Banks told: Front up with evidence

Friday, 4 May 2018

BNZ chief executive Angie Mentis said it only had 0.7 complaints per 1000 customers.

New Zealand banks have been given until May 18 to hand over internal documents detailing how they have responded to the Australian Royal Commission on Banking.

Australia's Royal Commission considering misconduct in the banking sector has heard of serious misconduct from the big four banks there. Those banks are the parent companies of New Zealand's biggest banks, too.

Reserve Bank governor Adrian Orr, and Financial Markets Authority chief executive Rob Everett , have published an open letter telling banks: 'an open invitation from banks to us to come and look at their operations is not sufficient'.

In their letter, Orr and Everett demand the banks report to them on the actions they, their boards and senior executive teams have taken to identify and address 'conduct risk' in the way they have treated their customers.

This includes any 'gap analysis' work done after February when the FMA published a conduct guide for banks.

Everett and Orr said the window for banks to demonstrate to consumers, regulators and other stakeholders that they could have full confidence in the financial services industry was narrow.

'We encourage proactive leadership from the retail banking secor.'

Everett and Orr said it was not enough for the banks to invite the regulators in to look at their operations.

FMA chief executive Rob Everett and Reserve Bank governor Adrian Orr said the window for banks to demonstrate consumers could have full confidence in the financial services industry was narrow.

'We reserve the right to conduct on-site monitoring as and when we feel it is necessary but the purpose of this exercise is to understand how you as leaders of your businesses have obtained assurance that misconduct of the type highlighted in Australia is not taking place here.'

They said they wanted a written response from each bank asking for the actions taken to identify and address conduct risk, any specific plans and actions taken or under way to respond to the issues highlighted by Australia's Royal Commission, any other work to identify and address conduct and culture risk and work to remediate identified issues that created detrimental outcomes for customers.

Banks were asked to provide that information by May 18.

The pair also demanded to be informed on the key personnel involved in the work, and the level of board and senior management oversight and reporting.

The FMA and Reserve Bank would then agree the next steps with each bank.

'We will then assess this summary information and schedule a follow up meeting with your core team to discuss your response, agree next steps, timetable, further information requests and ongoing reporting. We will also work with you to schedule a meeting with your board of directors to discuss this work.'

The industry has pointed to a lack of complaints about New Zealand banks as a sign that there are no problems here of the kind that plagued Australia.

BNZ said in announcing its half-year results this week that it only had 0.7 complaints per 1000 customers.

Banking Ombudsman Nicolaa Sladden said more people had sought her office's assistance this year but the number of escalated disputes had fallen.

'The number of complaints we receive about banks generally corresponds with their market share,' she said.

But Alex Sims, associate professor in commercial law at the University of Auckland, is a former board member of Telecommunications Disputes Resolution and has researched disputes resolution providers.

She said a lack of complaints did not mean no problems.

'Everyone complains about telcos but we had very few complaints. Things can be going wrong but no one complains. Then when someone does, more come to light and you realise there is a real problem.'

She pointed to Ministry of Business, Innovation and Employment research that showed consumer knowledge of dispute resolution schemes was low.

Sue Chetwin, chief executive of Consumer NZ, said a comparison could not be drawn.

'You could probably make the same point in Australia and look what's happening. I agree the Banking Ombudsman office is not well known – it's getting better – and people might not know they can complain. But a lot of what's happening in Australia people would not have even known was occurring.'

Sam Stubbs, founder of non-bank KiwiSaver provider Simplicity, said problems were usually not reported.

'My inbox is full of complaints. If there was a correlation between the number of complaints to the Banking Ombudsman and satisfaction with the industry, there wouldn't be so many calls for an inquiry.'

He said many people were too scared to complain because they feared consequences. Most customers felt their financial services provider held all the power, he said.