The Financial Markets Authority and Reserve Bank of New Zealand have completed their joint review into the conduct and culture of 11 New Zealand banks. The review is the first of its kind in New Zealand.
The regulators identified significant weaknesses in the governance and management of conduct risks. These weaknesses have resulted in a number of issues that require remediation. Banks’ lack of proactivity in identifying and remediating conduct issues and risks means vulnerabilities remain. The FMA and RBNZ conclude that the overall standard of banks’ approaches to identifying, managing and dealing with conduct risk needs to improve markedly.
The regulators found a small number of issues related to poor conduct by bank staff which the banks are following up. However, based on their findings, the FMA and RBNZ do not consider that widespread misconduct or poor culture issues currently exist across banks in New Zealand.
Rob Everett, FMA Chief Executive, said: “The governance of conduct risk in the banks requires serious attention. Boards and senior management must address the recommendations and findings from our review with urgency. The FMA published a guide to good conduct in February 2017, but some banks have only now started to consider these issues, with most of the initiatives not going deep enough.”
Adrian Orr, Reserve Bank Governor, said: “To promote a sound and efficient financial system, banks have a responsibility to ensure customers receive products and services they understand. These products and services must be suited to customers’ needs on an ongoing basis. Failure in this responsibility exposes customers, banks, and the wider economy to unnecessary risk – as dramatically demonstrated by the recent Global Financial Crisis.”
Recommendations for banks and next steps
All 11 banks reviewed will receive individual feedback. Each bank must report back and provide plans to address regulators’ feedback by the end of March 2019.
Some key areas have been identified for improvement, including:
While the principal responsibility for developing strong governance and management frameworks for conduct risk remains with banks, the current regulatory settings do not provide sufficient scope for regulators to hold banks to account for their conduct.
The report sets out a number of options the government could consider to address these issues, the regulators acknowledge further policy work will be required.
Re-disseminated by The Asian Banker