Working together to support economic
recovery, strengthen resilience, and
develop culture
A speech delivered to the 16th Annual Financial Markets Law Conference
On 22 October 2020
By Simone Robbers, Assistant Governor & General Manager
of Governance, Strategy and Corporate Relations
With special thanks to colleagues Joseph Weller and Anne Apostol
2 The Terrace, PO Box 2498, Wellington 6140, New Zealand
Telephone 64 4 472 2029 Online at www.rbnz.govt.nz
Introduction
Tuia nga maunga, tuia nga wai, tuia nga taurahere tangata
(Bring together the Mountains, bring together the waterways, bring together the ties that bind
us.)
Tēnā koutou
katoa, welcome everybody.
It's my pleasure to kick us off today at the 16th
Annual Financial Markets Law Conference.
Today's themes of integrity,
excellence, and compliance are close to my heart and closely
Pūtea
mirror the values of the Reserve Bank of New Zealand - Te Matua.1
These themes could also not be more important in today's circumstances. We find ourselves
in the midst of an extraordinary degree of uncertainty about the economic outlook and there
are large looming clouds on the horizon for Aotearoa New Zealand and the rest of the world.
If there was ever a critical time for collaboration and understanding between regulators and
the financial institutions they oversee, it is now. We all need to collectively demonstrate
stability, consistency, and resilience, in order to actively support our economic recovery. This
recovery will require unified and courageous efforts for the collective good of all New
Zealanders.
Bank's
Today, I will outline some of the Reserve mahi to support economic recovery during
these challenging times - including some of the tools we have deployed and are getting ready
to deploy; I will also talk about our key priorities and where we are strengthening our
resilience, including some of the regulatory initiatives that were paused due to COVID-19 and
are now restarting; I will talk about our role in several significant legislative change
how we're working to develop
programmes; and finally, and support culture. All these
combined are focused on allowing New Zealand and New Zealanders to prosper today and
into the future.
Supporting economic recovery
Our immediate focus and commitment right now remains on managing the economic
challenges ahead during this unsettling time. Since the onset of COVID-19, we have played
our part, acting quickly and early in tandem with the Government and the industry to cushion
the economic blow to households and businesses. And although New Zealand has
successfully contained the virus and many parts of the economy are back up and running, we
are still facing uncertain times and potential further disruptions. We are well prepared for this
challenge.
Just like we did at the start of the pandemic, we are providing liquidity to banks and
monetary and fiscal policy settings to support New Zealand's economic recovery.
coordinating
Right now, we are looking at how we use our monetary policy and alternative monetary policy
tools.
Last month Reserve Bank Governor Adrian Orr gave a speech entitled 'Monetary Policy: Same
Objectives Different Challenges'.2
He encouraged financial institutions, specifically banks, to
be 'courageous' -
acting consistently and transparently in delivering sound support to
customers. He outlined why and how the current and forecast environment is requiring us to
use our monetary policy and alternative monetary policy tools3 in different ways which are new
to New Zealand. In March, the Monetary Policy Committee (MPC) lowered the Official Cash
Rate to 0.25 percent. We're
keeping long-term interest rates down by buying up to $100 billion
worth of bonds through our Large Scale Asset Purchase Programme. We recognise the
possible need for further monetary stimulus: that is why we are progressing our work and
ability to deploy additional monetary instruments should the need arise. These instruments
include a Funding for Lending Programme (FLP), a negative OCR, and purchases of foreign
assets.
These important tools will assist us in achieving and maintaining price stability and supporting
maximum sustainable employment as the scale of the economic challenge unfolds.
-
Our goal with using these tools remains the same to achieve our policy objectives while
minimising undue risk to the financial system. How we achieve our objectives will evolve
appropriately with the economic circumstances and any risks must be well identified, and
managed.
Strengthening resilience through our strategic priorities
Alongside supporting the economy, it is equally important that we continue to deliver on our
Te Pūtea Matua
core mandate and commitments. acts to enhance the prosperity and
wellbeing of New Zealanders by promoting a sound and dynamic monetary and financial
system. In performing this role we establish, implement, and enforce appropriate policies and
operate critical components of the financial system.
or kaitiakitanga, of New Zealand's financial system.
Our role is primarily one of guardianship -
As kaitiaki - or guardians - we must remain vigilant to the broad range of risks that could
impact our effectiveness in fulfilling this role and be prepared to work together to overcome
challenges.
Today, there are a number of clear and significant external challenges which we must consider
-
some of these are global, some are unique to New Zealand, and some are specific issues
to the financial system or to specific sectors.
