in January 2020 that BEAR will be
replaced by the Financial Accountability Regime (“FAR”), which proposes to extend the
regime to other APRA-regulated entities. FAR would be jointly administered by APRA and
ASIC and could impose larger civil penalties for any breaches, including for individuals.
Potential risks to the Group from the BEAR legislation and FAR include the risk of penalties
and the risk to the Group’s ability to attract and retain high-quality directors and senior
executives.

Other Government or regulatory interventions in the financial sector

There remain ongoing Australian Government and regulator led inquiries and interventions
into Australia’s banks. These inquiries are wide ranging and could lead to legislative or
regulatory changes or measures that may adversely affect the Group’s Position, including
through taxes and levies. Scrutiny of banks also increased substantially following the
commencement by the AUSTRAC (which is the Australian government financial intelligence
agency set up to monitor financial transactions to identify money laundering, organised
crime, tax evasion, welfare fraud and terrorism financing) of civil penalty proceedings in
2017 and 2019 against two major Australian banks relating to alleged past and ongoing
contraventions of the Anti- Money Laundering and Counter-Terrorism Financing Act 2006
(Commonwealth). The Australian Parliament’s Joint Standing Committee on Trade and
Investment Growth has established an inquiry into the prudential regulation of investment
in Australia’s export industries. The terms of reference focus on prudential standards and
practices across banking, insurance and superannuation and how these are impacting
businesses and the rural, regional and national economies. The impact of the inquiry on
ANZBGL, if any, is not yet clear. See also risk factor 18 “Significant fines and sanctions in
the event of breaches of law or regulation relating to anti-money laundering, counter-
terrorism financing and sanctions may adversely affect the Group’s Position” below.

Industry self-regulation

There is continued focus on industry best practice guidance and standards impacting retail
and small business banking. Changes to self-regulatory instruments, including industry
codes and practice guidelines, has required Group resources to implement and monitor

Page 22 of 33

compliance. A new Australian Banking Code came into effect from July 2019, with further
changes to certain retail and small business products and processes introduced in March
2020. Industry guidance on working with vulnerable customers is also evolving. Laws in
response to the Financial Services Royal Commission to allow certain industry code
provisions to be deemed as ‘enforceable code provisions’, the breach of which would attract
civil penalties. A process is expected to be undertaken in late 2021 to determine which
provisions of the Banking Code of Practice should be designated as ‘enforceable’.

Open Banking Laws
Open Banking is part of a new consumer data right in Australia that was made law in August
2019. The consumer data right it establishes seeks to improve consumers’ ability to compare
and switch between products and services. From 1 July 2020, individual customers can request
their bank share their data for deposit and transaction accounts and credit and debit cards and
this ability has since been extended to a number of additional products. It is expected to reduce
the barriers to new entrants into the banking industry in Australia. Open Banking may lead to
increased competition that may adversely affect the Group’s Position.
On 23 December 2020, the Australian Government released the report of the Inquiry into Future
Directions of the Consumer Data Right. The report contains 100 recommendations for the
expansion of the consumer data right (CDR) which currently underpins open banking. It
includes a recommendation to enable general action initiation (e.g. opening, managing and
closing products) and payment initiation by accredited persons through the CDR regime. If the
recommendations are implemented by the Government this may lead to a further increase in
competition. The Government has not yet responded to the report.

Cyber Security
The Australian Government has expressed its commitment to protecting Australian essential
services by improving the security and resilience of critical infrastructure. The Security
Legislation Amendment (Critical Infrastructure) Bill 2020 was introduced in December 2020. If
passed, the bill would create an enhanced regulatory framework for Australia’s critical
infrastructure that may include banks. The impact on ANZBGL of the bill, if passed, is not yet
clear.

