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FMA's Rob Everett says banking probe considering any gaps in retail banking services framework that could undermine conduct supervision or regulation

FMA's Rob Everett says banking probe considering any gaps in retail banking services framework that could undermine conduct supervision or regulation
Rob Everett & Adrian Orr probe banks, by Jacky Carpenter.

The Reserve Bank and Financial Markets Authority's report on banks' conduct and culture is set to be released in early November.

In an FMA update yesterday CEO Rob Everett said the FMA's finalising the review with the Reserve Bank. The review is the New Zealand regulators' response to the Australian Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry, with NZ banks told to prove their conduct is better than some of what has been exposed in Australia.

"The review has taken place over a four-month period, to examine what conduct and culture risks and issues are present in New Zealand’s banks and how they identify, manage and remediate these risks. Since June, we have completed on-site monitoring visits with 11 banks, conducted about 400 interviews, received more than 1000 documents and visited 13 towns and cities around NZ," Everett said.

"Our review was based on interviews with bank staff and directors, and documents supplied to us by the banks - it was not an audit of individual files or accounts, or a detailed inquiry like that of the Royal Commission in Australia. We have relied on the information and insights provided to us directly by banks, consumer and industry bodies, and other external stakeholders."

"Our findings will be covered by general themes relevant to the industry as a whole. Findings that relate to individual banks will be provided directly to the banks involved and they will be required to deliver a plan to address any risks identified," Everett added.

"We also considered any gaps within the framework for the regulation of retail banking services that may undermine the effectiveness or efficiency of conduct supervision or regulation. Good conduct requires ongoing focus and putting the customer at the centre of all activities."

"We expect the banks to take our recommendations seriously, and devote sufficient focus and resources to making any necessary meaningful improvements. We are deep into a similar work programme with the life insurance sector, on which we are due to report in December," said Everett.

In June Everett told the financial services sector is at a tipping point and needs to focus on how to make sure customers get a better deal. And Australian Royal Commissioner Kenneth Hayne says the way those higher up the ranks are incentivised needs to change for banks to genuinely improve their conduct and culture.

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'it was not an audit of individual files or accounts,' - Well if that's the case, how the bloody hell do you judge anything?

400 interviews with bank staff.
'Have you been good?'
'Yes, we've been good'
'You've not been fudging your lending reports in the figures that have been reported to us have you?'
'Of course not'
'Excellent, here's a lolly. Next.'

Here's how you do it

'I want to see the largest 50 accounts from your mortgage borrowing book?'
'Now I want to see the history of your 50 largest depositor accounts.'

Rinse and repeat across the banks and you will discover that a fair amount of equity release has been duplicated across the banking sector with loans on the same equity made by different lenders. It's not hard to investigate. Then where issues prop up you delve even deeper.

If anyone at wants to get in touch, I'm happy to run this for you.

Credit checks would show instances where another mortgage exists and the size of it - may not have updates on how much has been paid off - but would show if the mortgage has been 'closed' in cases of refinancing a mortgage to another bank, and more importantly instances where application has been made while a mortgage against the same security already exists. I don't think the scenario you mention would exist - Maybe a mortgage broker could confirm

most credit checks will purely highlight whether interest is being serviced or not, it is unlikely that it would pick up if equity was being used say from a family home for mortgages with 4 different lenders on investment properties, so long as the interest was being paid. My concern would be that in a downturn you'd end up with 4 lenders all after the same equity on the family home, because a lot of the investment properties purchased in the last 3 years would end up being under water.

yeah as someone else stated below - obtaining the title will show up all parties with an interest in the property and is probably among the first checks a bank does.

I should add, how many people have got mortgages across a number of different lenders?

Very common for people to have family home with one bank and IP's with another

Agreed Nic, it's a joke

Nic, I think you're getting confused with a financial audit and a conduct audit. The main purpose of this review was to gauge whether NZ banks had an issue with their culture and if they have engaged in any questionable conduct such as those that the Aussie banks did. For example, have the NZ banks been charging fees to deceased persons etc. Reviewing the numbers may help answer these questions but the point of the review was not to run a fine comb through their financials. If they were fudging the numbers then this should be the job of the internal and external auditors to detect.

Opening the enquiry up to allow submissions from bank customers as well would have made a good, and transparent, starting point....

The FMA did highlight their complaints process, and have heard from Consumer NZ and First Union, the bank workers' union. And if you have evidence of serious and/or systemic misconduct we'd be interested to hear...

"We have relied on the information and insights provided to us directly by banks"

So to check if the banks have been fraudulent, the FMA rely on info provided by… the banks?!? It's totally ridiculous

"My concern would be that in a downturn you'd end up with 4 lenders all after the same equity on the family home."
This will never happen, anyone can check through Corelogic or QV whether a property has been mortgaged. Normally no bank want to be a second mortgagee.

100% agreed. Second/third tier lenders *may* look at this, but none of the big banks will touch a property with other interests registered on the title. They may not even look at loan top ups if they can see you've loaded a caveat against a property behind their first charge mortgage.

Additionally as mentioned, this is not an investigation in to the financial stability of the banks, but in to the sales and service cultures. As I understand it, the culture in the Australian banks has been very heavily favoured to pushing loans/credit cards/overdrafts on people with no real investigation of affordability or suitability. I don't believe this is the case in NZ since the Credit Contracts and Consumer Finance Act was updated about 4 years ago, which requires all lenders complete affordability and suitability checks.