The complacency of the New Zealand banking and life insurance sectors in the face of the Australian inquiry into financial services misconduct was "frustrating" and "difficult to comprehend," the chief executive of the Financial Market Authority, Rob Everett, said today.
Speaking at the launch of a new financial integrity self-assessment tool for financial services providers developed by anti-corruption group Transparency International New Zealand, Everett said he had expected banks and insurers would have acted long before the FMA and Reserve Bank of New Zealand began their own review of conduct in the sectors following the release of the Australian royal commission's report last year.
Instead, the review left both agencies unconvinced that the financial sector had "done enough to create the engineering, the model that would address risks that they posed to their own customers and to confidence in the entire financial system".
"The banks and life insurers have had years to prepare for this," said Everett. "I found it hard to comprehend that the industry didn't get its act together and have a perfect story to tell."
Instead, the FMA and RBNZ had found enough evidence of poor practice to justify proposals for new legislation that is expected to place far higher behavioural standards and punishments on the financial sector than at present.
Finance Minister Grant Robertson, who also spoke at the launch, reaffirmed the government's belief that it did not need to conduct an Australian-style inquiry, but that "Australia's lessons are our lessons".
Without naming the ANZ bank, which allows staff one day a year to participate in volunteering activity, Robertson told how the chief executive of a "large-ish financial institution in New Zealand" had impressed on him the importance of banks' "social licence" to operate, and had cited a one-day-a-year volunteering scheme as proof.
"That person probably now understands more than ever how wrong and incorrect that statement was," said Robertson. ANZ Bank has been rocked by a series of reputational setbacks this year, including the resignation of its chief executive, David Hisco, who had claimed various expenses incorrectly. It was later disclosed that, in 2017, the ANZ had sold a home in Auckland's up-market St Helier's, which it had bought for Hisco, to his wife for less than it had been bought for in 2011.
Everett said that while the local review found "relatively little evidence of widespread misconduct" or illegal activity, the reviewers did not share the industry's confidence that the things happening in Australia could not happen in New Zealand.
"We were frustrated. The Conduct Guide (published by the FMA in February 2017) had either not really been looked at all by many of the institutions who were not directly licensed by us or had been looked at, discussed at board level, and then put to one side to gather dust in the corner.
"We saw insufficient action. In the life insurance sector in particular, notwithstanding that many of those firms are owned by overseas players who've been through the mill on this topic, we saw virtually no recognition of the fact that the Conduct Guide had even been published."
"The boring hard yards of culture and behaviour is not chiselling things on the wall and wearing badges to work. It's about building processes and designing your organisation in a way that, in this case the board, in some cases the regulators, want to actually repeat through the organisation on a sustainable basis," Everett said.
TINZ chair Suzanne Snively challenged banking and insurance executives and lobbyists at today's launch to participate in the financial integrity system assessment process that her organisation was pioneering, saying it should help them to meet both regulators' and customers' expectations.
The first round of self-assessments using the new tool would occur in about two months' time, with a range of financial service providers already testing the model. The first full assessment is scheduled for publication by the end of 2020.