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Banks, insurers' complacency 'hard to comprehend' - FMA

The complacency of the New Zealand banking and life insurance sectors in the face of the Australian inquiry into financial services misconduct was "frustrating" and "difficult to comprehend," the chief executive of the Financial Market Authority, Rob Everett, said today.

Friday, August 2nd 2019, 4:17PM 3 Comments

by BusinessDesk

Rob Everette

Speaking at the launch of a new financial integrity self-assessment tool for financial services providers developed by anti-corruption group Transparency International New Zealand, Everett said he had expected banks and insurers would have acted long before the FMA and Reserve Bank of New Zealand began their own review of conduct in the sectors following the release of the Australian royal commission's report last year.

Instead, the review left both agencies unconvinced that the financial sector had "done enough to create the engineering, the model that would address risks that they posed to their own customers and to confidence in the entire financial system".

"The banks and life insurers have had years to prepare for this," said Everett. "I found it hard to comprehend that the industry didn't get its act together and have a perfect story to tell."

Instead, the FMA and RBNZ had found enough evidence of poor practice to justify proposals for new legislation that is expected to place far higher behavioural standards and punishments on the financial sector than at present.

Finance Minister Grant Robertson, who also spoke at the launch, reaffirmed the government's belief that it did not need to conduct an Australian-style inquiry, but that "Australia's lessons are our lessons".

Without naming the ANZ bank, which allows staff one day a year to participate in volunteering activity, Robertson told how the chief executive of a "large-ish financial institution in New Zealand" had impressed on him the importance of banks' "social licence" to operate, and had cited a one-day-a-year volunteering scheme as proof.

"That person probably now understands more than ever how wrong and incorrect that statement was," said Robertson. ANZ Bank has been rocked by a series of reputational setbacks this year, including the resignation of its chief executive, David Hisco, who had claimed various expenses incorrectly. It was later disclosed that, in 2017, the ANZ had sold a home in Auckland's up-market St Helier's, which it had bought for Hisco, to his wife for less than it had been bought for in 2011.

Everett said that while the local review found "relatively little evidence of widespread misconduct" or illegal activity, the reviewers did not share the industry's confidence that the things happening in Australia could not happen in New Zealand.

"We were frustrated. The Conduct Guide (published by the FMA in February 2017) had either not really been looked at all by many of the institutions who were not directly licensed by us or had been looked at, discussed at board level, and then put to one side to gather dust in the corner.

"We saw insufficient action. In the life insurance sector in particular, notwithstanding that many of those firms are owned by overseas players who've been through the mill on this topic, we saw virtually no recognition of the fact that the Conduct Guide had even been published."

"The boring hard yards of culture and behaviour is not chiselling things on the wall and wearing badges to work. It's about building processes and designing your organisation in a way that, in this case the board, in some cases the regulators, want to actually repeat through the organisation on a sustainable basis," Everett said.

TINZ chair Suzanne Snively challenged banking and insurance executives and lobbyists at today's launch to participate in the financial integrity system assessment process that her organisation was pioneering, saying it should help them to meet both regulators' and customers' expectations.

The first round of self-assessments using the new tool would occur in about two months' time, with a range of financial service providers already testing the model. The first full assessment is scheduled for publication by the end of 2020.

Tags: banks FMA Life insurance

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Comments from our readers

On 5 August 2019 at 12:51 pm dcwhyte said:
Perhaps the NZ Banks' "frustrating" responses were down to the pretty soft landing the first report enjoyed.

All the same, lame, tame excuses for not having a Royal Commission in Australia were duly trotted out here, so the NZ Banks, despite having a constant trans-Tasman exchange of senior executives, practices and cultures, dodged a bullet.

Read Rob Stock's article today at Stuff and you might get some clues as to why the NZ banks caused "frustration". If ASIC was pinged by Hayne for being too lenient on the Big End of Town, by comparison, our efforts in NZ fall short of even the Australian regulator's paltry attempts.

As for the life insurers, none of the investigations nor any of the various reports revealed any statistically significant evidence that consumers were being provided with poor outcomes. The documents were full of subjunctives - "could", "can"' "may", "might" - but, unlike the Banks, no evidence of anything remotely like the credit card payment protection scam, the CDO scandal, and the others cited in Stock's article.

The TI initiative is a positive move - let's see how many accept the invitation and then let's see how these institutions measure up when a robust, properly structured research methodology is applied.
On 6 August 2019 at 9:29 am Elephant1 said:
With nearly $9,000,000,000, sitting in default kiwisaver funds, mainly controlled by Australian banks, I believe both the FMA and the banks should be holding their heads bowed. This is the major problem in the industry and the FMA has not shown any noticeable action over the last ten years. Why.?
On 7 August 2019 at 6:50 pm JPHale said:
Agree DCW.

The statement with the reviewers did not share the view what happened in Australia couldn't happen here completely overlooks the difference in size of the market, the smaller number of people involved, and the reality that those that break the law, don't care about following the law in the first place.

What was going on in Australia was against the law and regulations. Let's not forget that.

The issues in Australia are intertwined with the regulator as much as the providers and advisers.

If there is widespread unknown or uncovered illegal activity, the regulator is either asleep at the wheel or not asking the right people the right questions.

It's this balance of hard questions against an operating market that is difficult, however, what makes it easy to hide stuff is when the regulator approaches things in a particular way that enables participants to work around what's asked for while the regulator never reviewing if what they are asking for is still appropriate.

If the regulator isn't competently approaching regulation there should be no surprises that there is illegal activity going on.

Much the same as our mobile phone rules while driving, we have the rule but almost no one follows it. Inspect what you expect, and it's quite a different story.

If people can't manage not using their phone while driving don't expect them to self-report minor, and especially major, infractions of the financial rules. And a consequence of this is sales of useless products and conduct that is morally destitute.

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