Suzanne Snively
The New Zealand Financial Integrity System Assessment (FISA) is the first ever review of the integrity framework of 
any country’s financial system.
Transparency International New Zealand (TINZ) will lead the review as it is uniquely placed to ensure both independence and objectivity.
The FISA methodology is in its final stage of consultation. The consultation document can be found on the TINZ website, transparency.org.nz/fisa.
Comments and suggestions about the questions, the subject areas, the approach, and the online self-assessment are welcome.
It is through discussions like this that there can be wider knowledge and understanding of the ways with which the financial system can improve outcomes for all New Zealanders.
Why the time is now
The recent Reserve Bank of New Zealand (RBNZ) and Financial Markets Authority (FMA) review into the major trading Banks said: “Overall, there are weaknesses in the governance and management of conduct risks, and significant gaps in the measurement and reporting of customer outcomes.”
They noted that there was “significant variation in the maturity of banks’ approaches to identifying, managing and remediating conduct risks and issues,” with some banks described as ”reactive at best, and complacent at worst.”
Their review into life insurers found: “Extensive weaknesses in life insurers’ systems and controls… governance and management of conduct risks is weak and there is a lack of focus on good customer outcomes.”
The report urged life insurers to act urgently.
FISA aims and objectives
The aim of the FISA assessment is to (a) Build trust and confidence in New Zealand’s financial system (b) Examine the state of integrity systems within the New Zealand financial system (c) Foster and support good conduct (d) Prevent and combat corruption, and (e) Reinforce a culture of integrity.
FISA will provide customers, citizens, communities, civil society organisations, government and businesses with information about the way the financial system identifies and seeks to prevent corruption. This enables them to identify good performance and push for improvement.
Financial organisations will have a blueprint for improvement enabling them to set clear priorities for preventing corruption while seeking the additional returns that result from improved integrity.
FISA Strategy
The FISA strategy to create a virtuous cycle is motivated by the following stages: (a) Online self-assessment completed by financial organisations, e.g. banks, finance companies, Kiwi-Saver providers, credit unions, building societies, and insurance companies (b) Publication of the anonymised results of the self-assessment (c) Review and context provided by the independent assessment (d) Development of TINZ tools for professional services firms to strengthen their advice to their financial services clients to enhance their integrity systems.
The next annual self-assessment provides an opportunity to monitor improved outcomes for policy, customers and staff.
Good conduct prevents corruption
The FISA assessment examines the extent that financial organisations implement seven key practices selected by Transparency International New Zealand that shape integrity systems. They are (a) Tone at the top (b) Continuous improvement in conduct and ethical behaviour (c) Strengthening integrity systems through effective communication and training (d) Up-to-date knowledge of relevant legislation/regulation (e) Avenues for reporting ethical standards breaches including anonymity for whistle-blowers (f) Effective Know Your Customer (KYC) and Know Your Supplier (KYS) procedures (g) Regular audits backed up by independent risk assessments that uncover corrupt practices and advise on weaknesses in integrity systems.
These seven key practices provide the framework for good conduct that contributes to the prevention of corruption. They are a platform for organisations to create and maintain strong integrity systems.
Benefits of strong Integrity System
FISA contends that financial organisations can harvest the benefits arising from a financial system that displays a high level of integrity. It strives to examine the practices that lead to improved outcomes and to measure the net change in these benefits.
Evidence will be collected about the following integrity system factors: (a) Reputation and brand (b) Easier market access (c) Lower costs (d) Customer loyalty (e) Easier access to quality capital (f) Quality committed staff (g) Higher returns/ productivity.
Organisations can grow in an ethical and sustainable ways from reaping these benefits by addressing bribery and corruption.
By examining the ways that financial organisations take steps to implement these factors, FISA will provide a context for a national discussion of what works best to sustain organisations that are committed to high levels of integrity.
Assessment Subjects
The FISA online self-assessment questions overall, relate to nine areas where there is pressure on integrity and risk of corruption which are (a) Policy (b) Government (c) Accountability (e) Information and communication (f) Human Capital (g) Customers (h) Operations (i) Risk Management and Monitoring (i) Procurement.
Independent assessors, with a strong background in the regulation, governance and scrutiny of financial organisations, will be appointed to conduct the financial sector assessment, using the responses to self-assessments as part of their evidence base.
Benefits Assessment
The New Zealand Story, the government’s brand research specialists, found widespread evidence that our country is regarded as unique in that it does business with integrity (see NZ’s reputation: perception or reality in this newsletter).
This is backed up by the World Bank analysis that regularly places New Zealand as number 1 as the best place to do business.
Despite these positive perceptions about New Zealand, its financial system is overlooked by many investors because of its small size.
The demonstration of willingness by banks, insurance companies, financial companies and other financial services providers to engage with a voluntary self-assessment, will draw the world’s attention.
At the same time, the assessment provides a framework to describe and demonstrate the positive attributes of the New Zealand financial sector.
Weak Governance
However, the recent reviews of the major trading banks and life insurers have established that weaknesses in both governance and management are leading to poor customer outcomes. FISA provides a framework for organisations to self-assess and then to address these governance and management issues. At the same time the framework enables growth in knowledge that leads to improved customer outcomes.
Importantly, an attribute of New Zealand, as a trusted society, is that it is possible to do the right thing without the need for extensive regulation. Financial organisations that participate in the FISA self-assessment will be well placed to strengthen integrity systems within their businesses.
Suzanne Snively is Chair of Transparency International New Zealand. The above article and picture appeared in the May 2019 issue of Transparency Times.
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Photo Caption:
Suzanne Snively