Outside of Australia:

New Zealand Developments

The New Zealand Government and regulatory authorities have proposed significant
legislative and regulatory changes for New Zealand financial institutions. These changes
include, among other things: the RBNZ’s reform of capital requirements, the RBNZ’s
amendments to BS11,ANZ New Zealand's revised conditions of registration, the enactment
of the Financial Services Legislation Amendment Act 2019 and replacement of the Financial
Advisers Act 2008, proposed conduct regulations for financial institutions under the Financial
Markets (Conduct of Institutions) Amendment Bill, the review and proposed replacement of
the Reserve Bank of New Zealand Act 1989 and the enactment of the Credit Contracts
Legislation Amendment Act 2019 ("CCLA Act"). Such changes may adversely affect the ANZ
New Zealand Group, potentially impacting its corporate structures, businesses, strategies,
capital, liquidity, funding and profitability, cost structures, and the cost and access to credit
for its customers and the wider economy. This in turn may adversely affect the Group's
Position.

In addition to the delay of capital reforms, the RBNZ has also extended the transition period
for BS11 to 1 October 2023, and there have been delays to the commencement of some
provisions of the CCLA Act.

Other Offshore Developments

Other offshore regulatory developments include changes to financial regulations in the
United States (including legislative changes to the Dodd-Frank Act and revision to its

Page 23 of 33

Volcker Rule), changes to senior executive accountability in Singapore, Hong Kong, and the
United Kingdom, introduction of greater data protection regulations in Europe,
implementation of further phases of the initial margin requirements for uncleared OTC
derivatives in a number of the Relevant Jurisdictions and the requirement that banks
prepare for the reform of EURIBOR and SIBOR, and the discontinuation of LIBOR and other
such interbank offered rates by transitioning to risk free rates. For further information in
relation to LIBOR risks, see also risk factor 8 ‘The planned discontinuation of LIBOR and
developments affecting other benchmark rates could have adverse consequences on the
Group’s securities issuances and its capital markets and investment activities” above.

A failure by the Group to comply with laws, regulations or policies in any of the Relevant
Jurisdictions could result in regulatory investigations, legal or regulatory sanctions, financial
or reputational loss, litigation, fines, penalties, restrictions on the Group’s ability to do
business, revocation, suspension or variation of conditions of relevant regulatory licences or
other enforcement or administrative action or agreements (such as enforceable
undertakings) that may adversely affect the Group’s Position.

The impact of the COVID-19 pandemic on the Group’s operations may result in delays to the
implementation of regulatory changes or steps required to address commitments made to
regulators or publicly. Any delays will be dependent on how regulators choose to adjust the
prioritization, timing and deployment of their supervisory mandate or legislative change.

Such failures may also result in the Group being exposed to the risk of litigation brought by
third parties (including through class action proceedings). The outcome of any litigation
(including class action proceedings) may result in the payment of compensation to third
parties and/or further remediation activities. For information in relation to the Group’s
litigation and contingent liabilities, see risk factor 17 “Litigation and contingent liabilities
may adversely affect the Group’s Position” and Note 21 of the 2021 Interim Financial
Statements.

17. Litigation and contingent liabilities may adversely affect the Group’s Position

From time to time, the Group may be subject to material litigation, regulatory actions, legal
or arbitration proceedings and other contingent liabilities that may adversely affect the
Group’s Position.
The Group had contingent liabilities as at 31 March 2021 in respect of the matters outlined
in Note 21 of the 2021 Interim Financial Statements.
Note 21 includes, among other things, descriptions of:
• regulatory and customer exposures;
• benchmark/rate actions;
• capital raising actions;
• consumer credit insurance litigation;
• Esanda dealer car loan litigation;
• OnePath superannuation litigation;
• the Royal Commission;
• security recovery actions; and
• warranties and indemnities.

