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FMA and RBNZ report on bank conduct and culture

The Financial Markets Authority and Reserve Bank of New Zealand have completed their joint review into the conduct and culture of 11 New Zealand banks. The review is the first of its kind in New Zealand.

The Financial Markets Authority and Reserve Bank of New Zealand have completed their joint review into the conduct and culture of 11 New Zealand banks. The review is the first of its kind in New Zealand.

The regulators identified significant weaknesses in the governance and management of conduct risks.  These weaknesses have resulted in a number of issues that require remediation.  Banks’ lack of proactivity in identifying and remediating conduct issues and risks means vulnerabilities remain.  The FMA and RBNZ conclude that the overall standard of banks’ approaches to identifying, managing and dealing with conduct risk needs to improve markedly.

The regulators found a small number of issues related to poor conduct by bank staff which the banks are following up.  However, based on their findings, the FMA and RBNZ do not consider that widespread misconduct or poor culture issues currently exist across banks in New Zealand.

Rob Everett, FMA Chief Executive, said: “The governance of conduct risk in the banks requires serious attention.  Boards and senior management must address the recommendations and findings from our review with urgency. The FMA published a guide to good conduct in February 2017, but some banks have only now started to consider these issues, with most of the initiatives not going deep enough.”

Adrian Orr, Reserve Bank Governor, said: “To promote a sound and efficient financial system, banks have a responsibility to ensure customers receive products and services they understand.  These products and services must be suited to customers’ needs on an ongoing basis.  Failure in this responsibility exposes customers, banks, and the wider economy to unnecessary risk – as dramatically demonstrated by the recent Global Financial Crisis.”

Recommendations for banks and next steps

All 11 banks reviewed will receive individual feedback. Each bank must report back and provide plans to address regulators’ feedback by the end of March 2019.

Some key areas have been identified for improvement, including:

  • Greater board ownership and accountability – including being able to properly measure and report on conduct and culture risks and issues
  • Prioritising the identification of issues and accelerating remediation
  • Prioritising investment in systems and frameworks to strengthen processes and controls
  • Strengthening staff reporting channels, including whistleblower processes for conduct and culture issues
  • Removing all incentives linked to sales measures and revising sales incentive structures for frontline salespeople and through all layers of management.

Regulatory issues

While the principal responsibility for developing strong governance and management frameworks for conduct risk remains with banks, the current regulatory settings do not provide sufficient scope for regulators to hold banks to account for their conduct.

The report sets out a number of options the government could consider to address these issues, the regulators acknowledge further policy work will be required.

More information



Naomi Mitchell
Manager, Communications
027 294 3900
[email protected]


Andrew Park
Media Manager
021 220 6770
[email protected]




  • Eleven retail banks that account for 99% of household deposits have been reviewed over four months. This comprised 391 interviews with more than 500 bank staff in 13 towns and cities, including directors, managers and frontline workers.
  • It was not an audit of individual files or accounts, or a detailed investigation of historical cases like the ARC.
  • In addition, RBNZ and the FMA have sought input from six banking sector stakeholders including consumer advocacy groups, bank workers’ unions, the Banking Ombudsman and NZ Bankers’ Association. A consumer survey of 2,000 banks customers has also been undertaken.
  • Despite the lack of specific conduct regulations for banks, the regulators have used the current international focus on banking conduct and their general responsibilities for overseeing governance and risk management as the impetus for this review. But neither the RBNZ nor the FMA has an express mandate or resources to regulate overall bank conduct.
  • The FMA has completed its own separate thematic review into bank incentives structures which was already in its work plan for 2018. This will be published on November 15th.
  • The Commerce Commission has been kept informed during the process.