Australia’s Royal Banking Commission has turned the spotlight firmly on to issues of conduct, culture and associated risks in the banking and financial services sector across the ditch.

But given the ties between New Zealand’s major banks and their Australian parent banks, it was inevitable that questions would be asked about conduct and culture here.

This prompted New Zealand’s regulators – the Reserve Bank and the Financial Markets Authority (FMA) - to ask the banks’ formal questions around their conduct, culture and potential risk.

While the Reserve Bank says it has not yet seen evidence of widespread, systemic issues that would warrant a commission of inquiry, the review is ongoing and what the regulators’ find might test that initial view.

All this means that conduct continues to be front and centre of mind for New Zealand’s banking sector, according to KPMG’s latest Financial Institutions Performance Survey (FIPS).

As the Reserve Bank-FMA review continues, the FIPs says the challenge remains for New Zealand’s banks to meet the “high bar” of the regulators’ expectations in regards to good conduct and culture.

KPMG head of banking and finance John Kensington says New Zealand’s banking sector does have a different culture to that in Australia, but that views of acceptable conduct have changed.

“It’s wider than just the banking sector though: look at the #MeToo movement for example. The world is different now and, in all sorts of areas, conduct that was once acceptable isn’t any more.

“The Reserve Bank and FMA is asking the banks to stop just saying they are different to Australian banks and prove it.”

In his view, the Reserve Bank and FMA’s initial comment that there was varying depth, quality and maturity in the banks’ approaches to conduct risk is significant.

It suggests that banks’ should not be resting on their laurels and assume that the same issues occurring in Australia don’t exist within New Zealand’s banking system.

Kensington says the banks’ should consistently find ways of measuring, assessing and revisiting whether their activities continue to meet “community standards and expectations”.

“With the regulators due to follow up progress, there is no time like the present for banks to assess whether they are equipped to hurdle the ‘high bar’.”

But he thinks the banks’ will learn some lessons from the Australian Royal Commission and there will be adaptions in line with the changing landscape.

They will review some processes that either don't sit well or could be improved and will apply the lessons learnt to other processes, he says.

“There will be a cultural shift as they start to say everything we do should be focused on the good of the customer rather than a mixed model where it's good for the customer but also earns fees.”

Massey University banking expert David Tripe agrees it is reasonable for the Reserve Bank and the FMA to be asking questions about New Zealand banks’ conduct given what is going on in Australia.

But he says that, as far as he knows, there isn’t the same sort of behaviour going on in New Zealand as there is in Australia.

“If there is some abusive conduct going on it, it would a surprise. You would think there would be some information coming out about it if there was.

“Every now and then you see that something unacceptable is happening but the banks here tend to own up and then deal with it.”

Tripe expects that the Reserve Bank and the FMA will probably find out what their preliminary assessment indicated.

Meanwhile, the Reserve Bank – FMA review continues and they have recently extended their request for information to the life insurance sector.

Kensington says it is still early days yet, there is lots of water to go under bridge, and it remains to be seen what will come of the review.