In recent years there has been an increase in the number of matters on which the Group
engages with its regulators. There have also been significant increases in the nature and
scale of regulatory investigations, surveillance and reviews, civil and criminal enforcement
actions (whether by court action or otherwise), formal and informal inquiries, regulatory
supervisory activities and the quantum of fines issued by regulators, particularly against
financial institutions both in Australia and globally. The Group has received various notices

Page 24 of 33

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. The
nature of these interactions can be wide ranging and, for example, include or have included
a range of matters including responsible lending practices, regulated lending requirements,
product suitability and distribution, interest and fees and the entitlement to charge them,
customer remediation, wealth advice, insurance distribution, pricing, competition, conduct
in financial markets and financial transactions, capital market transactions, anti-money
laundering and counter-terrorism financing obligations, reporting and disclosure obligations
and product disclosure documentation. There may be exposures to customers which are
additional to any regulatory exposures. These could include class actions, individual claims
or customer remediation or compensation activities. The outcomes and total costs
associated with such reviews and possible exposures remain uncertain.

There is a risk that contingent liabilities may be larger than anticipated or that additional
litigation, regulatory actions, legal or arbitration proceedings or other contingent liabilities
may arise.

18. Significant fines and sanctions in the event of breaches of law or regulation
relating to anti-money laundering, counter-terrorism financing and sanctions may
adversely affect the Group’s Position

Anti-money laundering (“AML”), counter-terrorism financing (“CTF”) and sanctions
compliance have been the subject of significant regulatory change and enforcement in
recent years. The increasingly complicated environment in which the Group operates has
heightened these operational and compliance risks. Furthermore, the increased
transparency of the outcomes of compliance breaches by financial institutions both
domestically and globally and the related fines and settlement sums mean that these risks
continue to be an area of focus for the Group.

In recent years, there has been an increase in action taken by key AML/CTF regulators
against “reporting entities” (in Australia, a “reporting entity” constitutes a legal entity that
provides at least one “designate service” to a customer, such as opening a bank account or
providing a loan). AUSTRAC continues to publically communicate its view that many
reporting entities in Australia have underinvested in systems and controls required to
identify, mitigate and manage their AML/CTF risks.

In late 2019, AUSTRAC commenced civil penalty proceedings against a major Australian
bank relating to alleged past reporting contraventions of the Australian Anti-Money
Laundering and Counter-Terrorism Financing Act 2006. In September 2020, an agreed
statement of facts was filed in Federal Court resulting in a civil penalty of A$1.3 billion being
imposed against the bank. This is the largest financial penalty imposed on a financial
institution in Australia’s history (almost twice the amount of the previous largest AUSTRAC
financial penalty) confirming AUSTRAC’s continued efforts to penalise significant non-
compliance with the AML/CTF regime. Additionally, since 2018 AUSTRAC has had the power
to issue infringement notices pursuant to which it can impose significant penalties. It has
used this approach twice issuing infringement notices to reporting entities despite the
number of breaches in each case being relatively small (less than 100). Further, AUSTRAC
and other regulators have exhibited a willingness to promptly exercise their enforcement
powers by instituting civil penalty proceedings.

Similarly, the RBNZ has stated that its appetite for taking formal enforcement action for
breaches of the New Zealand Anti-Money Laundering and Countering Financing of Terrorism
Act 2009 has increased, and the propensity for other regulators (including in Asia and the
Pacific) to take action for non-compliance with their local AML/CTF laws has increased.

While the COVID-19 pandemic continues to evolve at different paces in many of the
jurisdictions in which the Group operates, close monitoring of the levels and types of
financial crimes continues across the Group. To date, the most notable impact has been the
changing types of scams with criminals targeting vulnerable customers using COVID-19 as a
cover, as well as identity theft and false applications for Government support. There is a
continuing risk that the management of alerts for potential money laundering or terrorism

Page 25 of 33

financing activities may be slowed due to both resource availability and/or changed working
arrangements.

