Corporate regulator Clare Bolingford hopes to improve standards at banks and insurance firms in New Zealand with a less is more approach.
The Financial Markets Authority’s first Director of Banking and Insurance - appointed to oversee the FMA’s increasing role as a conduct regulator - believes the best approach is without reams of new rules.
But industry and the FMA will have to work well together for this kind of principles-based regulation to succeed, she told a FINSIA webinar entitled Less Is More.
With the issues uncovered at Australian Royal Commission into misconduct in financial services sounding alarm bells, reviews in New Zealand by the RBNZ and the FMA into conduct and culture led to the conduct of financial institutions regime (CoFI).
“Those reviews were carried out in 2018 in response to widespread public concern about events across the Tasman, and what emerged from the Australian Royal Commission,” said Clare, noting that banks and life insurers cooperated and made their own recommendations.
“Industry leaders in 2018 understood the risk of public confidence being shattered in New Zealand and understood these reviews were an opportunity to ensure that didn’t happen.”
As a 20-year veteran of the UKs Financial Conduct Authority, it is her believe that financial services delivered well “provides real opportunities to make a difference to people’s lives … and benefits customers, firms, the industry and New Zealand as a whole”.
But “the impact of poor conduct in financial services can be extraordinary on overall well-being”.
Going into more detail what Kiwi banks and insurers can expect, Clare explained it would take what’s called a largely principles-based approach, adding: “So you shouldn’t expect a big prescriptive rule book.
“I believe it is crucial, in conduct regulation particularly, to get the balance right between principles and rules.
“Rules are important when absolute consistency is needed, and the legislation does contain some rules.
"But to those who are looking for a detailed rule-based regime, I would guide you to be careful what you wish for. Rules provide clarity, but are often inflexible.
“A principles-based regime can be a challenge to implement, but it has a much greater opportunity to deliver the best results for both customers and the business itself.
“It means that you and your firm have to think about how to achieve the principles in practice, rather than relying on a checklist against set rules.”
The reason it’s the best way forward is that businesses know themselves far better than the regulator and are best positioned to consider how to achieve good compliance and fair outcomes.
“What works for one organisation won’t necessarily work for all,” added Clare.
“Ultimately if this is done right, it can deliver far more benefits to your business and your customers.
“So it means that this is not just about compliance plans, it is about good conduct risk management over time.
“Putting the customer at the heart of the business is about understanding more about your customers than market share, share of wallet, profit per customer or even net promoter scores.”