Reviews will strengthen regulation
15 Nov 2016
New Zealand’s regulatory regime will be strengthened and may become more transparent after current reviews are completed, according to consultant Geof Mortlock.
The International Monetary Fund (IMF) is assessing the country’s financial sector and will report high-level findings in the first half of next year, while the Reserve Bank of New Zealand (RBNZ) is starting its first review of the Insurance (Prudential Supervision) Act.
Mr Mortlock, who has consulted for the IMF, the World Bank and KPMG, says New Zealand had very limited regulation of insurers before the 2010 Act was passed.
The country still takes a light-handed approach compared with some international practices, and any proposed changes need to strike a balance, he says.
“The last thing you want is to be promoting a resilient insurance sector that is then in a straightjacket,” he told the Insurance Council of New Zealand annual conference last week.
The RBNZ is expected to release an issues paper later this year, with an options paper due next year and draft proposals in 2018.
Mr Mortlock says it is questionable whether the RBNZ should examine its own regulation, and an independent review by Treasury would have been preferable. Improved transparency from the central bank is likely to be a key issue in the review.
“I think that is where we do need to lift the game quite a lot,” he said.
The IMF review may include recommendations around strengthening governance, deepening RBNZ expertise, improving international co-ordination, and ensuring recovery and resolution arrangements in cases where there is a market shock, Mr Mortlock says.
Recommendations from the IMF Financial Sector Assessment Program are not binding but have significant influence.
New Zealand should consider a policyholder compensation scheme that could take effect if an insurer fails, similar to arrangements in countries including Australia, Mr Mortlock says.
“If we don’t have that, there is the risk of ad-hoc responses, such as governments being drawn into bailouts,” he told the conference.