The risk of non-compliance with AML/CTF and sanction laws remains high given the scale
and complexity of the Group and the lack of clarity around some mandatory reporting
requirements. Emerging technologies, such as virtual currency issuers/exchangers and
wallet providers as well as increasingly complex remittance arrangements via fintechs and
other disruptors, may limit the Group’s ability to track the movement of funds, develop
relevant transaction monitoring, and meet reporting obligations. Additionally, the
complexity of the Group’s technology, and the increasing frequency of changes to systems
that play a role in AML/CTF and sanctions compliance puts the Group at risk of inadvertently
failing to identify an impact on the systems and controls in place. A failure to operate a
robust program to report the movement of funds, combat money laundering, terrorism
financing, and other serious crimes may have serious financial, legal and reputational
consequences for the Group and its employees.

Consequences can include fines, criminal and civil penalties, civil claims, reputational harm
and limitations on doing business in certain jurisdictions. These consequences, individually
or collectively may adversely affect the Group’s Position. The Group’s foreign operations
may place the Group under increased scrutiny by regulatory authorities, and subject the
Group to increased compliance costs.

19. Changes in monetary policies may adversely affect the Group’s Position

Central monetary authorities (including the RBA, the RBNZ, the United States Federal
Reserve, the Bank of England and the monetary authorities in the Asian jurisdictions 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. 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.

Many central monetary authorities have actively reduced official interest rates in
jurisdictions in which the Group operates and are currently considering, implementing or
expanding the use of unconventional monetary policies. Central banks worldwide, including
the RBA, the U.S. Federal Reserve and the RBNZ cut interest rates during 2019 in response
to slowing economic growth and again in 2020 in response to emerging risks to growth from
COVID-19. On 3 November 2020, the RBA cut the cash rate to the Australian historic low
rate of 0.1%, in response to the ongoing effect of the COVID-19 outbreak on the Australian
economy. The RBNZ also cut the New Zealand Official Cash Rate to a record low of 0.25%
in March 2020. Low or negative interest rates would likely put pressure on the Group’s
interest margins and adversely affect the Group’s Position.

Changes in interest rates and monetary policy are difficult to predict and may adversely
affect the Group’s Position.

20. Increasing compliance costs, the risk of heightened penalties and ongoing
regulatory scrutiny with respect to the significant obligations imposed by global
customer tax transparency regimes (which are still evolving), may adversely
affect the Group’s Position

There have been mandatory and substantial changes to, and increasing regulatory focus on,
compliance by all global Financial Institutions (“FIs”), including the Group, with global
customer tax transparency regimes, including the Foreign Account Tax Compliance Act
(“FATCA”), the OECD’s Common Reporting Standard (“CRS”) and similar anti-tax avoidance
regimes. This includes enforcement and implementation of detailed rules and frameworks to
close down circumventions and deter, detect and penalise non-compliance.

Page 26 of 33


As an in scope FI, the Group operates in a globally interlinked operating environment. In
this context, the highly complex and rigid nature of the obligations under the various
regimes present heightened operational and compliance risks for the Group. This may be
coupled with increased regulatory scrutiny of FIs (including the Group), increasing trends in
compliance breaches by FIs and related fines for non-compliance in general. Accordingly,
compliance with global customer tax transparency regimes will continue to be a key area of
focus for the Group.

Ongoing OECD Government level peer reviews and regulatory FI compliance reviews
continue to increase the scrutiny on FIs, resulting in further tightening of existing
obligations and focus on CRS compliance. Each country of adoption is being pushed by the
OECD to ensure its penalty regime is sufficient to deter and penalise non-compliance.

Under FATCA and other U.S. Treasury Regulations, the Group could be subject to:
• a 30% withholding tax on certain amounts (including amounts payable to customers),
and be required to provide certain information to upstream payers, as well as other
adverse consequences, if the ongoing detailed obligations are not adequately met;
and
• broader compliance issues, significant withholding exposure, competitive
disadvantage and other operational impacts if the FATCA Intergovernmental
Agreements between the United States and the applicable jurisdictions in which the
Group operates cease to be in effect.
Under the CRS, the Group:
• faces challenges in developing countries where the Group has operations, such as the
Pacific region. The local regulators in these countries are generally assisted by a
‘partner’ country which may introduce standards that can be challenging to
implement;
• must deal with considerable country specific variations in local law and regulatory
implementation, with significant local regulatory penalties for non-collection or failed
reporting in respect of prescribed customer information; and
• along with other FIs, is under increasingly stringent regulatory scrutiny and measures
as regulators turn their focus from the initial establishment of the CRS to its effective
implementation. This tightening of the regulatory focus can lead to significant
negative experience for affected customers (including unilateral account blocking and
closure), may adversely affect the Group’s Position and if not similarly implemented
by other FIs, may present a significant competitive disadvantage.

