and ready for the future. the results of the thematic review will inform our institutional supervision priorities and input into our supervisory standards and guidelines as we embed the new deposit takers act 2023 ( dta ) and review of the insurance prudential supervision act 2010 ( ipsa ). we also hope that this work is of wider value, providing a unique opportunity to learn from others, both for other financial institutions and those outside the financial industry. our approach to prudential regulation and supervision effective governance is critical to the financial soundness, success, and long - term sustainability of new zealand ’ s financial institutions and to ensuring their customers are treated fairly. as dr john laker says in the introduction to the review, there is no ‘ one size fits all ’ governance framework for financial institutions and no single best practice for governance, but there are essential foundational elements in governance policies, processes and practices that underpin good decision - making at board level. before getting into the review, it is important to step back and briefly remind ourselves why there is a role for a public policy institution like te putea matua to have responsibility for financial stability. _ _ _ _ _ _ _ _ _ _ _ _ see rbnz, fma ( 2023 ). governance thematic review for additional information, available at : rbnz and fma governance thematic review report in 2018 the reserve bank and financial markets authority undertook a joint review into the conduct and culture issues present in life insurers and banks in new zealand, and looked to understand how banks and life insurers identify and remediate issues. available here for life insurers life - insurer - conduct - and - culture. pdf ( rbnz. govt. nz ) and here for banks banksconduct - and - culture - review. pdf ( rbnz. govt. nz ). towards good governance in the financial system of aotearoa unclassified unclassified a sound and well - functioning financial system – financial markets, financial institutions, payments systems – provides a public good shared by society in much the same way that physical infrastructures do. transport, energy, water and communications infrastructure provides benefits that are felt much more widely than by individual users. as a public good, the costs of financial instability can also be felt far beyond the management, shareholders, or customers of individual financial institutions. sound financial institutions and financial systems are core responsibilities for us at the reserve bank and the organisations we regulate. we want

to ensure that we have a resilient financial system that can withstand shocks and provide the financial services that all new zealanders rely on. it is a privilege to be a deposit taker or insurer in our society ; it comes with the safeguard of being prudentially regulated and supervised. our approach to prudential supervision relies on three interdependent pillars – self discipline, market discipline and regulatory discipline5 6. • self discipline : relates to the role of directors and senior managers 7. boards of financial institutions are responsible for setting the strategic direction ; the tone and culture of the entity ; the risk appetite of the organisation ; ensuring there are strong systems, policies, processes and procedures ; making critical decisions ; and holding management to account. in many ways the governance board is the financial institution. • market discipline : relates to the role of financial market participants in monitoring the risk profile, and the financial performance and position, of financial institutions, and in influencing their behaviour. an aim of the market discipline pillar is to reduce the information asymmetry between firms and market participants so that they can effectively monitor and influence financial institutions 8. • regulatory discipline : relates to the role of regulation, such as minimum capital and liquidity requirements, to enhance the effectiveness of market and self discipline, and to minimise the costs of financial instability if they do occur 9. it ’ s hard to overstate the importance of good governance in all this. no matter how strong the regulatory discipline and market discipline are, if there are governance failings, or even weak governance, the stability of the organisation and the financial system as a whole, are at risk. _ _ _ _ _ _ _ _ _ _ _ _ see hunt, c. ( 2016 ), a short history of prudential regulation and supervision at the reserve bank. reserve bank bulletin vol 79 ( 14 ), available at : a short history of prudential regulation and supervision at the reserve bank - reserve bank of new zealand - te putea matua ( rbnz. govt. nz ) the reserve bank ’ s approach to prudential supervision is available here : our approach to supervision - reserve bank of new zealand - te putea matua ( rbnz. govt. nz ) see fiennes, t, ( 2016 ). new zealand ’ s evolving approach to prudential supervision. a speech delivered to the nz bankers ’ association in auckland, available at new zealand ’ s evolving approach to prudential supervision