Lessons for New Zealand’s financial services sector from the Hayne Report

Leaders from New Zealand’s financial services sector attended seminars held at MinterEllisonRuddWatts’ Auckland and Wellington offices to better understand the local implications stemming from the Report of the Australian Financial Services Royal Commission (Hayne Report).

Partner Lloyd Kavanagh co-presented with Rahoul Chowdry of MinterEllison Australia, highlighting the key lessons and offering suggestions on what actions New Zealand’s financial services sector should take based on the report’s recommendations.

A summary of the discussion is below, and in-depth analysis of the Hayne Report by MinterEllison is available here.

Deliver sustainable value for stakeholders

Our key takeout is that the Hayne Report should be seen by New Zealand businesses as an opportunity and a catalyst to focus on providing sustainable value for all. This shift will challenge old paradigms for some organisations, but now is the time to act, as there is opportunity to take the lead.

As ripples from Australia lap New Zealand shores, this principle is relevant for all business sectors here. Raising the standards of governance and sustainability should be a focus across all industries and it is expected that directors who sit on multiple boards bring their knowledge from each board to benefit organisations in other sectors.

The Report speaks to the fundamentals of how ethical business should be conducted; and it is a powerful reminder that the successful delivery of long-term sustainable shareholder value is about balancing appropriately the needs of different stakeholders – including customers, employees, shareholders and the wider community.

The role of regulation and regulators

The Hayne Report’s call for more assertive enforcement in Australia are likely to raise expectations for New Zealand’s regulators too, though in our view they largely get the balance right today.

The Reserve Bank of New Zealand and Financial Markets Authority (FMA) are clearly placing greater responsibility on board’s and management in their recent bank and life insurer reviews. They are requiring directors to proactively ensure that appropriate standards are met by the organisations they govern.

New Zealand’s regulatory framework is less black letter than Australia, meaning businesses here must interpret regulation and test more to find out where ‘the lines’ are. There is an ongoing need to clarify principles in the law and to understand and uphold these standards.

New Zealand’s regulators have also identified that, in contrast to Australia, there are significant gaps in our existing regulatory framework. So, for example, proposals for consultation are expected from Government in May in relation to conduct regulation for core banking and insurance.

In addition, for Australian-owned New Zealand businesses, the Australian regimes have a direct impact. For example, the proposals to extend the Bank Executive Accountability Regime (or BEAR) to all APRA regulated entities including insurers and superannuation trustees, means the management teams of their New Zealand subsidiaries will need to consider their obligations, just as the bank teams have had to do.

Meet the new standards of governance

Across the sector, higher levels of responsibility and involvement by boards, especially non-executive directors are being required. To meet the increase expectations and standards, it is important to understand the following issues and how they need to be managed:

  • governance, culture and remuneration;
  • the importance of non-financial risk, alongside financial risk;
  • managing or eliminating conflicts of interest; and
  • promoting greater professionalism in the industry.

The points above are all interrelated. Addressing conflicts of interest impacts remuneration and incentives, and responsible governance helps to bring about cultural change and renewed focus on the customer and non-financial metrics. Meanwhile, greater transparency will help to maintain these standards of professionalism.

Many lessons for New Zealand businesses

While the Hayne Report has many lessons for New Zealand businesses, management and directors should also take a cue from the FMA's “A guide to the FMA’s view of conduct” . Although published in 2017 for FMA licensed entities – it is now a clear New Zealand benchmark to which a wide range of businesses should compare themselves, and which Regulators are using in the current round of reviews.

Who can help?

The trans-Tasman links between MinterEllisonRuddWatts and MinterEllison mean our firms are uniquely placed to assist businesses to adapt to new challenges and provide sustainable value for our clients.

Who can help

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