The scale and complexity of the Group, like other FIs, means that the risk of inadvertent
non-compliance with the FATCA, CRS and other tax reporting regimes is high. A failure to
successfully operate the implemented processes could lead to legal, financial 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.

On a global scale, COVID-19 challenges have resulted in limited staff access to systems,
tools and information, and have impacted on the delivery of regulatory obligations to
requisite timeframes, including mandatory FATCA and CRS regulatory reporting, customer
follow-up strategies, resolution and action of regulatory recommendations, as well as
continuous improvement activities required to achieve the zero rate of error expected by
regulators. The Group’s global taxation obligations in relation to the enterprise’s own tax
lodgements and payments may similarly be impacted. While some level of leniency from
global regulators is anticipated, there is an increasing risk of additional regulatory scrutiny,
associated penalties and reputational ramifications resulting from any deficiencies or delays
in meeting regulatory obligations to the level of quality and within the timeframes required.

These consequences, individually or collectively, may adversely affect the Group’s Position.

Page 27 of 33

21. Unexpected changes to the Group’s licence to operate in any jurisdiction may
adversely affect the Group’s Position

The Group is licensed to operate in various countries, states and territories. Unexpected
changes in the conditions of the licenses to operate by governments, administrations or
regulatory agencies that prohibit or restrict the Group from trading in a manner that was
previously permitted may adversely impact the Group’s Position.

Internal control, operations and reputational risk

22. Operational risk events may adversely affect the Group’s Position

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

Operational risk categories include but are not limited to:
• internal fraud (for example, involving employees or contractors);
• external fraud (for example, fraudulent loan applications or ATM skimming);
• employment practices, loss of key staff, inadequate workplace safety and failure to
effectively implement employment policies;
• impacts on clients, products and business practices (for example, misuse of customer
data or anti-competitive behaviour);
• business disruption (including systems failures);
• reputational risk (see risk factor 23 “Reputational risk events as well as operational
failures and regulatory compliance failures may give rise to reputational risk, which
may adversely affect the Group’s Position”);
• cyber risk (see risk factors 25 “Disruption of information technology systems or failure
to successfully implement new technology systems could significantly interrupt the
Group’s business, which may adversely affect the Group’s Position” and 26 “Risks
associated with information security including cyber-attacks, may adversely affect the
Group’s Position”);
• conduct and culture risks (see risk factor 24 “Conduct risk events may adversely affect
the Group’s Position”);
• damage to physical assets; and
• execution, delivery and process management (for example, processing errors or data
management failures).

Loss from operational risk events may adversely affect the Group’s Position. Such losses 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.

Pursuant to APRA requirements, ANZ must also maintain “operational risk capital” reserves
in the event future operational events occur.

COVID-19 challenges have resulted in a number of changes in terms of how the Group is
undertaking its operations including to adapt to remote working arrangement. While the
lifting of restrictions in Australia and New Zealand has allowed a number of ANZ staff to
return to work on ANZ premises, many ANZ staff continue to work remotely. Although
technology has been successfully deployed to ensure remote working capabilities are
available to the relevant staff, greater reliance on digital channels creates heightened risks
associated with cyber-attacks and the impact those attacks might have on our systems and

Page 28 of 33

service availability, which could affect ANZ technology assets as well as third party
technology suppliers and critical services on which the Group relies, such as
telecommunications operators.

