Financial regulators peak body meets today as banks feel pressure to prove good behaviour

Wednesday 2nd May 2018

A little-known peak body of government agency chief executives will meet this afternoon to discuss next steps as New Zealand regulators step up pressure on the country's largest banks to prove they're not indulging in the kinds of sharp business practice uncovered in Australia last month by a royal commission of inquiry into the banking sector.

The meeting of the Council of Financial Regulators will bring together the head of the Treasury, Gabriel Makhlouf, the chief executive of the Ministry of Business, Innovation and Employment, Carolyn Tremain, the governor of the Reserve Bank of New Zealand, Adrian Orr, and the chief executive of the Financial Markets Authority, Rob Everett, along with two senior representatives of the Commerce Commission who have also been invited to attend.

The meeting follows one called by Orr and Everett yesterday of the New Zealand Bankers Association Council, where the chief executives of the Bank of New Zealand, ANZ's New Zealand operation, Westpac NZ, ASB Bank, AMP, KiwiBank and Heartland heard the two main financial regulators' message that it would be an inadequate response to New Zealand bank customers to take a "complacent 'it can't happen here'" approach to the issue.

The country's four largest banks are owned by Australian-headquartered parents, with BNZ owned by the National Australia Bank and ASB by the Commonwealth Bank of Australia, while ANZ and Westpac operate under as separate units under their Australian parents' brands.

In the last 10 days, the Australian inquiry has claimed the scalps of both the chair and chief executive of AMP amid disclosures about the Australasian financial services giant charging "fees for no service" and revelations from across the Australian banking sector about advice and performance fees being charged, in some cases, to the accounts of people who were dead, and mis-selling and conflicts of interest in advice being given by financial advisers.

Speaking to BusinessDesk, Everett said his first contact with the big four banks' CEOs was last Friday, and that today's financial regulators council meeting would in part focus on what the government agencies' next steps should be in determining how best to organise the deeper disclosure the RBNZ and FMA are seeking from the country's banks.

The Bankers Association said it has responded to regulators in a letter setting out the regulatory and market difference between Australia and New Zealand and said it has current work underway "to maintain public trust and confidence in the New Zealand banking sector."

"We believe we have a strong banking culture in New Zealand," association chief executive Karen Scott-Howman said in a statement. "We fully accept we need to back up that position with proof, and we’re happy to work openly and constructively with our regulators to do that."

Association chair David McLean, who is chief executive of Westpac, earlier told radio NZ that Australian-owned New Zealand banks operated with their own business culture and were closer to their customers in the smaller New Zealand market.

While Everett is saying there is no case for a formal banking inquiry "at this stage", the active involvement of the RBNZ in the current initiative is notable because it indicates the central bank sees the issues raised in Australia as bearing on its prudential supervision responsibilities as well as the FMA's formal responsibility for bank conduct in consumer markets.

"Historically, one would have said this is more conduct that prudential supervision," said Everett. "But Adrian Orr is interested in culture and how things are done. This is an opportunity for the FMA and RBNZ to meld things much more closely together."

At yesterday's meeting, the banks were given a fortnight to come back to the RBNZ and FMA with initial evidence of the efforts they had made to "scrub" their businesses for any signs of practices like those identified in Australia, and whether and what further initiatives were planned in that regard.

"What we make of what they show us, we may come back and ask for more and we may not apply a lot of weight to all of it, but as a minimum, they should able to back up the statements they are making" about standards in New Zealand being higher than in Australia, said Everett.

"Show us what you are planning to do now off the back of the royal commission that allows us to judge the state of industry preparedness to answer those questions," he said.

(BusinessDesk)

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