Kiwis in line for better conduct from banks
The Australian banking inquiry is a reminder to institutions to ask “should we” before selling products to clients.
“New Zealand needs to start asking hard questions”
Kiwis stand to benefit from a banking royal commission of inquiry in Australia. Banks and other financial providers there have at times failed to provide best practice financial advice, been involved in dubious lending practices, have missold financial products, and committed other breaches of the laws governing them. The regulator, Australian Prudential Regulation Authority (APRA), says some of the country’s banks, many of which also operate in New Zealand, have “undermined community trust, drip by corrosive drip”. In New Zealand, banks and other financial institutions are required by law to put customer interests first, says Harbour Asset Management’s managing director, Andrew Bascand. Nonetheless, many of the Australian companies named in investigations there have New Zealand subsidiaries and the people at the very top in management and on the boards often straddle both countries. Some of the allegations tabled by the royal commission into misconduct in the banking, superannuation and financial services industry have been shocking reading, says Bascand. An APRA report said that one bank “turned a tin ear to the external voices and community expectations about fair treatment”. It went on to say: “Financial success dulled the sense of the institution.” The companies in question were at times pushing sales as far as the law would let them, it is alleged. What these Australian companies failed to do was ask the question “should we” in their dealings with consumers, says Bascand. The royal commission’s final report isn’t due until February 2019. There are likely to be more revelations between now and then and as a result lessons to learn. Already banks are making big changes to their business models. New Zealand has its own laws covering financial markets that already put the customer’s interest first. Even so, the Reserve Bank of New Zealand (RBNZ) and the Financial Markets Authority (FMA) have jointly requested a deep dive into New Zealand institutions after the revelations in Australia. Financial organisations here are looking to ensure that they are going beyond the question “can we do it”, and considering whether the entire way they do business is appropriate and ethical. That’s a quesion of “should we do it”, says Bascand. “We shouldn’t be complacent here in New Zealand and should be asking hard questions,” he adds. “Even if [companies] think they have a social conscience and place the client first, we should be testing those objectives.” New Zealand’s banks have been criticised in the past for requiring frontline staff to meet sales targets for products such as KiwiSaver, mortgages and insurance. Now the banks here have moved to withdraw their focus on sales and profit targets and directed staff towards better outcomes for clients and customer satisfaction. Harbour, like other fund managers, is licensed by the FMA, which requires that it places clients’ best interests first. Unlike some Australian institutions, most New Zealand financial providers have generally considered the financial advice model from this perspective, says Bascand. At the business level, the lesson is that financial providers’ boards need to upgrade their approach to risk and compliance functions to inject the “should we” into their DNA, says Bascand. “There seems to be an acknowledgement that the industry as a whole in Australia and New Zealand needs to shift its attention from just compliance-risk monitoring to incorporate both conduct risk and more generally adopting ethical behaviour,” says Bascand. Failing to do this could cost companies their long-term reputation. APRA, in its report, concluded that trust is the currency of banks and noted: “Improper conduct that undermines confidence or causes harm to customers devalues that currency.” Conversely, behaving ethically is ultimately good for business,” says Bascand.