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NZBA, Banking Ombudsman support RBNZ proposal on material breach reporting

Friday 31st May 2019

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The New Zealand Bankers' Association and the Banking Ombudsman agree with the Reserve Bank that disclosure of banks’ breaches of their conditions of registration should be limited to “material” breaches only.

Their submissions are two of only three on this proposal, the third being from Indian multinational Bank of Baroda which says it “welcomes the improvements suggested” but it doesn’t want five years’ worth of breaches disclosed.

“We feel that publishing of breaches should be limited to the period of reporting … for a period of one year,” it says.

“Therefore, publishing breaches for 5 years can be modified to 1 year.”

Currently, banks have to disclose any and every breach of their conditions of registration in their disclosure statements.

However, because RBNZ reduced the frequency of each bank’s disclosure statements to twice a year, down from every quarter previously, RBNZ thinks half yearly is too infrequent for revealing breaches of banks’ conditions of registration.

So instead it wants to add a page linked to its new Bank Financial Strength Dashboard, the section of its website that replaced banks’ first- and third-quarter disclosure statements.

“In our view, the most important success factor for the website is making useful information available in a timely way for a wide range of stakeholders,” the Banking Ombudsman says.

“Information that is simple, accessible and meaningful is likely to be engaging to the widest range of people. By focusing on material breaches, the website will enable banking customers to easily identify relevant and significant breaches of prudential requirements without having to scan through long lists of minor breaches,” it says.

Because banks would still be required to report every breach to the central bank, as they are supposed to do currently, it is satisfied that the change "does not reduce the RBNZ’s level of oversight.”

NZBA says that overall, it agrees “that there are good grounds for introducing a materiality threshold in relation to bank disclosures.”

However, it doesn’t want to determine the wording describing each breach, which it says should be left to bank directors.

“NZBA strongly submits that a change to this responsibility would undermine the core pillar of self-discipline and ownership and accountability of the breach itself” and would be “inconsistent with RBNZ’s philosophy on the importance of self-discipline.”

The association also wants room made to address remediation of breaches. “Users of the website may not be aware that published breaches, which would remain on the website for five years, have been remedied.”

But it also wants more guidance from RBNZ on which kinds of breaches would be considered material.

It suggests including in the criteria whether the breach is an isolated incident or part of a recurring pattern, the impact the breach has on potential investors and depositors, and any matter which could have a significant impact on the bank’s reputation.

Whether a breach could result in serious financial consequences to the New Zealand financial system or to other banks should also be added to the criteria for deciding whether a breach is material, the association says.


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