Culture and conduct have been key themes of 2018, as regulators in the Financial Services sector were active across a range of focus areas. We predict continuing high levels of activity through 2019, with an emphasis on banking and insurance conduct and culture issues, responsible lending requirements, anti-money laundering enforcement and anti-bribery and corruption efforts.

Focus on banks’ and insurers’ conduct and culture

Intense scrutiny across the Tasman through the Australian Royal Commission into misconduct in the banking, superannuation and financial services industry, was echoed in New Zealand by the Financial Markets Authority (FMA) and Reserve Bank of New Zealand (RBNZ) review of the major banks and life insurers’ conduct and culture.

 

The misconduct that came to light in the Australian Royal Commission’s hearings, together with the Sedgwick report and the APRA Prudential Inquiry into the Commonwealth Bank of Australia, has already seen New Zealand banks and insurers introduce proactive changes to their sales targets, performance frameworks and incentives for front-line staff.

 

Key issues emerging

With the FMA and RBNZ having reported in early November 2018 on banks, and in January 2019 on life insurers, we expect banks and insurers to continue assessing their practices, ensuring they are aligned with emerging guidance from the Australian and New Zealand reviews – that is the need to place customer interests at the centre of business.

 

Increased proactive action from regulators

Heightened scrutiny by the regulators of conduct and culture issues through 2019 is expected, with proceedings taken when breaches are identified. The Australian Royal Commission was particularly critical of the absence of enforcement action by some Australian regulators, and their failure to prevent widespread breaches of existing laws. The likelihood of enforcement action, rather than ‘softer’ responses, has therefore increased – we expect New Zealand regulators will wish to avoid being tarred with the same brush.

 

Potential changes to regulatory frameworks

There is the prospect of changes to the regulatory framework in light of the regulators’ view that there is a gap in their mandates to regulate overall bank and insurer conduct – a number of options have been laid out by the FMA/RBNZ's Conduct and Culture Report for consideration by the Government. The government has indicated it is planning to release a consultation paper on proposed changes for the financial services sector by May, and introduce legislation in 2019.

 

 - MinterEllisonRuddWatts