New Zealand banks under fire as central bank launches review

The review comes as regulators find significant weaknesses in the governance and management of eleven of New Zealand’s banks.

Th eleven retail banks have been reviewed over four months, and account for 99% of household deposits.

Some of the ‘large banks’ include: ANZ, ASB, BNZ and Westpac, with a market share of at least 14%.

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.' Mr Everett said.

The FMA and RBNZ have found that the overall standard in identifying, managing and dealing with conduct risk needs to be improved drastically.

Hundreds of interviews with more than 500 bank staff were conducted including directors, managers and frontline workers.

Reserve Bank Governor, Adrian Orr, said 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.' Mr Orr said.

What are the regulatory issues and report findings?

The report focusses on the industry, rather than individual banks. The four largest banks are included in the report but referred to collectively.

Some key areas have been identified for improvement, including:

• Greater board ownership and accountability – including being able to properly measure and report on conduct and culture risks and issues
• Prioritising the identification of issues and accelerating remediation
• Prioritising investment in systems and frameworks to strengthen processes and controls
• Strengthening staff reporting channels, including whistle-blower processes for conduct and culture issues
• Removing all incentives linked to sales measures and revising sales incentive structures for frontline salespeople and through all layers of management.

All eleven banks reviewed will receive individual feedback, and each bank must report back and provide plans to address regulators’ feedback by the end of March next year.

The FMA has also completed its own separate thematic review into bank incentives structures that will be published later this month.