Australian regulators can learn a thing or two from their Kiwi counterparts, after the Reserve Bank of New Zealand (RBNZ) was recently the subject of a report outlining its failures as a prudential regulator in a case involving CBL Insurance.
The report, commissioned by RBNZ, unveiled a number of failures, many of which were similar to criticisms levelled against Australian regulators in Kenneth Hayne’s royal commission final report.
In line with the Australian Prudential Regulation Authority (APRA) and the Australian Securities and Investments Commission, the RBNZ had failed to follow through with suitably strong supervision or harsh penalties. The report noted that the RBNZ had pinpointed potential issues, but then didn’t demand that CBL fix them.
CBL convinced RBNZ that everything was in order and RBNZ acquiesced, an approach to solving problems that was similar to APRA’s fruitless attempt to keep an eye on the wealth management firm IOOF, it was suggested.
One part of the CBL case in particular may yield lessons for APRA, namely the international angle. According to a report from The Australian Financial Review, CBL was able to operate as a reinsurer in Europe, and write business in France without a local licence and supervisory scrutiny, which the RBNZ report called “a regulatory gap.”
“With CBL not being regulated in France and not being part of the established market, it is an oversight that the bank did not follow up assiduously after licensing by consulting with either the French regulator or alternatively an independent expert in that market,” added the report, recommending the RBNZ “maintain its international regulator connections and continue to participate when appropriate as lead regulator or home regulator for New Zealand-licensed insurers operating offshore and offshore insurers licensed in New Zealand respectively.”
While APRA declined to comment on the CBL case for The Australian Financial Review, the media outlet was told that Australian-domiciled companies that operate overseas outside any regulatory regime, similar to CBL, are “very rare,” and those that do so are regulated as insurance groups, supposedly mitigating against the risk of a failure reminiscent of the CBL case.
