The Reserve Bank's regulatory stocktake will probe the length and nature of the consultation programmes it runs, following a barrage of new legislation over the past three years that has seen about 25 banking related consultations held by the the central bank and prudential regulator.
In a speech to the New Zealand Bankers' Association in Auckland entitled Taking Stock of Financial Sector Regulation, Spencer provided more detail on the planned stocktake of the regulatory framework for banks and non-bank deposit takers (NBDTs) such as finance companies, building societies and credit unions.
"In reviewing the specific prudential requirements applying to banks and NBDTs, our objective is to improve the efficiency, clarity and consistency of these requirements," Spencer said.
The Reserve Bank first announced plans for the "major strategic initiative" of conducting a regulatory stocktake when issuing its Financial Stability Report in May. At that time Spencer said it was likely to result in a clean up and removal of redundant rules. He also said the stocktake was an acknowledgement it was time to take a pause after several years where a significant amount of new regulation had been rolled out, especially following the global financial crisis (GFC).
In his speech Spencer said consultation periods are an issue that will be closely looked at.
"Over the last three years we have carried out approximately 25 consultations relating to the banking sector, with the average consultation period being four to six weeks, although the shortest consultation period was three weeks and the longest six months. We want our general approach to the length and nature of industry consultation to be consistent and transparent, although there may still be occasional instances where the need to move quickly may force us to shorten the timeline," Spencer said.
Bankers have complained of a tsunami of new regulation over recent years following the GFC, which has included the Basel III capital adequacy standards, the open bank resolution policy, anti-money laundering laws, and the introduction of restrictions on high loan-to-value residential mortgage lending. Non-bank deposit takers have faced a complete new regulatory regime since 2010, including capital adequacy and other prudential requirements.
KPMG's annual Financial Institutions Performance Survey (FIPS) issued in March noted a growing feeling among bank executives that the Reserve Bank was no longer consulting with them. The FIPS report said bankers felt consultations with the Reserve Bank over the past year had felt like consultation in name only, with the decisions already having been made and the consultation used for communication of upcoming changes only.
'Avoiding pressure from bunching'
In the terms of reference the Reserve Bank says the stocktake could recommend follow-up work on potentially adding new prudential requirements, if any are identified as necessary to improve consistency, clarity or efficiency. However, any such work would be done as a separate project. The Reserved Bank's indicative stocktake timeframe sets out plans for initial scoping beginning this month, moving into the formulation of draft proposals from next month, and public consultation and conclusion from next March, with the stocktake completed in about September 2015.
In his speech Spencer also spoke of the Reserve Bank's role in the Council of Financial Regulators alongside Treasury, the Ministry of Business, Innovation and Employment, and the Financial Markets Authority, which meets quarterly to co-ordinate policies on the banking and NBDT sectors.
"The Council has recently established a subcommittee, called the banking forum, which is intended to help ensure that government agencies see the big picture of regulatory initiatives affecting the banking sector at any given time. The exchange of information at the forum will help agencies to sequence regulatory reforms and consultations so that pressures from bunching are avoided," Spencer said.
The stocktake won't look at making any changes to the Reserve Bank Act, or the recently enacted Non-bank Deposit Takers Act 2013.
"As such, it will not be looking at the supervisory approach adopted in the two sectors, or the matters that were considered as part of the review of the prudential regime for NBDTs that we undertook last year, such as the role of trustees in NBDT supervision," said Spencer.
"The key planks of the prudential framework will not be revisited, including the need for banks and non-banks to: hold sufficient capital; maintain sufficient liquidity; implement robust risk management systems and policies; and have strong governance regimes."
Outcomes sought from the stocktake include changes, if needed, in the prudential regulatory framework where requirements can be cut or simplified without compromising financial stability objectives, where similar benefits can be delivered at lower cost, and where requirements can be presented in a different way to make them more user friendly and clarify their scope and nature.
'Lean, easy to use and cost-effective'
Insurers aren't being included in the stocktake, but Spencer said a separate review of the insurance solvency standards is underway and will consider many of the same themes around efficiency, clarity and consistency.
"The broader insurance regime is too young to include in the review," he said.
Spencer said the Reserve Bank was committed to delivering a world-class regulatory framework.
"That means one that fully supports the soundness and efficiency of the New Zealand financial system, and is lean, easy to use and as cost-effective as possible."
"The non-bank sector had serious issues earlier on which led to a strengthening of regulation in that sector. However, the banking sector came through the Global Financial Crisis in very good shape by international standards, which is a testament to the industry and to the regulatory environment. It is important though that we work to continuously improve the regulatory framework," said Spencer.