The Financial Markets Authority (FMA) has told Parliament’s banking inquiry it will be keeping a close eye on how banks pass on changes to the Official Cash Rate (OCR) to their customers.
“I can assure you that the time taken to pass on changes in OCR to banks’ customers will be something that we will be paying very close attention to,” FMA Chief Executive Samantha Barrass informed MPs at Wednesday’s inquiry session.
“That cuts to the heart of their treatment of customers that we expect from the banks.”
The Reserve Bank is expected to the cut the OCR on Wednesday afternoon from its current level of 3.75%.
Barrass’ declaration follows the FMA's Conduct of Financial Institutions (CoFI) regime coming into effect last week.
Interest.co.nz recently analysed the length of time that the NZ's big banks have taken to cut its floating home rate for existing customers since the OCR started its descent in 2024.
Kiwibank, the fifth biggest bank in the country, has been taking the longest, at an average of 13.5 business days while BNZ and ASB – the second and third biggest banks in NZ – have been taking the shortest length of time at 7.75 business days each.
Can the FMA take enforcement action?
Green Party co-leader Chlöe Swarbrick asked Barrass on Wednesday if the FMA was in a position to take enforcement action against the pace NZ banks are taking to pass on OCR changes now CoFi was in effect, and what that enforcement would look like.
Barrass said that she would like to think the FMA wouldn’t have to wait for enforcement action as the FMA now had “proactive supervision powers” under CoFI.
The length of time that banks have been taking to pass on OCR changes to their own rates for customers has been brought up in several banking inquiry sessions now, starting when ANZ CEO Antonia Watson was grilled about it in early March.
Swarbrick wanted to know if the FMA would be actively investigating banks over OCR changes and Barrass said the market watchdog would be using its supervisory powers first.
“Because investigations take a long time and it can take a very long time for customers actually to get the benefit of it. So what we look for is to use our engagement with the banks to get them to very quickly make changes that we're looking for,” she said.
“We will be looking across all aspects of banks behaviour and focusing on those where we do see the greatest harm.”
Barrass told MPs that she expected the subject of the OCR and how quickly banks were passing OCR cuts onto customers would be a subject that she would be discussing with the boards of banks when she meets with them.
Barrass declined to say what sort of time period the FMA would expect for banks to pass on OCR cuts to customers when Swarbrick asked her, but did say she was concerned at the length of time in contrast to other jurisdictions.
“You're looking at actually quite a big difference as far as the time taken to pass it on,” she said.
The CoFi regime was passed by the previous Labour government following reviews from the Reserve Bank and FMA into the conduct and culture of banks and insurers. The reviews found banks and insurers weren’t putting in place systems and processes to ensure consumers were treated fairly.
When the Coalition Government was formed after the 2023 general election, it decided to reform CoFI despite earlier talk before the election from the National Party that it would repeal the regime.
CoFi came into effect on the 31st March and registered banks, licensed insurers and licensed non-bank deposit takers now have to comply with CoFi’s fair conduct principle when providing services to consumers. These parties were required to be licensed by the FMA with regard to their conduct towards consumers before that March deadline.
The FMA said in March a total of 77 financial companies had been licensed – comprising 17 banks, 46 insurers and 14 non-bank deposit takers like credit unions, building societies and some finance companies.
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