FMA & RBNZ tell banks the window for them to show consumers & regulators they can have full confidence in the NZ financial services industry is narrow with proactive leadership required

FMA & RBNZ tell banks the window for them to show consumers & regulators they can have full confidence in the NZ financial services industry is narrow with proactive leadership required

The Financial Markets Authority (FMA) has released a letter sent to New Zealand bank bosses asking them to detail what they're doing to prove consumers, regulators and other stakeholders can have full confidence in the financial services sector. And the clock is ticking. They have until Friday May 18.

The letter, signed by FMA CEO Rob Everett and Reserve Bank Governor Adrian Orr and copied to Commerce Commission chairman Mark Berry, comes after Everett and Orr met with bank bosses on Monday. Following that meeting the FMA and Reserve Bank told NZ banks that, in the wake of the damning revelations from the Australian Royal Commission on Financial Services, NZ banks need to prove they are better behaved than Australia's banks.

"We expect you to show us what you have done in order to be comfortable that there are no material conduct issues within your business," the letter says.

"As we discussed on Monday, the window for you to demonstrate to consumers, regulators and other stakeholders that they can have full confidence in the financial services industry in New Zealand is narrow, and we encourage proactive leadership from the retail banking sector."

"We acknowledge that we have already received initial responses from some banks which vary in the extent to which they outline specific work already undertaken or more recently underway. We would comment that an open invitation from banks to us to come and look at their operations is not sufficient. We reserve the right to conduct on-site monitoring as and when we feel it is necessary (including in response to material that you provide us) but the purpose of this exercise is to understand how you as leaders of your businesses have obtained assurance that misconduct of the type highlighted in Australia is not taking place here. To clarify, we request a written response from your organisation," the letter says.

The comment about an open invitation to come and look at a bank's operations appears to be aimed at the country's biggest bank, ANZ, whose CEO David Hisco made this comment in an interview with interest.co.nz on Tuesday. 

Asked about this an ANZ spokesman said the bank has received the FMA follow up letter and will be working to provide a response by 18 May.

"We’re regularly reviewed by our regulators and have told them we welcome them coming to take a look inside our operations. We welcome any suggestions they might have on things we can do better," the ANZ spokesman said.

Meanwhile, a Westpac spokeswoman said Westpac is fully co-operating with the FMA and Reserve Bank's review, and is already doing a range of work that will form the basis of its response.

"We will continue to work with them in an open and transparent way, and with their timeframes," the Westpac spokeswoman said.

A BNZ spokesman said his bank had nothing to add to comments made on Friday here and here, when it reported its interim financial results. 

An ASB spokesman said the bank has been closely monitoring the Royal Commission and takes "very seriously" the issues raised in Australia.

"We are committed to working openly and constructively with New Zealand regulators and responding to all their requests as a priority. The regulatory differences between New Zealand and Australia have been well documented. As part of these regulatory differences, ASB is governed by our own, independent board with a majority of independent directors. There are many other differences such as simpler banking operations in New Zealand, simpler products and a different culture. However, there are also similarities and therefore we will be working with our regulators to demonstrate why the issues raised in Australia do not apply here or, where we can learn from the Royal Commission and improve the outcomes for our customers, we will do so."

The FMA says it expects to receive a summary document from each bank providing an overview of its work programme by Friday 18 May.

"We will then assess this summary information and schedule a follow up meeting with your core team to discuss your response, agree next steps, timetable, further information requests and ongoing reporting. We will also work with you to schedule a meeting with your Board of Directors to discuss this work."

Separately, Banking Ombudsman Nicola Sladden told the NZ Herald that from next month the scheme will start auditing customer compliants it sends back to the banks, to make sure they are being treated fairly.

*Below is the letter sent by the FMA and Reserve Bank to the CEOs of NZ licensed banks and bank lobby group, the New Zealand Bankers' Association.

Letter sent by the FMA/Reserve Bank of New Zealand

3 May 2018

To the Chief Executives of NZ Banks and NZBA

New Zealand Banks’ response to the Australian Royal Commission into misconduct in Banking, superannuation and other financial services (Royal Commission)

Thank you for meeting with us on Monday evening. It was positive to hear the expressions of concern in relation to issues raised at the Royal Commission.  As we said at the meeting, we both believe that the nature and extent of the issues within financial services in Australia and the obvious cross-over in terms of entities, people and practices into New Zealand demands a strong response from the industry here and from the regulators.

We would like to set out the expectations of the FMA and the Reserve Bank as to next steps and to clarify the information and actions required from your organisation. Our objective in this exercise is to understand what work you have undertaken to review your operations to promptly identify and address any conduct and culture issues. We expect you to show us what you have done in order to be comfortable that there are no material conduct issues within your business. We anticipate that you will have undertaken an exercise of that nature after our Conduct Guide (published in February 2017) and may be extending or enhancing that work in response to issues raised at the Royal Commission or more broadly as a result of that inquiry.

As we discussed on Monday, the window for you to demonstrate to consumers, regulators and other stakeholders that they can have full confidence in the financial services industry in New Zealand is narrow, and we encourage proactive leadership from the retail Banking sector.

Aspects of banking conduct and culture fall within the regulatory remit of both the Reserve Bank and the Commerce Commission. This letter has been shared with and has the support of the Commerce Commission. In addition, we advise that the responses we seek from you will be shared with both of these agencies.

