Central banking observers are worried the finance minister and Reserve Bank of New Zealand (RBNZ) may have created a conflict of interest too fundamental to be managed.
The RBNZ is getting someone with close ties to a bank it regulates to do contract work for it.
NZ Post chair Rodger Finlay has been doing work for the RBNZ since October 15.
NZ Post (a state-owned enterprise) has a 53 per cent shareholding in Kiwi Group, which owns Kiwibank.
The RBNZ regulates Kiwibank, ensuring it holds enough capital, complies with anti-money laundering rules and follows loan-to-value ratio mortgage lending rules, for example.
Finlay has been on the RBNZ's "Transition Board", which is helping prepare the central bank for when new governance arrangements take effect under an update to the Reserve Bank Act.
RBNZ Board chair Neil Quigley told the Herald Finlay had been helping develop policy frameworks that can be recommended to the RBNZ's new board, which will take on a new governance role when it becomes operative on July 1.
As a Transition Board member, Finlay has also attended at least three RBNZ Board meetings as a guest.
He will join the RBNZ's new board when it becomes operative on July 1, finishing his term as NZ Post chair the day before on June 30.
Finlay's appointment to the new board was made by Finance Minister Grant Robertson.
The RBNZ disclosed Finlay's appointment on its website, noting his position at NZ Post and the fact he's sitting on the Transition Board ahead of joining the new board.
John Mendzela, a consultant with experience advising central banks around the world on governance, is "immensely" concerned Finlay is working for the RBNZ while still at NZ Post.
He believed the situation poses a conflict of interest "so fundamental, it can't be managed".
Mendzela said in his opinion "It must be prevented".
He said he didn't buy the argument conflicts of interest are inevitable in a small country, and finding board members might be even harder given the tight labour market.
Furthermore, Mendzela believed Finlay's skills and experience weren't so specific to central banking that one might consider making an exception for him.
The RBNZ's website says Finlay is also chair of Crown Regional Holdings and PGG Wrightson, deputy chair of Rural Equities Limited, audit chair of Ngāi Tahu Holdings, and a director or trustee of "several other New Zealand and internationally-based entities".
Among other roles, Finlay used to chair Kiwi Group Holdings, the Independent Advisory Panel of the Provincial Growth Fund, and New Zealand Oil and Gas.
Robertson said Finlay's appointment to the RBNZ's Transition Board "has been considered by the RBNZ (under its requirements of the Reserve Bank of New Zealand Act 2021) and found that any potential conflict of interest could be managed".
Quigley confirmed, "The interest has been noted in the RBNZ's interest register, and carefully considered in light of the requirements of the Reserve Bank of New Zealand Act 2021. We are satisfied his interest can be managed appropriately and does not disqualify him to be a member."
Asked exactly how potential conflicts were being managed, Robertson said: "That is a question for the RBNZ Board to consider but I've been advised by officials that any potential conflict of interest is manageable."
Quigley didn't specify exactly how the conflict was being managed, but said Finlay's "deep governance experience" was "invaluable".
Mendzela maintained his view that it was unacceptable for Robertson to lean on what he described as "technical deficiencies" in the Reserve Bank Act to justify the appointment.
He stressed his concern was over the integrity of the process, not over Finlay as an individual.
Former RBNZ manager Michael Reddell first raised concerns about the situation in his blog, which is often critical of the RBNZ.
In addition to pointing the finger at Robertson and the RBNZ, he believed Finlay should have ruled himself out of doing work for the RBNZ while still at NZ Post.
Reddell made the point that, being a RBNZ board member is so significant, the finance minister is required (under the Reserve Bank Act 2021) to consult with representatives of other political parties in Parliament before recommending the Governor-General appoints a person to the board.
"Where were the other political parties (National and Act in particular) when Grant Robertson consulted them about Finlay's appointment?" Reddell asked.
Consultant to the IMF and World Bank, Geof Mortlock, likewise said in his view the situation was "completely unacceptable".
He emphasised the point the new RBNZ board will have more responsibility than the existing one.
The RBNZ board is currently tasked with reviewing the performance of the RBNZ. Under the Reserve Bank Act 2021, the Treasury will do the reviewing, while the new board will become responsible for the RBNZ's governance and all its functions, other than monetary policy decisions (ie setting the official cash rate).
The new board will also be responsible for financial policy matters – developing prudential requirements for banks, other deposit-takers and insurers, supervising these entities, doing crisis management and running the new deposit protection scheme.
Institute of Directors chief executive Kirsten Patterson said that in general: "Boards, including regulators, benefit from having people with real-life experience in their industry on the board.
"In deciding whether a conflict is present in any given situation, the consideration should be whether a reasonably informed objective observer would form a view that the conflicted director's judgment is potentially compromised – to the detriment of the company's best interests."
Finlay will join Quigley, RBNZ Governor Adrian Orr and Susan Paterson on the new board from July 1.
Robertson is yet to announce up to five other appointments to the board.
Finlay has been contacted for comment. No response was received by time of publication.