Reserve Bank defends CBL probe
RBNZ says it keeps dealings with firms it regulates confidential unless things like industry stability are at stake
The Reserve Bank has defended its decision to keep its investigations into CBL Corporation confidential but acknowledged the tension that has created with shareholders.
Builders risk insurer CBL appointed voluntary administrators last month after the Reserve Bank — which regulates the insurance industry — went to court to appoint an interim liquidator to its subsidiary CBL Insurance over concerns about its solvency and transferring $50 million offshore.
The moves came after CBL revealed in early February that it had been under instruction by the central bank as far back as July but was subject to a confidentiality order which meant it had not told shareholders.
Geoff Bascand, deputy governor and head of financial stability at the Reserve Bank, said under the law it had to keep its interactions with those it regulated confidential unless certain reasons were met such as a risk to the stability of the industry.
He said as a regulator it had lots of engagements with those operating in the insurance sector and it needed those discussions to be candid.
“We can’t just go and tell people on the basis of our suspicions.”
Bascand said the fact that it had
We can’t just go and tell people on the basis of our suspicions. RBNZ deputy Geoff Bascand
commissioned an investigation into CBL was not a normal reason to disclose its involvement in a company publicly.
“We didn’t have any facts at that point.”
Bascand also pointed out that the company itself had duties to disclose to shareholders what was going on.
Companies can apply to the Reserve Bank for an exemption on confidentiality clauses.
But Bascand said CBL didn’t do that until February when it was looking at raising capital.
“It was at that point that we took it off,” he said.
It was then that the company revealed the Reserve Bank had been working with it as far back as July.
In July the regulator imposed a minimum solvency level on CBL and in November it told the company it had to consult with the bank on any non-business-as-usual transactions over $5m.
Bascand said it saw those directions as a way of avoiding greater damage at the company. But he said it didn’t have any more information at that stage that would have given it reason to identify the company.
Questions have also been raised over why the regulator didn’t stop the company paying out $50m overseas — transfers that triggered the Reserve Bank to apply to the court to put an interim liquidator in charge.
Bascand said CBL consulted it on part of the transfers — a € 25m (42.2m) payment.
“We gave them explicit directions not to make the payment.”
But the company went ahead and did it anyway.
Bascand said it did not have the power as a regulator to control the bank accounts of companies.
“We operate through directions to a company.” CBL Corporation managing director Peter Harris has claimed that the rest of the money transferred was business as usual for it given most of its operations are overseas based and therefore it didn’t need to consult the Reserve Bank.
But Bascand insists there were a series of payments which added up to over $5m that it should have been consulted on and the company didn’t.
The Reserve Bank has now received the final investigation report it commissioned from McGrathNicol — the company also in charge of CBLI’s interim liquidation.
But Bascand said it had yet to decide what it would do with it.
The report includes information around the commercial value of the business which Bascand said meant it was awkward to release as it could affect how much the liquidator could get for the sale of any assets.
It was the liquidators’ job to get the most out of the business, he said.
The bank is also taking advice on whether it will take legal action against the directors of CBL. “Potentially we could.”
Bascand said its role as a regulator was not to prevent failures but to maintain the system. But that may come as cold comfort to CBL shareholders who face losing a large amount of their money. The central bank has also faced criticism over whether it is well-resourced enough to regulate the insurance sector as well as the banks and non-bank lenders.
“We have certainly put a lot of resources into the CBL inquiries.
“In terms of the total system — we are thin — I couldn’t deny that.
“But we do have very competent staff and good industry knowledge.”
It has a 10-person team managing regulation of the industry and was in the process of adding another four people to that — a decision that was made before the CBL situation.
Bascand said the bank had talked to the Government about extending the team further on the back of recommendations by the IMF but that could not be done without further funding which was not available at the moment.
However, Bascand said the Government had indicated it could be part of phase two of the review of the Reserve Bank Act.