FISA Tables

Preventing Corruption

TINZ sees this assessment as an opportunity to examine the extent that financial organisations implement the 7 key policies, processes and actions that prevent corruption. These are set out in Table A below.

It is through the implementation, review and continuous improvement of these 7 key policies, processes and actions that organisations build strong integrity systems.

TABLE A

TOOLS TO PREVENT CORRUPTION

1. Tone at the Top

Commitment to zero tolerance for corruption backed up by prompt and decisive action where corrupt practice is discovered including better ways to prevent corruption by policy makers, boards of directors and senior leadership teams, reinforcing the values that create strong integrity systems and setting an environment for preventing corruption.

2. Code of conduct and guidelines continuously improved

Codes of conduct that engages all organisations, their Boards, management teams and staff, providing the framework for trusted operations, staff and customer relationships aimed at doing the right thing that is enforced (including through penalties for serious misconduct), regularly refreshed for what works best and continuously improved.

3. Corruption prevention communication and training

Maintaining an ethical, transparent model of business contributes positively to risk management and strategy. Regular communication highlighting the benefits of trust, cases of individual courage as well calling out corrupt practice when it occurs, backed up with training aimed at preventing corruption.

4. Up-to-date knowledge of relevant legislation/ regulation

Consumers are increasingly demanding more ethical products and services. Retail research provides data on consumers’ purchase decisions based on ethics. International cooperation around anti-money laundering and domestic legislation are changing at a rapid pace making it necessary to have explicit systems to keep up-to-date on anti-bribery and anti-corruption legislation.

5. Avenues for reporting breaches in ethical standards 

Whistle-blowing provides a strong lever for preventing corruption through reporting breaches of ethical standards. Strong protective disclosure processes are essential so that all staff members feel safe in reporting breaches when they have evidence.

6. Due diligence of distributors, agents, joint ventures

With an increasingly diverse population, labour force and overseas markets, financial organisations that are pro-active in due diligence of distributors, agents, joint ventures, sub-contractors are in a stronger position to prevent corruption.

7. Regular audits backed up by independent risk assessments that uncover corrupt practice

Undertaking regular audits that uncover corrupt practice, assists directly in preventing corrupt practice while also signaling that addressing corruption is a priority for organisations, backed up by independent risk assessments.

The benefits of a financial system with a strong integrity system

FISA also examines how serious organisations are about developing strong integrity systems. It demonstrates this by looking at the extent to which the financial system harvests the benefits of the reputation that comes from an integrity culture. For the assessment, evidence will be collected about the 7 integrity system development factors described in Table B below.

TABLE B

INTEGRITY SYSTEM DEVELOPMENT FACTORS

1.  Reputation and Brand

The value of a modern organisation is in its reputation. If the reputation is harmed, the value of the brand is destroyed.  The New Zealand Story toolkit – Ingenuity, Kaitiaki and Integrity provides examples that other NZ businesses have used to their advantage. Also included in the toolkit is a wide range of infographics providing evidence of NZ’s rankings in business.  All organisations can add value through enhancing their integrity systems.

2. Easier Market Access

Maintaining an ethical standard of business and adhering to New Zealand’s good reputation opens doors for companies to access new markets, as evidenced by several case studies in the NZ Story toolkit.  For NZ financial organisations, this means opening up new product markets here to support the international activities of New Zealand based businesses.

3. Lower Costs

Maintaining an ethical, transparent model of business contributes positively to risk management and strategy. Maintaining good ethics will help financial organisations to remain sustainable, prevent scandal and catastrophe at all costs through proactive culture (rather than reaction after the fact).

4. Customer Loyalty / market position

Consumers are increasingly demanding more ethical products and services. Retail research provides data on consumers’ purchase decisions based on ethics. Companies that can consistently and transparently show customers that they are ethical can maintain and grow their revenue. L’Oréal demonstrates how a strong, ethical reputation can generate a loyal and steadily increasing customer base, targeted to double from 1 billion to 2 billion customers by 2020.

5. Access to capital

Firms able to show that they have integrity are more likely to access capital. Investors will be more likely to invest in a company with solid, ethical risk management, and accessing loans will be easier for those with credible, ethical reputations.

6. Quality committed staff

Maintaining a positive and ethical work environment will ensure more efficient and productive staff. Avoiding favoritism and nepotism allows talented employees to feel certain they can develop careers based on merit and fair compensation.

7. Higher returns

Ethisphere’s World’s Most Ethical Companies list of companies honoured over the last decade, provides evidence that adherence to ethical and sustainable behaviour leads to increased returns on investment.

Assessment Subjects

The FISA survey assessment questions are clustered into 9 subject areas where there is pressure on integrity and a risk of corruption. The growth and prosperity outcomes sought for New Zealand are more achievable with a strong financial integrity system. Table C below shows how transparency and anti-corruption activity supports these desired integrity outcomes.

TABLE C

ASSESSMENT SUBJECT

CORRUPTION/INTEGRITY RISK

VALUES TARGETED

INTEGRITY OUTCOME

POLICY

A lack of clear accountability for the integrity of national and organizational financial policies, systems and processes.

