The Financial Markets Authority (FMA) and Reserve Bank of New Zealand (RBNZ) have completed their joint conduct and culture review of 11 New Zealand banks, and have identified “significant weaknesses” in governance and conduct risk management.
The regulators have highlighted a lack of bank proactivity in identifying and remediating conduct issues, which they say has resulted in a number of concerns that require “immediate remediation.” They also found isolated issues related to poor conduct by bank staff, though they are satisfied that this conduct is not widespread or systemic.
“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 stated.
“While some banks have been thinking about conduct and culture for some time prior to our review, the approach of others can be described as reactive at best, and complacent at worst.
“Overall, there are weaknesses in the governance and management of conduct risks, and significant gaps in the measurement and reporting of customer outcomes. These weaknesses leave New Zealand banks vulnerable to misconduct and to the issues seen in other jurisdictions.”
The FMA and RBNZ will be providing detailed findings of their results to each individual bank, along with feedback on the improvements they need to make. The banks will then need to develop a plan to address the feedback and report back on their progress by the end of March 2019.
Commenting on the review, FMA chief executive Rob Everett 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.