(Adds details on Moody's rating outlook, background on the financial sector inquiry)
May 14 (Reuters) - Rating agency Moody's Investors Service said on Monday that governance failures at Australia's AMP Ltd AMP.AX that were revealed in a powerful inquiry into the country's financial sector were creating additional pressure on its rating.
"AMP's credit profile is under pressure, despite its strong capitalization and market position, because of the potential for reputational damage and additional legal and compliance costs associated with the allegations of governance failures," Frank Mirenzi, a Moody's senior credit officer, said in a statement.
"While it is still too early to predict the potential outcomes from the allegations against AMP raised by the commission," Mirenzi said the revelations of governance failures at the firm are "credit negative."
AMP's share price has tanked since mid-April when an independent inquiry into Australia's financial sector exposed serious flaws in its governance, accountability and culture. The inquiry may recommend criminal charges.
On Friday AMP shares slumped to a near 7-year low after Macquarie Group MQG.AX warned it could see A$35 billion in investor outflows due to the hit to its reputation from board-level misconduct, and downgraded it to 'neutral' from 'outperform'. In early afternoon trade on Monday, the firm's shares were up 2.5 percent.
S&P Global said earlier this month that the credit worthiness of Australia's largest-listed wealth manager is at risk of being downgraded due to the reputational damage stemming from the inquiry.
The revelations made at the quasi-judicial Royal Commision inquiry has forced AMP's top management to step down. Shareholders have also showed their displeasure, and last week voted against the company's executive pay plan. said "the operating environment remains challenging, with overseas insurance firms — with potentially lower capital costs — starting to enter the Australian market."
Late last year, Zurich Insurance ZURN.S became Australia's biggest life insurer after it agreed to buy Australia and New Zealand Banking Group's ANZ.AX life insurance arm for A$2.85 billion ($2.15 billion) in its biggest foray into Australia and its third in the last two years.