Orr says learnings will be taken from the industry, customers, and the Reserve Bank Act review
The Reserve Bank has promised to be “more intrusive” in its regulation and enforcement, and says it will be learning from the review of the Reserve Bank Act itself when considering how to go about regulation.
Speaking at the ICNZ conference, Reserve Bank governor Adrian Orr said that regulatory change has been “extreme” in the past year – not only in New Zealand, but globally. He says the Reserve Bank will now be absorbing feedback from the financial services sector and its customers to inform its policies, and that the core strategy will remain focused on its three key pillars – personal, market and regulatory discipline.
“Self-discipline is probably the one we all struggle with the most,” Orr said.
“It is really about the strength of the governance processes and internal controls, and the ownership of the entire conduct risk management side of the business, from the board at the top right through to everywhere else in the business.
“Unfortunately, we’ve lost a bit of our faith and confidence in self-discipline here at the Reserve Bank, and a lot of that comes from our findings from the life insurance conduct and culture review.”
“The second pillar is market discipline,” he continued. ‘That’s all about what you disclose to people and how people’s perceptions are acted upon – are you being seen as trusted and sound, or someone you wouldn’t want to do business with?”
Orr noted that consumers found the Reserve Bank’s approach to market discipline in the banking sector “incredibly useful and insightful” – its banking sector dashboard, for example, offered raw data on the liquidity, financial position, strengths and weaknesses of each bank, which helped more customers make informed decisions. He said the Reserve Bank would now be looking at doing a similar information release for the insurance sector.
“The third pillar is regulatory discipline, which is the laws of the land and what we do as your regulator,” he continued.
We have an enormous amount of work ahead of us, and the Reserve Bank Act itself has been under review. It’s better to first understand what the role of the Reserve Bank is, and we need to be thinking much harder around how we go about regulation.”
Orr said that a lot of cross-reference could be made with the outcomes of that review and how the Reserve Bank goes about regulation, with things like regimes for senior executives, and a range of other enforcement tools potentially being brought into play.
“Overall we will be far more intrusive,” Orr concluded. “We want to ensure that there is a level playing field, and that everyone is equally challenged, equally sound and equally trusted.”
