Are there fewer complaints about our financial services sector than in Australia because the culture of banks and insurers here is better, or is it because customers are "just losing the will to live?".
That is the question that the Financial Markets Authority (FMA) and the Reserve Bank hope to answer at the end of a review of banking culture and risk practices.
FMA chief executive Rob Everett posed the question while appearing before the finance and expenditure select committee alongside Reserve Bank governor Adrian Orr.
Over the past month the pair have met with 16 bank CEOs and received written responses from 11 banks following a request that the banks "demonstrate why either the business structures here or your business practices here lead to different outcomes" from that seen in Australia.
They told the committee that, so far, they had not seen evidence of the sort of widespread systemic misconduct that has been brought to light by the Hayne Royal Commission into banking misconduct in Australia.
The Australian royal commission has heard evidence of forged documents, poor compliance with lending standards and customers charged for services they never received, as well as bribery allegations and companies lying to regulators about their practices.
The FMA said it was concerned about the effect of the revelations on confidence levels in the New Zealand financial sector, so "we have spoken to all the [Australian-owned] big banks individually and read them the riot act."
The FMA and RBNZ then set what Orr called "the essay writing competition", asking all retail banks operating here to set out exactly how they differed from Australian banks and what they have done to address culture and risk.
Smaller, locally-owned retail banks are by no means off the hook. There was significant variation in the depth of detail in the banks' responses and in their awareness of risk and culture issues. Everett hinted that this was evident in the responses from the smaller, locally owned banks, saying the variance was probably due to some banks having less experience and expertise in the area than the big, Australian-owned banks and this would be a good opportunity to raise their awareness.
Life insurers have been set a similar essay question, although they have been given until June 22 to respond.
On the banks, Everett said: "we have seen plenty that we think can and should be done better, but we have not seen evidence of what you might call 'systemic and widespread misconduct'."
"Plenty of places where as a supervisory regulator we think the industry can and really should up its game, but very little that would either constitute a breach of a law or would require us to come up with a really urgent response or seek the Government to change a bunch of things."
Banks going to ‘the edge of the law’
Nevertheless, the two regulators are concerned that banks and life insurers here are going "to the edge of the law". They want to see a change in culture so financial services providers aim to meet customer expectations rather than just the letter of the law.
"The regulators and the legislators have tried to prescribe what good and bad looks like and the industry has just frankly gone to the edge of good and bad and sat there – and sometimes gone over the wrong edge," Everett said.
"We are not talking about enforcing the law here because we can do that already. What we are talking about is trying to encourage better behaviour than the minimum that is in the law.
"And I think the Australian royal commission is reflecting that, if you just sit at the legal standard, you are nowhere close to forcing the industry to serve people properly."
Everett added that the industry needed to be aware that customer expectations shift over time, and they shift much more quickly now thanks to the internet and social media.
He said the regulator was wary of taking too much comfort from the relatively low level of complaints made to the banking ombudsman.
"In Australia there is a tidal wave of complaints."
"If you look at the number of complaints we or the Ombudsman receive it is tiny in comparison to the Australian data. On the one hand that is comforting, but on the other it makes you wonder why that is the case."
"So we do need as part of this process to look at the internal dispute resolution mechanisms in those banks just to make sure people aren't losing the will to live. They aren't complaining and then going away vaguely satisfied but still really not that happy about how they have been treated."
The final report of the review is not expected until October.
Before then the regulators will be assessing the banks' and insurers' responses in more depth.
Scoping for further investigations
"We are scoping areas for further investigations," Everett said.
"We are constructing work programmes both across the bank sector but also for individual institutions. And we will do the same for the life insurers when those responses come in. And I anticipate some of those institutions will get site visits so teams can get on the ground and really get under the skin of what they have told us."