Watchdog calls for bank reform
Chief financial watchdog Rob Everett says laws must be passed to regulate banks’ treatment of customers because ‘‘bad things happen’’ when banks are not regulated.
The lessons of the Australian banking Royal Commission, and the joint Financial Markets Authority and Reserve Bank reviews of bank and insurer conduct had demonstrated the need for ‘‘conduct’’ laws to protect the public, Everett said.
‘‘It’s fair to say what the Royal Commission brought home in a very public way is all firms in financial services should have those obligations.
‘‘If the focus on that behaviour, and the treatment of customers is allowed to come off, bad things happen. That focus does need to be relentless. It does need to be consistent.’’
There has been a heightened focus on bank behaviour both as a result of the Australian Royal Commission and media coverage in New Zealand, including about the ANZ chief executive expenses affair, and insights provided by a trove of NAB/BNZ documents released by an Australian whistleblower.
‘‘What we have seen in our work, both here and what we have seen in other jurisdictions, tells us that [treating customers well] can’t be left to the industry to do for themselves,’’ Everett said.
Legal duties to treat customers well, and increased funding, would allow the Financial Markets Authority (FMA) to insist banks and insurers built systems to protect customer interests, and take action, if those systems were not strong enough.
‘‘Right now in New Zealand we don’t have that,’’ Everett said.
The FMA, in conjunction with the Reserve Bank has been pushing for change at the banks, using the limited mechanisms available to it now, including the threat of public shaming.
‘‘We will push as hard as we can on those sectors to try and make sure we try to put as much pressure as we can under our existing remit,’’ he said.
One example of that pressure followed the review of bank conduct and culture with the FMA and Reserve Bank asking banks to remove the sales incentives and targets for products like KiwiSaver, loans and credit cards.
These incentives have been the target of anger in Australia for having created a sales over service culture in banks, and similar criticisms have been voiced in New Zealand.
Banks in New Zealand have committed to removing those sales incentives for staff, Everett said. But he did not believe they had made those commitments willingly.
‘‘It’s fair to say there were some deep breaths taken in the banking sector because I think we were going further than, I think, virtually any other jurisdiction,’’ Everett said.
‘‘We don’t see a way you can operate in the way you should be operating with incentive structures like that. The experience in Australia proves that.’’