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

23. Reputational risk events as well as operational failures and regulatory compliance
failures may give rise to reputational risk, which may undermine the trust of
stakeholders, erode the Group’s brand and adversely affect the Group’s Position

The Group’s reputation is a valuable asset and a key contributor to the support that it
receives from the community in respect of its business initiatives and its ability to raise
funding or capital.

Reputational risk may arise as a result of an external event or the Group’s actual or
perceived actions and practices, which include operational and regulatory compliance
failures. The occurrence of such events may adversely affect perceptions about the Group
held by the public (including the Group’s customers), shareholders, investors, regulators or
rating agencies. The impact of a risk event on the Group’s reputation may exceed any direct
cost of the risk event itself and may adversely impact the Group’s Position.

The Group may incur reputational damage where one of its practices fails to meet
community expectations. As these expectations may exceed the standard required in order
to comply with applicable law, the Group may incur reputational damage even where it has
met its legal obligations. A divergence between community expectations and the Group’s
practices could arise in a number of ways, including in relation to its product and services
disclosure practices, pricing policies and use of data. Further, the Group’s reputation may
also be adversely affected by community perception of the broader financial services
industry.

While impacts of COVID-19 are ongoing, and the longer-term financial and non-financial
effects are yet to be fully realized, it is possible there may be unintended consequences
from the Group’s actions which may give rise to negative perceptions about the Group.

Additionally, certain operational and regulatory compliance failures or perceived failures,
may give rise to reputational risk. Such operational and regulatory compliance failures
include, but are not limited to:
• failures related to fulfilment of identification obligations;
• failures related to new product development;
• failures related to ongoing product monitoring activities;
• failures related to suitability requirements when products are sold outside of 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).

Damage to the Group’s reputation may have wide-ranging impacts, including adverse
effects on the Group’s profitability, capacity and cost of funding, increased regulatory

Page 29 of 33

scrutiny, regulatory enforcement actions, additional legal risks 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 may adversely affect the
Group’s Position.

24. Conduct risk events may adversely affect the Group’s Position

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 risks include:
• the provision of unsuitable or inappropriate advice to customers;
• 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;
• inadequate management of complaints or remediation processes;
• a failure to respect and comply with duties to customers in financial hardship; and
• unauthorised trading activities in financial markets, in breach of the Group’s policies
and standards.
There has been an increasing regulatory and community focus on conduct risk, including in
Australia and New Zealand. The Group has a centralized and dedicated team tasked with
undertaking a variety of customer remediation programs, including to address specific
conduct issues identified in Group reviews. Conduct risk events may expose the Group to
regulatory actions, restrictions or conditions on banking licences and/or reputational
consequences that may adversely affect the Group's Position. It is possible that remediation
programs may not be implemented appropriately or may lead to further remediation work
being required, resulting in litigation, regulatory action and/or increasing cost to the Group,
all of which may adversely affect the Group’s Position.

The COVID-19 pandemic has resulted in more employees working remotely which may
impact employee behaviour and/or Group systems and processes, and may adversely,
impact our customers, or market integrity, or increase the risk that we fail to live up to
community expectations. And as the economy begins to recover and government- or
company-imposed COVID-19 measures are eliminated, individual customers still enduring
hardship may suffer detriment if the Group cannot provide support based on individual
circumstances.

For further discussion of the increasing regulatory focus on conduct risk, see risk factor 16
“Regulatory changes or a failure to comply with laws, regulations or policies may adversely
affect the Group’s Position” and risk factor 17 “Litigation and contingent liabilities may
adversely affect the Group’s Position”.

25. Disruption of information technology systems or failure to successfully implement
new technology systems could significantly interrupt the Group’s business, which
may adversely affect the Group’s Position

The Group’s day-to-day activities and its service offerings (including digital banking) are
highly dependent on information technology (“IT”) systems. Disruption of IT systems, or the
services the Group uses or is dependent upon, may result in the Group failing to meet its
compliance obligations and/or customers’ banking requirements.