Public expectations of integrity in public policy. Strong policy that also considers CSR & environmental sustainability.

Perceptions of high levels of integrity backed up by evidence of a systematic approach to preventing corruption and a regulatory environment where required.

GOVERNANCE

Inadequate “Tone from the Top” and/or poor leadership behaviour and complacency leading to poor oversight and monitoring.

Public trust in national and corporate leadership within financial system.

Leadership ‘walks the talk’ without exception, creating an authentic atmosphere of openness and transparency.

ACCOUNTABILITY

Inadequate reporting and surveillance systems, limited non-financial reporting in key areas where corruption can take place, exposing NZ’s vulnerability to grand corruption.

Transparency and visibility of financial and non-financial policy and process.

Financial transactions are trusted. Deposits are safe.

There is public trust in the financial system.

INFORMATION AND COMMUNICATION

Information is not shared with relevant stakeholders, including staff.

Transparency of financial sector operations & oversight to meet legal, regulatory and social responsibilities.

Financial sector is trusted.

HUMAN CAPITAL

Staff working unsupported and without adequate skills in sensitive areas. Staff in financial risk given undue authority.

Courage of individuals working in critical areas of the financial sector to identify and communicate irregularities.

There is openness – irregularities are openly discussed and resolved. Effective protective disclosure for whistle blowers.

CUSTOMERS

Lack of financial literacy leaves customers exposed and less confident to realise market and personal opportunities.

Trusted financial advisors. Trusted institutions. Trusted and accessible complaint and redress mechanisms.

NZ reputation for integrity upheld as customers and businesses access financial services for daily activities, to invest and grow.

OPERATIONS

Lack of knowledge and or complacency (apathy) about vulnerability to corruption.

Courage to identify and address corrupt practice, backing this up by investment to realise the benefits of a trusted financial system.

Organisational justice, higher returns.

RISK MANAGEMENT AND MONITORING

Lack of monitoring to ensure systems and policies operate as intended or to identify areas for improvement.

Policies, laws, systems and processes support cultural and social responsibility aims of the financial sector.

Policies, laws, systems and processes are continuously improved to meet new sustainability challenges in a proactive manner.

PROCUREMENT

Poor oversight of contracting processes and of outsourced activities.

Transparency and trust in the financial sector.

Integrity demonstrated at all levels of the financial sector value chain.

TYPES OF CORRUPTION/INTEGRITY RISK

As outlined in Table C above, the assessment describes varying degrees of corruption/integrity risks. These are briefly specified below for the nine key assessment topics:

  • Policy risk: The effectiveness of central bank policy, prudential supervision and other financial oversight agencies in holding banks, financial organisations, insurance companies and their regulators to account.
  • Governance risks: The capacity and priority of the governance bodies of individual institutions to hold their institutions to account.
  • Accountability risks: The adequacy of mechanisms that ensure transparency, confidence and prevention of illegal practices, corruption, money laundering and financing of terrorism.
  • Information and Communications risks: The adequacy of mechanisms to ensure transparency (disclosure) and accuracy of information / protect privacy and security / personal information, as well as the effectiveness of information-sharing between financial sector participants and stakeholders.
  • Human Capital integrity risks: Formal measures in place for personnel to prevent illegal practice and corruption, including significant support of whistle-blowers, provision of training and better preparing personnel in sensitive positions, such as increasing staff rotation.
  • Customer integrity risks: Risks of misleading the public into thinking their money is safe without putting in place processes to honour that belief; using the financial organisations’ knowledge about financial markets to lead customers into making financial decisions against their own interest, the effectiveness of systems for identifying corrupt, criminal and unethical customers.
  • Operations corruption/integrity risks: The adequacy of policy and process mechanisms to address corruption/integrity risk on operations including: strong integrity/anti-corruption training and whistle-blowing/processes; regulators relying on power and/or theory about financial markets to specify and impose regulations without sufficient understanding or acknowledgement of the factors that drive the financial and sustainability outcomes of banks, finance companies and co-ops.
  • Risk Management and Monitoring risks: The adequacy of oversight and monitoring systems and procedures for corruption prevention and integrity building, including regular evaluation and continuous improvement for increased effectiveness.
  • Procurement corruption risks: The risks relating to outsourcing and/or complex components of the procurement cycle, including subcontractors and advisors, which may hide inappropriate transactions and irregularities in the financial systems.

FISA analysis is based on the information (the evidence) that can be obtained from public sources and anonymised survey data. To address the likelihood that some information sources may be incomplete, inaccurate or out of date, evidence will be collected from several sources of information by the assessors assisted as required by expert researchers.

Most New Zealand financial organisations have some focus on ensuring that their integrity systems and controls include independent audits that are transparent and open to public scrutiny. While this standard practice increases the likelihood that the evidence collected for the assessment will paint a positive picture around a focus on propriety, as noted above, the focus of the FISA assessment is specifically on how effective their processes are in preventing corruption, maintaining strong integrity systems and carrying out the activities that realise the benefits of them.