Dob yourself in, misbehaving banks and insurers told
Thursday, 4 November 2021
Banks, insurers and other financial services companies should dob themselves in for financial mistakes and malpractice, the country's financial watchdog has told top lawyers in Auckland.
Self-reporting breaches of the law was now expected, and failure to do so would be considered a sign that companies did not take their legal duties seriously, said Karen Chang, acting general counsel at the Financial Markets Authority Te Mana Tātai Hokohoko (FMA).
“Among our minimum expectations for those we supervise … is that issues and potential breaches should be self-reported to the FMA,” Chang said.
“This is a sign that entities take their legal and licensing obligations seriously and, by informing us, they will endeavour to fix the issues quickly,” she said.
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But even if banks, insurers and others did self-report, they could still face investigations and legal action from the FMA, Chang said.
Financial services companies have increasingly made public statements about having self-reported failures to abide by laws, she said.
Often, however, this was actually the result of the companies being asked direct questions by regulators, Chang said.
“Proactive self-reporting, on the other hand, is unsolicited and a sign that, unprompted, you have identified issues you want to fix and consider relevant to us,” she said.
Last month, former FMA chief executive Rob Everett noted that there had been a rise in self-reporting since the authority joined forces with the Reserve Bank to do “conduct and culture” reviews of the banks and insurers, which started in 2018.
It could be tempting for financial services companies to try to tidy up their messes before telling the regulator, but Chang urged them to call the FMA soon after discovering they had failed in their duties to their customers.
“While entities may be tempted to wait until they have fully unravelled the problems before making first contact with the FMA, or their customers, we urge you to prioritise early engagement and stopping the harm,” she said.
“The more serious the misconduct – to consumers or to the market – the more likely we will take strong enforcement action, irrespective of how it was reported.
“A confession does not absolve responsibility,” she said.
Failing to tell regulators about breaches of the law was a high-risk gambit, Chang said.
In a recent case against ANZ over misleading conduct, the High Court ruled that timely self-reporting to the regulator was expected and failure to do so was an “aggravating” factor when it came to sentencing, she said.
“That was a fair-dealing case centred on issues that were reported to the FMA late and were not disclosed during our Banking Conduct and Culture review, where we specifically asked the entity to disclose such issues,” Chang said.
In the ANZ case, which led to the bank being fined $280,000, Justice Matthew Muir said that although ANZ had identified issues by May 2018, it did not disclose them to the FMA until just over a year later, despite specific requests from the regulator to tell it about any work the bank was doing to compensate customers for breaches of the law.
The judge said the FMA accepted this failure to disclose was not deliberate but was a result of the inadequacies of the bank’s systems.
The delay in self-reporting was an “aggravating feature of the breaches”, the judge said.
Chang also warned financial services firms that regulators expected them to compensate customers for breaches of their duties to them without having to be ordered to do so.
“Putting customers right is the bare minimum step we expect from entities,” she said.