The frequency and magnitude of threats to the Group’s IT systems from cyber-attacks are

Page 30 of 33

increasing and continuously evolving. Cyber-attacks against organisations can range from
attacks from single private individuals up to state owned attacks, which are generally much
more sophisticated. While the Group has implemented policies and procedures design to
protect against cyber-attacks, it may not be able to anticipate or implement effective
measures to prevent or minimise disruptions including those caused by, among other
things, by cyber-attacks due to well-resourced perpetrators using highly sophisticated
and/or novel techniques.

The Group has an ongoing obligation to maintain its IT systems and to identify, assess and
respond to risk exposures caused by the use of technology including IT asset lifecycle, IT
asset project delivery, technology resilience, technology security, use of third parties, data
retention/restoration or business rules and automation. Inadequate responses to these risk
exposures could lead to unstable or insecure systems or a decrease in the Group’s ability to
service its customers, increased costs, and non-compliance with regulatory requirements,
which may adversely affect the Group’s Position. As an example, in response to the COVID-
19 pandemic, more of the Group’s staff and third party contractors are working remotely or
from alternative work sites, which has put additional stress on the Group’s productivity and
remote access to systems.

The Group has disaster recovery and business continuity measures in place designed to
ensure that critical IT systems will continue to operate during both short-lived and
prolonged disruption events. However, COVID-19 has highlighted that these arrangements
must cater for vast and improbable events, like a global pandemic, and ensure critical
information systems can be supported and accessed by a large number of multi-
jurisdictional technology and business users for extended periods. If such measures cannot
be effectively implemented, this may adversely affect the Group’s Position.

In addition, businesses in all countries within the ANZ network, including ANZ New Zealand
rely on the Group to provide a number of IT systems. A failure of the Group’s systems may
affect ANZ network countries, which may in turn, adversely affect the Group's Position.

26. Risks associated with information security including cyber-attacks, may adversely
affect the Group’s Position

The primary focus of information security is to protect information and technology systems
from disruptions to confidentiality, integrity or availability. As a bank, the Group handles a
considerable amount of personal and confidential information about its customers and its
own internal operations, from the multiple geographies in which the Group operates. This
information is processed and stored on both internal and third party hosted environments.
Any failure of security controls operated by the Group or its third parties could adversely
affect the Group’s business.

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

The Group is conscious that cyber threats, such as advanced persistent threats, distributed
denial of service, malware and ransomware, are continuously evolving
, becoming more
sophisticated and increasing in volume. The COVID-19 pandemic has increased the number
of staff working offsite for an extended period, which may increase information security
risks to the Group. Cyber criminals may attempt to take advantage through pursuing
exploits in end point security, spreading malware, and increasing phishing attempts.

Additionally, failures in the Group’s cybersecurity policies, procedures or controls, could
result in loss of data or other sensitive information (including as a result of an outage) and
may cause associated reputational damage. Any of these events could result in significant
financial losses (including costs relating to notification of, or compensation for customers),
regulatory investigations or sanctions or may affect the Group’s ability to retain and attract
customers, and thus may adversely affect the Group’s Position.

Page 31 of 33

Environmental, social and governance risks

27. Impact of future climate events, geological events, plant, animal and human
diseases, and other extrinsic events may adversely affect the Group’s Position

The Group and its customers are exposed to climate-related events. These events include
severe storms, drought, fires, cyclones, hurricanes, floods and rising sea levels. The 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
such as COVID-19, which is causing significant impacts on the Group’s operations and its
customers. The COVID-19 pandemic has resulted in a widespread health crisis that could
continue to adversely affect the economies and financial markets of many countries,
including Australia and New Zealand, resulting in an economic downturn that could affect
the Group and its customers. See risk factor 1 “The COVID-19 pandemic has, and future
outbreaks of other communicable diseases or pandemics may, materially and adversely
affect the Group’s Position” for further details regarding the different impacts from COVID-
19.
Depending on their frequency and severity, these extrinsic events may continue to interrupt
or restrict the provision of some local services such as the Group branch or business centres
or Group services, and may also adversely affect the Group’s financial condition or collateral
position in relation to credit facilities extended to customers, which in turn may adversely
affect the Group’s Position.