In our latest Statement of Intent4 published back in June, we outlined some of the ways we
are responding to these challenges as well as the opportunities for growing and transforming
the Bank. We set out our strategic priorities for the next three years to become stronger
kaitiaki, enabling us to assist the longer-term wellbeing of New Zealanders for years to come
and to meet our vision of being a Great Team, Best Central Bank.
There are three key areas which I'd like to speak about today.
-
1) Green recovery and sustainability strengthening climate resilience
Financial stability is best maintained when all relevant risks are adequately identified,
priced, and allocated to those best able to manage them. Climate change and its
associated risks provide a direct challenge to financial stability as the risks are material
but extremely difficult to identify, price, allocate, and manage with accuracy.
Like many other central banks and regulators, we are taking action to understand and
mitigate the risks from climate change to financial stability. Our climate strategy5,
launched in 2018, has three components: understanding and managing our own
climate impacts; incorporating the impacts of climate change into our core functions;
and leading through experience and collaboration.
We welcome Cabinet's recent decision on mandatory climate risk reporting, in line with
the Recommendations of the Task Force on Climate-related Financial Disclosures
(TCFD). We have long regarded disclosure as critical in maintaining and promoting an
efficient financial system. We support more good quality, comparable information
being disclosed by the firms we regulate, so we can be in a better position to identify,
monitor, and manage the impacts of climate change on the financial sector.
In our latest Annual Report6, published earlier this month, we provided another screen
of our emissions sources, a follow-up from last year. We engaged a third party to verify
our energy use emissions and conduct a gap analysis to develop a carbon footprint
that complied with international best practice and was reflective of the Reserve Bank's
true footprint. We are also building capability to understand climate-related risks in the
sectors we regulate, training our supervisors in climate-related risks and leading the
Council of Financial Regulators'
(CoFR) Climate work stream. Globally we are proud
members of the Network for Greening the Financial System (NGFS) and the
Sustainable Insurance Forum which provide us with access to the latest policy thinking
and guidance for central banks and regulators on areas such as prudential supervision,
macroeconomic research and analysis and portfolio management. We are contributing
to the NGFS work stream on scenario development, and are working to share our
developing expertise with NZ policy makers. It is early days, we are learning as we go
but our response needs to be both cohesive and urgent.
-
2) Bank-wide transformation strengthening our own resilience
-
The review and development of a new Reserve Bank of New Zealand Act7 the
-
legislation that underpins our purpose and how we operate is providing a foundational
opportunity to transform the Bank. Reviewing and modernising the current 30-year old
legislation is a crucial part of ensuring that the Bank remains fit for purpose. We have
been working with the Treasury since June 2018 on Phase 2 of the Review of the
which sets out the Bank's future institutional
Reserve Bank Act.8 A new Act, and
governance arrangements, was introduced to Parliament on 28 July 2020 and we
expect it to receive Royal Assent in 2021 and become effective from 1 July 2022.
Once enacted, some of the key provisions of the Act include:

Establishing a Governance Board similar to the independent crown entity
model, responsible for the oversight and governance of all the functions of the
Bank, except those undertaken by the external Monetary Policy Committee
(MPC);

Shifting powers currently reserved to the Governor as single decision maker to
the board and implementing a fully delegated board and Chief Executive model;

Operating with our new financial stability objective of protecting and promoting
the stability of New Zealand's financial system; and
 the Bank's accountability
Enhancing and transparency through increased
reporting and monitoring requirements, with the Treasury acting as our external
monitor.
We are incredibly excited with the opportunity we have through the new legislation to
and empower New Zealand's central bank.
fully modernise
Alongside this, in June we agreed a substantial and important increase to the Bank's
Funding Agreement9 with the Minister of Finance. This new agreement enables us to
address the critical risks to delivering our mandate and respond to areas of past
underinvestment.
will focus on expanding and enhancing the Bank's core
The bulk of this investment
activities, particularly investing in our supervisory and enforcement capabilities, and
supporting the Bank's
day-to-day operations. This includes modernising the
technology infrastructure and keeping our security architecture up to date, designing a
suitable vaulting and distribution system for cash, and expanding our reach to
stakeholders in Auckland.
The implementation of the new Reserve Bank Act and new Funding Agreement will
enable us to undertake the considerable transformation of the Bank and will allow us
to continue to effectively and consistently deliver on our mandate.
3) Strengthening the resilience of our legislative frameworks that govern how we
prudentially regulate and supervise
Following the onset of COVID-19 and the subsequent lockdowns in March, the
Reserve Bank, along with the other CoFR agencies, deferred and reprioritised a
number of regulatory initiatives. We now have started to recommence our work on
some of these paused initiatives, which I am pleased to share with you this morning.
