Despite the revelations from Australia's Financial Services Royal Commission going from bad to worse, don't expect the local offshoots of Australia's big banks to face the same scrutiny in NZ

By Gareth Vaughan

Australia's Financial Services Royal Commission claimed a major scalp last week with the resignation of AMP's CEO Craig Meller.

Meller resigned after the Royal Commission heard AMP lied to the Australian Securities and Investments Commission (ASIC) for nearly a decade to cover its practice of charging customers for advice that was never delivered. Fraud, bribery, false documentation, failure to verify customer income, not assessing expenses, failure of internal controls, and failure to report misconduct to the ASIC has been exposed by the Royal Commission to date.

Other ugly headlines emerging from the Royal Commission hearings have included;

1) The financial planning business of ASB's parent Commonwealth Bank of Australia (CBA) continued charging fees to customers they knew had died.

2) Westpac board documents show a review by PwC last year found only one out of 10 lending controls required by the Australian Prudential Regulation Authority (APRA) were operating effectively.

3) Allegations of a cash-for-loans bribery ring at some National Australia Bank (NAB) branches. NAB is BNZ's parent.

4) ANZ ignored repeated requests from ASIC to compensate thousands of customers inappropriately sold savings account loans.

Additionally banking analysts and economists at UBS are suggesting the Royal Commission could lead to Australia's Minsky moment. That's because of a spotlight being shone on irresponsible lending, meaning banks may have to undertake heightened assessments of customers' borrowing capabilities, with this resulting in a sharp decline in borrowing capacity. Named after economist Hyman Minsky, a Minsky moment sees a sudden major collapse of asset values sparked by debt pressures.

'Sobering for the entire industry' so what about NZ?

Australian Banking Association CEO Anna Bligh described the Royal Commission hearings as sobering for the entire industry as the Federal Government moved to strengthen criminal and civil penalties for corporate misconduct and boost ASIC's powers to protect consumers from corporate and financial misconduct.

So what are we to make of all this over the ditch here in the Shaky Isles? The companies at the centre of the Royal Commission are familiar names, either operating here or having subsidiaries - as in the case of the four big banks - who dominate NZ's banking market.

Of course it can be argued that such a big industry, that employs tens of thousands of people and moves billions of dollars annually, will have a few rotten apples in the barrel. But the Royal Commission has been a long time coming following a series of scandals in Australian banking over recent years. For example, there've been several in the financial advice area, ASIC cases over alleged manipulation of Australia's primary interest rate benchmark, and there's also APRA's independent prudential inquiry into CBA following AUSTRAC, Australia's anti-money laundering regulator, initiating civil penalty court proceedings against CBA for "serious and systemic non-compliance with the Anti-Money Laundering and Counter-Terrorism Financing Act 2006."

The Australian financial services sector, notably through APRA and ASIC, is overseen by a more proactive regulatory regime than NZ, where the Reserve Bank's idiosyncratic, light-handed regulatory approach was again highlighted by the International Monetary Fund last week. The Financial Markets Authority (FMA) is NZ's conduct regulator, with a spokesman having the following to say; “We are in close contact with ASIC and are monitoring developments at the Royal Commission closely. We are engaging with all the businesses involved to discuss the implications for their New Zealand operations.”

For AMP NZ's part, a spokesman said; "In New Zealand, we operate within a different regulatory and governance framework [from Australia], with different operating and distribution models. We do not have the same Buyer of Last Resort (BOLR) contractual model in New Zealand - which is a core focus of many of the current issues being examined. We continue to maintain an open and transparent relationship with New Zealand regulators – the FMA and RBNZ."

'Our banking culture's different'

In NZ we certainly haven't seen the volume or scale of scandals in the financial services sector as witnessed in Australia. Is this because we're a smaller country, they're simply not happening here, or they are but not in significant enough scale to come out?

That said, we certainly haven't been free of misconduct in the financial services sector. For example, there was the marketing, promotion and sale of complex interest rate swaps to rural customers in the back half of last decade, which eventually saw ANZ, ASB and Westpac customers compensated to the tune of $23.67 million. There was also the ANZ-ING frozen funds scandal that saw investors receive $45 million compensation after Commerce Commission intervention. And the FMA has also ticked off banks for not putting customers first with KiwiSaver.

NZ First leader Winston Peters was pushing for an Australian style inquiry into banking here in NZ before last year's election. However, this failed to make it into the coalition agreement. And Commerce and Consumer Affairs Minister Kris Faafoi told interest.co.nz on Friday afternoon that he sees no need for a Royal Commission in NZ, believing the culture in the financial services sector here differs to Australia, - i.e. it's better. Faafoi's is a view also expressed by new Reserve Bank Governor Adrian Orr in an interview with TVNZ on Sunday.

So for those of us watching on from NZ, either sit back and enjoy, or cringe, at the show beaming in from the West Island.

Meanwhile, courtesy of Bloomberg...

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33 Comments

Incompetent and irresponsible corporate owners. Surely not in New Zealand. Must not insult our nice Australian masters, must make kow-tow to their greatness.

Remember South Canterbury Finance, some of the senior executive had a wealth of local (of Australia parent) banking experience too!

As soon as you want more than a few million you are dealing with leading folk in Australia!
Anything commercial with a trick. Australia!

up
16

I find it difficult to believe that Australian owned banks and other financial institutions do not use similar performance expectations in New Zealand as in Australia.
With the Australian banks in particular making considerable and increasing record profits, as well as the issues that you highlight, I also find it difficult to understand why Kris Faafoi and Adrian Orr have both been very quick to counter any suggestion that issues could exist here. I hope Kris Faafoi reads and considers the the news article you highlight; the Australian Government was shocked to learn of revelations.
If Faafoi and Orr have tried to reassure the New Zealand public, their quick and with apparently little investigation has done the exact opposite.
I would like to hear some comment from the Banking Ombudsman who has been very quiet.

