November 5, 2018 / 1:03 AM / 13 days ago

NZ bank review urges tighter regulation in the wake of Australian inquiry

* NZ regulators find weaknesses in banks’ risk management

* Review recommends stronger regulation of banks

* Widespread problems found in Australian banking sector not seen in NZ

By Charlotte Greenfield

WELLINGTON, Nov 5 (Reuters) - New Zealand’s central bank and financial markets regulator said on Monday they had found “significant weaknesses” in banks’ risk management and called on the government to tighten up regulation.

After a five-month inquiry into banks’ conduct sparked by neighbouring Australia’s financial services Royal Commission, the Reserve Bank of New Zealand (RBNZ) and Financial Markets Authority (FMA) concluded that New Zealand banks needed to markedly improve how they identify and manage unethical behaviour.

“The governance of conduct risk in the banks requires serious attention,” FMA Chief Executive Everett said in an emailed statement.

However, the regulators said they had not identified the widespread misconduct or poor culture to the extent found in Australia’s inquiry, which has rocked the Australian parent companies of major banks in New Zealand.

The Royal Commission inquiry into Australia’s financial sector began in February following a string of scandals involving rate rigging, money laundering and unethical conduct in wealth management and insurance.

The sector has been hit by months of revelations of wrongdoing coming out of enquiry, driving down share prices and trashing the reputations of some of the country’s biggest companies.

Australia’s ‘Big Four’ largest lenders have all been named and shamed in the inquiry, including Australia and New Zealand Banking Group which operates New Zealand’s largest bank through a subsidiary.

Commonwealth Bank of Australia, Westpac Banking Corp and National Australia Bank also have subsidiaries in New Zealand.

The RBNZ and FMA called on New Zealand’s government to tighten up regulatory oversight, suggesting it consider imposing a legal duty on banks to protect customers’ interests and require banks to have adequate systems to manage conduct risks.

The regulators will also provide tailored feedback to each of the 11 banks in the review, which will be required by the end of March 2019 to report on their plans to address any issues. (Reporting by Charlotte Greenfield, editing by Eric Meijer)

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