In order to facilitate economic growth, the public need to be confident that deposit
takers (i.e. banks and non-bank deposit takers) and insurers are resilient and will
continue to provide services, and that the payment and settlement systems will work
as expected.
Alongside the new Reserve Bank Act, there are also four major legislative changes
which will strengthen the Bank's prudential regulation and supervisory powers.
Firstly, the Deposit Takers Act.10 This Act is expected to modernise, strengthen and
-
unify our regulatory framework for all deposit-takers both banks and non-bank
deposit-takers, including the introduction of a deposit insurance scheme, updated crisis
management tools, and strengthening our supervision and enforcement powers. The
final round of consultation for the proposed Deposit Takers Act closes tomorrow (23
October) and while I have the floor, I'd like to invite you to send in your views and
thoughts if you haven't yet. If that's something you want to get involved in, please go
to the Treasury website to participate in the consultation.11
Secondly, the capital framework for registered banks is a crucial tool for maintaining
financial stability. In December 2019 we announced the final decisions following a
comprehensive review.12 The decisions include increasing regulatory capital buffers
relative to current prudential settings. Strong capital buffers reduce the likelihood of
bank failures by increasing the capacity of banks to absorb losses, essentially making
our banking system safer for all New Zealanders.13
In response to COVID-19, we decided to delay the implementation of the new capital
framework for at least 12 months to ensure banks could support their customers with
provision of credit to households and businesses. Banks already have strong buffers
of above current regulatory minimums as capital levels have increased steadily over
the past ten years. We have encouraged banks to use these buffers to support their
customers and economic recovery.
There is still a high degree of uncertainty around the economic outlook and it is possible
that bank resilience will be tested in the coming months as loan losses rise materially
from current low levels. We will continue to monitor these developments closely. We
expect to publish detailed consultation material covering the Capital Review
implementation in November.
Thirdly, the Insurance (Prudential Supervision) Act Review (IPSA).14 The original IPSA
legislation became law in September 2010 and there have been a number of notable
developments since then. At the start of this month, we announced that we are
relaunching this review and will also be commencing a review of the associated Insurer
Solvency Standards.15 Over the next twelve months, we intend to release consultation
papers seeking feedback on the scope of the legislation.
Fourthly, and finally, the Financial Markets Infrastructure Bill16 was introduced into
Parliament in December 2019 and received its first reading in February 2020. The Bill
looks to establish a new regulatory regime for FMIs that will be jointly administered by
the Reserve Bank and the Financial Markets Authority (FMA).
The regime will provide the Bank and the FMA with new powers to oversee FMIs, set
legally binding standards, including information collection and crisis management
powers. This will enable us to better ensure payment and settlement systems are
strong, robust, and resilient. We expect the Bill to pass in 2020/21.
All these changes together will modernise and strengthen the regulatory regime, the
firms we regulate and oversee and support a regulatory approach that is proportionate
to financial stability risks. We recognise that introducing new legislation might come
with a degree of uncertainty for the institutions that we regulate and that there might
be concerns about increased compliance costs. We are committed to be a more active
-
regulator one that will continue to engage with industry and relevant stakeholders in
an open and constructive manner and to carry out cost benefit analysis to keep those
costs to a minimum.
In addition to these legislative changes, we are also looking at improving the cyber risk
awareness and resilience of the financial sector in New Zealand. Earlier this week
(October 20) we released a consultation paper on risk management guidance for cyber
resilience including our initial views on the role of information gathering and sharing in
building cyber resilience.17 We welcome your feedback on this important work.
Supporting and developing culture
A strong legislative framework can only go so far in instilling the right culture and behaviours
in financial institutions, and the communities they serve. We are maintaining a careful watch
with our fellow financial regulators on how our financial institutions are responding to customer
needs in this recovery period. As I have mentioned earlier, for us, this has meant talking to
banks about courage and customer outcomes, ensuring that risk appetites of our financial
institutions are appropriately calibrated to today's challenges. We are
pleased to see that
banks are taking on board our recommendations from the Bank Conduct and Culture Review18
FMA in 2018. Earlier this month, the New Zealand Bankers'
that we conducted with the
Association (NZBA) launched guidelines19 setting out the commitments banks have made to
their customers and how they intend to meet those. We welcome these guidelines and look
forward to seeing the positive changes for New Zealanders.
