Legislation to improve regulators’ oversight of banks’ behaviour and to require more reporting on conduct by the banks themselves looks almost inevitable after comments from Prime Minister Jacinda Ardern and Commerce Minister Kris Faafoi today.
While a review by the Reserve Bank and Financial Markets Authority found no evidence in New Zealand of the systemic problems uncovered by the Australian Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry, Ardern said the findings that many banks had little in place to check their culture and practices were “a concern to the government”.
So, too, was the absence of powers for regulators to investigate banks’ culture and conduct.
“It’s obvious that banks do need to lift their game to be much better at identifying problems and risks early on and fixing them,” said Ardern. “There are clearly weaknesses within bank systems and processes that have resulted in some instances of poor conduct and as a result customers have been worse off. This isn’t good enough. We will be watching this closely and do expect to see tangible improvements in the conduct and culture of the banks.”
“We will be taking a good hard look at the gap in regulation in the banking system so we can avoid wider systemic problems, as seen in Australia.”
However, Ardern stopped short of criticising banks’ profitability, which has been in the news in recent days as several of the Australian-owned banks operating in New Zealand declared record profits.
“There are two separate issues there,” she said. “The RBNZ/FMA are interested in issues of conduct with specific findings and recommendations and we have a part to play. Some consumers might be looking at those profits and that might actually be more of an issue around competition. We need to deal with what’s being put in front of us, and we will.”
Asked whether there would definitely be legislation to close the regulatory gap identified in today’s report, Faafoi said: “You can expect that, I think. The report makes it pretty clear that there’s no obligation for the banks to report on their culture and their conduct.
“So, we will be looking at that and speaking to the FMA about that.”
However, the next steps are unlikely before March next year, when the banks will have to report back on individualised work programmes worked up for them by the regulators as a result of the findings of the inquiry. That will also give time for the government to consider any further issues that might be raised by the final report of the Australian royal commission, which is due to report in February.
Reacting to the report, financial services lead partner at accounting firm EY, Paul Roberts, said it was “disgraceful” that only six of the 11 banks had, prior to the review, measured their conduct and associated risk framework against conduct guidelines the FMA issued in February last year.
“We see the theme of complacency running right through today’s report,” said Roberts, “particularly the banks’ lack of proactivity in identifying, assessing and remediating conduct issues and risk”.
Finance Minister Grant Robertson said one chink of light was the fact that banks were moving to close down the systems of incentives for employees to make sales of additional financial services to customers.
“More broadly, there are issues around the amount of information customers have when they are in front of bank officers. Financial literacy remains a long-term issue, but there are also obligations on the banks themselves to be clear about the financial advice they are giving alongside products they are selling,” Robertson said.