The Reserve Bank of New Zealand (RBNZ), which oversees the country's financial system including the insurance sector, is considering recommendations made in an International Monetary Fund review that will help improve insurance and other financial supervision.
The RBNZ announced this yesterday when it issued a bulletin article reviewing the outcomes of the International Monetary Fund’s (IMF) latest Financial Sector Assessment Programme that were released in May. The Bank is considering those recommendations that will help improve the three-pillar approach as applied to the insurance sector. The three pillars are self, market and regulatory discipline that would contribute to a sound and efficient financial system.
The main IMF recommendations pertaining to insurance are:
- Increase the Reserve Bank’s powers for setting standards and administrative sanctions
- Enhance requirements tied to governance, while increasing the supervisory focus on assessing the effectiveness of governance arrangements (and other regulatory requirements)
- Review the stance on policyholder protection (e.g. extend statutory fund protection to nonlife policyholders and make policyholder preference explicit in insolvency)
- Clarify day-to-day cooperation with the Treasury on supervisory matters to reduce the risk of encroachments on Reserve Bank operational independence
- Enhance collaboration and cooperation with Australian authorities
- Greater focus on the regulation of insurance intermediaries and market conduct by the Financial Markets Authority (FMA)
- More resources for both the Reserve Bank and FMA for insurance related activities.
In its response, the RBNZ says it is considering findings on enhanced disclosure from insurance entities, the expansion of powers to develop standards for corporate governance, risk management and internal controls, among other things.
The RBNZ is also currently undertaking a review of the Insurance (Prudential Supervision) Act 2010 (IPSA) to enhance the efficient and effective operation of the regime. It has been around six and a half years since IPSA was enacted, making it timely to review the effectiveness of the legislation in terms of its initial aims, and in light of the risk-based approach to prudential supervision that has been implemented, says the central bank. A number of the IMF’s recommendations are helping to inform the IPSA review.
Overall, there are over 100 recommendations in the IMF report, most of them directed at the Reserve Bank given its broad range of financial system responsibilities. The central bank noted that many of the recommendations dovetail with ongoing policy and supervisory initiatives, such as the review of the statutory framework for the insurance sector.