I think the comments by these two (which are now on record) will come back to bite them. They will be shown to be extremely naive.

Faafoi and Orr singing from the same songsheet, culture of banks different here, so no issues. Totally untrue, unfortunately. The issues being uncovered by Royal Commission in Australia, should at a bare minimum be looked at to see they are not same issues here in NZ (given the banks are the same companies operating here, subsidiaries here in NZ). What would be better, is if we looked at our regulators to see if they are operating as effectively as Australia, in bringing issues to the surface. It's Aussie regulators, ASIC and APRA that have bought issues to the fore that have caused the pressure for the Royal Commission.

The companies have the same leadership in Australia. It pays to check just to remove doubt. While even I've heard things from inside banks that they aren't as bad as Australia that doesn't mean there aren't some rotten apples in the barrel.

Also it's best to remember their comments in the event that something does go horribly wrong with these banks.

The only reason that we haven't seen the volume or scale of scandals in the financial services sector in NZ is because our regulators refuse to look, and assume we are different. The incentives for accounting control fraud within NZ banks are the same as in Australia, therefore we should expect to see the same behaviour, but only if we look.
It is very evident that lending standards have been very lax in NZ, allowing extremely high rates of return and growth rates of NZ banks. Lax lending means there has been accounting control fraud.

.

You are right that problems won't be found if no one looks for them. It got really bad in Australia as many problems with the banks kept emerging. The problems here only emerge when there's a lot of money at stake or an third party complains.

this is a nonsence. nz is not immune to this type of behaviour. Kris Faafoi would prefer to go after the low hanging fruit

https://www.stuff.co.nz/business/95760482/another-truck-shop-in-hot-lega...

rather than go after the "big boys". Labour do not want to deal with the potential fallout (as this would require some work). The media would have a field day.

I seem to recall the Aussie banks getting fined for trying to avoid tax in NZ (a lot of tax). Based on that ethical example I would recommend that the same issue as a minimum be investigated here. If bonus driven cultures need external policing.

And remember some who were grilled in the box had political sounding names!

But the banks have a captive market.
People have to use them.
Try spending or depositing over 10K in cash without a bank being involved and clipping the ticket.

Seems to be a consistent thing now with government. We are unique in the world.
- Our banks are morally and ethically superior
- No Russian spies.
- No need for oil.

... the Greens want NZ to become free of oil , the world's first totally fossil fuel free economy ...

Since the Neanderthals first popped out of their caves , that is ...

What the wheels of industry with no oil!

... what surprises me is how slow it's been for alternative forms of financing to take a bite out of the big banks lunch ...

These mega-firms from Australia are feasting mightily upon the highly leveraged property and farm owners of New Zealand ...

... where's the creative disruption at , innovative small firms and products , little feeders taking multiple chomps out of the behemoths' banquet ?

Kiwibank is trying but its had a coremod.

Barriers to entry. You need a banking licence, you can't just open a .com bank with a low rate/fee structure or the industry would be much more crowded.

There seems to be a lot of innuendo in the comments but not much facts. If there are issues then I am interested to know - concrete facts.

But the facts will not be available until the regulators look into the issues. The issue is that the regulator does not look for accounting control fraud, it simply naively trusts the attestations of bank directors.
It is clear accounting controls have failed because we can see evidence of reckless lending over the last 5 years, the only uncertainty we have is whether the failure has been fraudulent or incompetence. In Australia it seems they have both.

There's plenty of evidence if the regulator looked.

heard of the expression "whistle blower"?

They should also investigate companies not paying tax.

https://www.michaelwest.com.au/tax-dodgers/hope-downs-marketing-company-...

Interesting comments by Orr and Faafoi. They must really feel confident that no one will bother to do any investigative journalism and uncover anything potentially embarrising. We'll see shortly I suppose.

Question - So Orr and Faafoi think billion dollar profits by the top 4 are acceptable and not indicative of shady practices? Or are they too afraid to rock the tax boat, because as DC has identified before in one of his responses, the banks do pay taxes on their declared profits and that is one sizable chunk to the Government coffers?

... one of two things happening here : the banks are making outsize profits because there's sweet stuff all serious competition lining up against their cozy cartel ...

And secondly ... the banking industry and our economy are strong ... because big bank profits point towards low rates of default by borrowers ...

Banking Ombudsman same bed mate don't even go there I've been with there altered documents etc.

"our banking culture's different"

Such conceit, you need read no further to know it will be no better in NZ.

Y late dad was sold the ing thing Suffering from Parkinson’s and in his eighties .Think was told sixty cents in the dollar take it or leave it
Had been with ANZ for a long time too

MBIE and FMA are too busy trying to nail the small independent guys to the cross with allegations of high commissions and free trips causing conflicted advice in the life insurance industry. The larger issues (and what should be of more concern) have been highlighted in Australia. Problem is the MBIE and FMA are full of ex bankers.

They're scared to pick off the scab.

Ask the people of Christchurch if Insurance practice in NZ needs to be examined.

I am senior project director of a multimillion dollar NZ project that lost millions to banking and insurance company misconduct. I can assure everyone, including the NZ regulators and Government that serious misconduct and market malpractices are alive and well in NZ and have been for more than a decade. The problem is that they are concealed and sophisticated while complaints are classified as confidential and settled so that privacy laws hide exposing the misconduct. Yet NZ Government says it is transparent while NZ laws close disclosure down.