The Reserve Bank wants more focus on material regulatory breaches by lenders to sharpen up its light-handed supervision of the sector.
The central bank decided to review whether a materiality threshold would be useful after a review of the attestation regime for directors suggested the status quo was diverting directors’ time away from more important issues.
Under the current rules, a bank that doesn’t comply with the conditions of registration has to publish a description of any breach in that period. However, the regulator proposes introducing a threshold on publishing the breaches. The RBNZ largely wants to retain the status quo on banks reporting those breaches to it.
The central bank said the benefits of the materiality threshold for publication would ensure readers of disclosure information don’t have to wade through trivial infractions, which also means banks can focus on issues that really matter.
“The purpose of financial regulation is to better align the private incentives on bank management with the public good, given the failure of the market to deliver that alignment,” the RBNZ said in a consultation paper.
However, that threshold would remove the certainty that all breaches are disclosed for what’s a “thinly-resourced” and “non-intrusive” prudential regime that relies on market discipline.
The consultation closes on Dec. 14.