While we have been focused on enabling banks to prioritise relief and good customer
outcomes, especially to those who have been financially impacted by the pandemic, we
recognise that many of these challenges will exist for a number of years. That is why we are
keeping an eye on members of our society who are more likely to be vulnerable and
our objectives as New Zealand's central
disadvantaged. Critical to our success in meeting
bank is ensuring that we drive wider economic wellbeing for all New Zealanders. To achieve
this, we are undertaking work which focuses on enabling social cohesion and financial
inclusion.
-
Social cohesion creating a framework which works for all
Through our Future of Cash programme20, we are rolling out significant changes now
and over the next few years to address changing preferences around cash use in New
Zealand. We are building our stewardship role by working across government and with
system participants and user interests to understand and monitor the public's needs
and trends, and to influence change.
Beyond New Zealand shores, we are also taking a look at how to enhance access to
and reduce costs of remittances to and from the Pacific. We have established the
Pacific Remittance Project21, along with the Reserve Bank of Australia and with support
from the Ministry of Foreign Affairs and Trade, to address the challenges facing
remittance services domestically and in the Pacific region. Over the coming months,
we will work with both domestic and international stakeholders to develop guidance
and work with remitters in the Pacific region to help them be more compliant with
regional legal obligations and maintain banking relationships. This will include
exploring potential policy, legislative and regulatory changes to facilitate reduction in
de-risking, and providing coordination and subject matter expertise around digital
and 'know your customer'
identity verification, payment systems facilities.
-
Cultural and financial inclusion recognising all New Zealanders
continue to embed our Te Ao Māori strategy22
We also across the Bank and with
stakeholders. By exploring how the Māori culture and Māori
how businesses operate,
we are gaining insights into their important contribution to and impacts on the New
Zealand economy.
This allows us to take a long-term view of our core mandate to promote the wellbeing
policy and using the Bank's
and prosperity of all New Zealanders through monetary
inflation and employment targets. Internationally, we have started working closely with
our central bank colleagues in Canada on initiating a wider global discussion on
indigenous economics with other central banks and relevant organisations.
Māori
Translating the key metrics of our Financial Strength Dashboard into Te Reo is
also underway as part of our ongoing commitment to Te Reo and Tikanga Māori. We
have created new financial kupu (words) for the Dashboard which will be added to the
online Māori dictionary
- Te Aka - later this year.
By recognising all New Zealanders, we are harnessing diversity and inclusion, and
-
collaborating to better understanding the economy so to best promote the economic
wellbeing of all New Zealanders.
Supporting the right culture requires us working more collectively and courageously with
financial services and other regulators to continue to be active, relevant and a cornerstone of
New Zealand's economy and society.
We maintain an active dialogue with industry
stakeholders on how best to do this. These discussions have been in co-ordination with our
-
CoFR partners the FMA, ComCom, Treasury and MBIE. By working and meeting as a
collective, we are able to share information, identify issues and develop cohesive and
coordinated responses to issues requiring cross-agency involvement. This approach aims to
maximise effective and responsive regulation of the financial system by facilitating cooperation
and coordination between its members.
are looking at our role as a system steward and contributor to New Zealand's economic
We
wellbeing and how we can support and promote this through leadership, collaboration and
stewardship.
Our ability to engage and communicate in a manner which all New Zealanders can understand
is key to delivering our priorities. Integrity is critical to our success. Our goal is to maintain this
-
integrity by operating transparently always being open to learning and adapting as
necessary. I encourage you to continue to engage with us on our priorities, consultations, and
engagements, and thank you for your efforts and contributions so far.
Conclusion
the challenges we're facing
Recognising and responding to is important. Economic prosperity,
environmental sustainability, social cohesion; and cultural inclusion are important
-
cornerstones of sustainable wellbeing. These themes are self-perpetuating and each can
negatively or positively impact on the other.
Cohesion between these allows us to better achieve our policy objectives of achieving and
maintaining price stability, supporting maximum sustainable employment; and protecting and
promoting the stability of New Zealand's financial system.
-
Financial institutions have a role to play here and should be reassessing how they are
supporting the recovery and best serving their customers. They also have a role in keeping us
on track, holding us to account, and contributing to consultations to ensure the environment
serves and works for all.
These are not small challenges, and we look forward to working with our regulatory colleagues
- -
and stakeholders including you supporting economic recovery, strengthening resilience,
-
and supporting and developing a culture for New Zealand and all New Zealanders.
Hihiritia te rā, e tiaho ano ai apōpō
(Harness the rays of the Sun today, so that they may shine brighter tomorrow)
Tēna koutou, kia ora tātou katoa.