Results from the regulatory Royal Commission-lite enquiry into the NZ banking sector could take months to emerge.
According to a Financial Markets Authority (FMA) spokesperson, the regulatory bank information-gathering exercise – triggered in response to a horror-show performance at the Australian Royal Commission (RC) into financial services in April – would take some time to collate.
“We will publish the results in a thematic review but it is likely to take months rather than weeks,” the spokesperson said.
The FMA, along with the Reserve Bank of NZ (RBNZ), issued the post-RC demand to NZ banks early this month with a May 18 deadline to supply written replies detailing:
- Actions taken to combat “conduct risk” in general;
- Specific response to “issues and themes” identified in the RC;
- Other work underway, or in train, to “proactively identify and address potential conduct and culture risk”; and,
- Remediation plans where “bank conduct has resulted in detrimental outcomes for customers”.
With eight or nine banks caught in the probe, the twin regulators have accumulated a reasonable work-load with the replies. The paperwork is set to pile much higher next month following a similar demand sent to the country’s insurance companies.
However, insurers have been given almost a month to compile responses compared to the two-week deadline for banks.
The insurance company investigation – again a joint FMA/RBNZ production – follows a recent meeting with the Financial Services Council (FSC).
“At the meeting we reiterated our views 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,” the letter says. “We acknowledge the strong support and engagement we received from the FSC Board.”
The FSC says it would soon “provide a full and comprehensive response” to the letter while continuing to work closely with the regulators.
In a release, Richard Klipin, FSC chief, said: “Like the FMA and the RBNZ we take the issues arising from the Royal Commission in Australia very seriously and are committed to working closely with them to demonstrate that consumers can have confidence in the New Zealand financial services industry.”
The third and final round of the Australian RC, which began last week, concludes this Friday.
After round one and two – focusing on consumer lending and financial advice, respectively – the final RC bout hinges on “the conduct of financial services entities in respect of their dealings with small and medium enterprises, in particular in providing credit to businesses”.
“The hearings will also explore the current legal and regulatory regimes, as well as self-regulation under the Code of Banking Practice,” according to RC materials.
An interim RC report is due in September with final recommendations to be published next February. To date, the RC has received 5,540 public submissions.
Last week the FMA also released a study showing the Financial Markets Conduct Act (FMC) has not reduced the prevalence of weird, potentially suspect, price movements on the NZX.
The analysis – carried out by Victoria University scholar, Anna Hensen – found the NZX ‘market cleanliness statistic’ (MCS), while volatile, had not been substantially affected either way by the introduction of the FMC in 2013.
After sifting through stock price movements ahead of ‘material announcements’ over 2010-2016 (used to create the MCS), Hensen found the cleanliness level showed no “statistically significant” trend during the period.
“The report also assessed whether the introduction of additional laws relating to equity market conduct in 2013 made a difference to the MCS,” the study says. “This was found not to be the case.”
However, the report says “enforcement” rather than legislation itself would more likely affect the MCS.
“The first prosecution for insider trading in New Zealand was not completed until 2017 so the significance of this was not able to be assessed,” the study says.
Last year former Milford Asset Management portfolio manager, Mark Warminger, was found guilty on two insider trading charges (out of 10) brought by the FMA.