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The Reserve Bank is seeking feedback on the principles and proposed criteria for its enforcement framework.
Submissions on the consultation document close on 24 November 2021.
The Reserve Bank has regulatory responsibility under six (soon to be seven) Acts:
- Reserve Bank of New Zealand Acts 1989 and 2021
- Insurance (Prudential Supervision) Act 2010
- Anti-Money Laundering and Countering Financing of Terrorism Act 2009
- Non-bank Deposit Takers Act 2013
- Financial Markets Infrastructures Act 2021, and
- the Deposit Takers’ Bill, expected to be in place within the next 12 months.
Recently, the Bank established a dedicated enforcement department to manage these responsibilities and is now developing a new framework to promote confidence and consistency in its enforcement decision-making.
The Bank is proposing three enforcement principles and four criteria (to be adapted as necessary for each regulated area) to drive decisions on whether or not to take enforcement action.
The three principles are the lens though which the enforcement criteria will be assessed.
- Risk-based: the Reserve Bank will use its enforcement resources where risk is greatest, prioritising issues that are likely to: have a greater impact on the Reserve Bank’s regulatory or supervisory objectives, create a high risk of error, or involve high risk to the Reserve Bank’s reputation.
- Proportionate: the burden and cost of enforcement action should be proportionate to the magnitude of the relevant conduct, the harm involved, any aggravating and mitigating factors, and expected the benefits from enforcement action for the Reserve Bank, the entities it regulates, and the public interest.
- Transparent: this includes transparency of process and outcome and is intended to promote accountability. The Reserve Bank will publish guidance and engage openly and honestly with regulated entities during investigations. The initiation of an investigation will typically not be made public but enforcement actions will generally be published on the Reserve Bank website. The Reserve Bank will endeavour to give reasons for its actions as appropriate.
The four enforcement criteria are specific considerations which the Enforcement Department will weigh against available evidence when deciding on the appropriate enforcement response in individual cases.
- Seriousness of conduct: the prevalence of non-compliance, the magnitude and impact of the non-compliance; the controls in place, and whether they were followed; whether harm has occurred or the breach is technical, the broader impact on the regulated industry and the public; executive or operational knowledge of the issue, how it was discovered and what steps were taken.
- Responsiveness: the extent of co-operation with the Reserve Bank during the investigation and whether the matter was notified promptly or was delayed, incomplete or misleading; the entity’s compliance history; and the entity’s conduct in resolving the breach, including any proactive remedial action undertaken by the entity.
- Public trust and confidence: whether taking enforcement action would promote public confidence in the law or in the financial system; the seriousness of the non-compliance weighed against public interest considerations; the deterrence value of enforcement action; and whether the response is consistent with previous enforcement responses and/or with the responses of peer regulators; consistency with the Reserve Bank’s regulatory objectives, and whether there is a need to clarify the boundaries of the law.
- Efficacy: the strength of the evidence; available defences; the support of other regulatory bodies; and how enforcement action may impact on other stakeholders such as trustees and creditors.
Practical examples are provided in the consultation document to illustrate how the criteria relate to the principles.
The Reserve Bank has signalled that it will produce further guidance informed by the enforcement principles and criteria over the next twelve months, to be applied across the entire enforcement investigation and decision making process.
The Bank’s commitment to ensuring that its enforcement role will be conducted with clarity and consistency is to be welcomed. Please contact us if you would like assistance preparing a submission.
Reserve Bank consultation paper on Enforcement Principles and Criteria