28. The Group’s risk management framework may fail to manage all existing risks
appropriately or detect new and emerging risks fast enough, which could
adversely affect the Group’s Position
Risk management is an integral part of all of the Group’s activities and includes the
identification and monitoring of the Group’s risk appetite and reporting on the Group’s risk
exposure and effectiveness of identified controls. However, there can be no assurance that
the Group’s risk management framework will be effective in all instances including in
respect of existing risks, or new and emerging risks that the Group may not anticipate or
identify in a timely manner and/or for which its controls may not be effective. Failure to
manage risks effectively could adversely impact the Group’s reputation or compliance with
regulatory obligations.
The effectiveness of the Group’s risk management framework is also connected to the
establishment and maintenance of a sound risk management culture, which is supported by
appropriate remuneration structures. A failure in designing or effectively implementing
appropriate remuneration structures, could have an adverse impact on the Group’s risk
culture and effectiveness of the Group’s risk management frameworks.
The Group seeks to continuously improve its risk management frameworks. It has
implemented, and regularly reviews, its risk management policies and allocates additional
resources across the Group to manage and mitigate risks (including conduct risk). However,
such efforts may not insulate the Group from future instances of misconduct and no
assurance can be given that the Group’s risk management framework will be effective. A
failure in the Group’s risk management processes or governance could result in the Group
suffering unexpected losses and reputation damage, and failing to comply with regulatory
obligations, which could adversely affect the Group’s Position.
While these principles still continue to underpin the Group’s risk management framework,
the ongoing COVID-19 pandemic requires the Group to continue to maintain good practices
and a robust risk management framework as its operational activities continue to evolve, so
as to manage the impacts of the pandemic both to its workforce and customers. In these
circumstances, a failure in the Group’s risk management processes or governance could
adversely affect the Group’s Position.

Page 32 of 33


29. Risks associated with lending to customers that could be directly or indirectly
impacted by climate risk may adversely affect the Group’s Position
The risks associated with climate change are subject to increasing regulatory, political and
societal focus. APRA has released a draft prudential practice guide that is designed to assist
regulated entities in managing climate-related risks and opportunities as part of their
existing risk management and governance frameworks. Embedding climate change risk into
the Group’s risk management framework in line with APRA’s and other stakeholders’
expectations, and adapting the Group’s operation and business strategy to address both the
risks and opportunities posed by climate change and the transition to a low carbon economy
could have a significant impact on the Group.
The Group’s most material climate-related risks result from its lending to business and retail
customers, including credit-related losses incurred as a result of a customer being unable or
unwilling to repay debt, or impacting the value and liquidity of collateral.
The risk to the Group through credit-related issues with the Group’s customers could result
directly from climate-related events, and indirectly from changes to laws, regulations, or
other policies such as carbon pricing and climate risk adaptation or mitigation policies,
which may impact the customer’s supply chain. This may result in credit-related losses as a
result of the customer being unable or unwilling to repay debt, which may adversely affect
the Group’s Position.

Page 33 of 33

Responsibility statement of the Directors of ANZBGL in accordance with DTR
4.2.10 R (3)(b) of the Disclosure and Transparency Rules of the United Kingdom
Financial Conduct Authority
The Directors of Australia and New Zealand Banking Group Limited confirm to the best of
their knowledge that:
ANZ’s 2021 Half-Yearly Financial Report (as defined on page 1 of this DTR half-yearly
financial report submission) includes a fair review of:
(i) an indication of the important events that have occurred during the first six months
of the financial year, and their impact on the Condensed Consolidated Financial
Statements; and
(ii) a description of the principal risks and uncertainties for the remaining six months
of the financial year.

Signed in accordance with a resolution of the Directors.



Paul D O’Sullivan Shayne C Elliott
Chairman Managing Director

4 May 2021