Your response

We acknowledge that we have already received initial responses from some Banks which vary in the extent to which they outline specific work already undertaken or more recently underway. We would comment that an open invitation from Banks to us to come and look at their operations is not sufficient. We reserve the right to conduct on-site monitoring as and when we feel it is necessary (including in response to material that you provide us) but the purpose of this exercise is to understand how you as leaders of your businesses have obtained assurance that misconduct of the type highlighted in Australia is not taking place here. To clarify, we request a written response from your organisation outlining:

·The actions you, your Board and your senior teams have taken to identify and address conduct risk – including any “gap analysis” work against the expectations set out in the FMA’s Conduct Guide

·Any specific plans and actions you have taken (or have underway) to respond to the issues and themes arising from the Royal Commission

·Any other work you have underway or that is planned to proactively identify and address potential conduct and culture risk

·Any work underway to remediate any identified issues where bank conduct has resulted in detrimental outcomes for customers. 

We envisage receiving from you a summary document that provides an overview of your programme of work including: 

·the key objectives of your work

·structure, approach and level of resourcing of your work

·level of Board and senior management oversight and reporting

·key personnel involved

·summary of any early findings/insights to date

·details of any remediation programmes underway

·any other summary information that will help to provide us with a view on level and depth and focus areas of your current inquiries.

Time frames

Please provide this overview to the FMA no later than Friday 18 May 2018. We will then assess this summary information and schedule a follow up meeting with your core team to discuss your response, agree next steps, timetable, further information requests and ongoing reporting.  We will also work with you to schedule a meeting with your Board of Directors to discuss this work.

We intend to be fully open and transparent in our inquiries and interactions with you and we expect the same approach from your organisations. We encourage early discussion of any areas where you anticipate that some remediation may be appropriate or where you are considering changes to product offerings, sales practices or business structures

We will also continue to focus on areas we have previously signalled as priorities, including:

·the FMA’s thematic review on soft commission in life insurance

·the Financial Adviser Act reforms

·the FMA’s thematic work on incentives in vertically integrated institutions

·QFE Insurance provider replacement business

·Follow up initiatives from the Reserve Bank’s 2017 Bank Director Attestation Review

·Our stakeholder relationship management programme – we anticipate deepening our priority focus this year on governance and culture within financial services firms.

Please also share this letter with your Boards of Directors. We will publish this letter on our website in the interests of transparency.

We welcome your help to improve our coverage of this issue. Any examples or experiences to relate? Any links to other news, data or research to shed more light on this? Any insight or views on what might happen next or what should happen next? Any errors to correct?

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11 Comments

The approach of FMA/RBNZ is fully justified and ought to be appreciated by NZ consumers and businesses alike. And by the coalition government as well.

Indeed - great to see FMA/RBNZ acting proactively. It's to be hoped that the response of the banks will be equally proactive.......

Rob Everett and Adrian Orr are two gentlemen who are not noted for tolerating argy-bargy.

TTP

Pleasing to see the details of this letter and in particular the acknowledgement of risk of cross-over in terms entities, people and practices. At this stage the demand for specific information, a tight timeline and intent to follow up provides a degree of accountability and assurance.
There has been significant movement in the FMA's and NZRB position since their first comments possibkly in reaction to press and public comment. Little has been heard from Ktris Faafoi since; pulled his head down below the parapet since? .
The banking system depends of a very high level of public trust and confidence so it is important that the FMA and NZRB continue to keep the public fully informed not only of the outcomes but their actions. The acknowledgement that the banks that they had implemented some changes arising from the situation in Australia is pleasing but indicates that not all was necessarily of acceptable practice.

Yes, this represents some serious backpedaling. Which makes sense because they didn't need to put their own necks on the line by saying what they originally said.

Impressive – no nonsense, no “wiggle room”.

"We would comment that an open invitation from banks to us to come and look at their operations is not sufficient." - silly little ruse from the banks and nothing but an embarrassing strategy I would have thought.

Clearly mess with this at your peril – best come clean, best sort it out.

Do you really want to be on the front pages?

Isn't it odd that a bank CEO would invite regulators to come and have a look? Shouldn't regulators be doing that anyway? I think the fact the RB and FMA are making a show of force now in the wake of the Royal Commission may be evidence that their usual style is "hands-off"... "we'll leave it up to you to tell us if you have any problems". I don't find it reassuring at all.

There should be a system of regular randomised and end-to-end auditing in place for all products banks retail which is initiated by the regulator. If issues are flagged (e.g. staff misrepresenting income details to approve loans) then that bank should be flagged for more auditing to gauge the scale of the problem. It’s not enough for regulators to sit in an office and dictate rules, they must understand the business they are regulating from a grass roots level up. If that means hiring experienced people from within the industry (poachers turned gamekeepers) who understand the characteristics of individual products or organisations then do so.

Lip service.

The Board, and lawyers of the various banks will be frantically drafting responses to appease the authorities. This is a completely cynical attempt by the authorities to contain a problem that has the potential to derail the squeaky clean reputations of the banks, and to this point regulator.

It is implausible to carry out a review of the scale, and complexity that the fma, and rbnz want, and report back within a week.

.. report back within a week.

Let us set an example to the banks to do proper maths and report honestly. 18th May is 2 weeks away ;-) not a week as u suggested

correct. math not my strong point. still semantics.

The Eye of Sauron has moved.

When are NZ banks going to come clean on their fees.(ie Eftpos cards are free but Debit cards incur a cost, yet both cards are using one's own money.) I understand credit card costs because one is using their money.
They have wiped ATM fees only because of Australian moves and NZ public pressure.but NZ banks have never provided any consumer initiatives of their own that will impact their profit margins even marginally.
They are long overdue for scrutiny.because consumers need more friendly assistance for being their customers.