NZ banks and insurers failed to pick up on clear warning signs offshore of looming ‘conduct’ risks, according to Financial Markets Authority (FMA) chief, Rob Everett.
Everett told the local branch of Transparency International last week that NZ banks and life insurers had done little to ensure the local industry “had learned from the lessons of the UK, US, Australia and a host of other countries”.
“I’m not one to want to regulate the life out of any business but the industry had years to prepare itself and was found to not have been paying sufficient attention. Given the forest fire going on in Australia over the last five years or so (and certainly well before the [Royal Commission into financial services] RC was established), I find that hard to comprehend,” he said.
“Well, it looks as if the government is going to fill that regulatory gap and do so comprehensively.”
He said the recent FMA and Reserve Bank of NZ (RBNZ) reviews of the banking and life insurance sectors did not pick up any evidence of “systemic misconduct” uncovered offshore such as in the RC.
However, Everett said: “Sadly, our review told us that whilst much of the industry was confident that it had not happened here – and wasn’t going to – there wasn’t as much evidence as we would have expected of institutions having done all of the hard yards necessary to make that a realistic assessment.”
While the FMA/RBNZ bank and insurance reviews were “significant pieces of work”, he said the findings largely relied on information supplied by institutions themselves without many independent cross-checks.
“For that reason, we told the government that we did not believe the bank and insurance sectors had done enough to address the risks to investors and consumers posed by their own conduct,” Everett said.
Transparency International NZ (TINZ) launched a new ‘tool’ last week designed to measure NZ financial businesses against “seven key practices”.
The Financial Integrity System Assessment (FISA) will rate firms across:
- tone at the top;
- continuous improvement in conduct and ethical behaviour;
- strengthening integrity systems through effective communication and training;
- up-to-date knowledge of relevant legislation/regulation;
- avenues for reporting ethical standards breaches including anonymity for whistleblowers;
- effective Know Your Customer (KYC) and Know Your Supplier (KYS) procedures; and,
- regular audits backed up by independent risk assessments that uncover corrupt practices and advise on weaknesses in integrity systems.
Suzanne Snively, TINZ chair, said in a release: “We know from the regulators there is still work to do. From a transparency lens there is simply not enough evidence provided by the financial organisations to reassure customers they have nothing to worry about.”
The FISA data will be based on self-assessment across a range of criteria from institutions opting into the process with TINZ targeting banks, insurers, finance companies, credit unions and KiwiSaver providers.
TINZ plans to update the FISA self-assessment survey annually and publish “anonymised” results. As well, consultants will be able to use FISA to build ‘best practice’ standards and provide advice to financial firms.
Everett said the FISA survey has a much broader agenda and different process than the FMA/RBNZ ‘conduct and culture’ reviews.
“Indeed it goes so far as to attempt to assess regulatory oversight mechanisms,” he said in the speech. “The assessment goes beyond customer treatment and the mechanisms within banks and insurers to achieve the best possible outcomes for customers which is where the Conduct and Culture reviews were primarily targeted.”
The first FISA results should be in by early next year.
Transparency International is a global organisation dedicated to exposing corruption.