Reserve Bank eyes tighter rules on information handling

By RICHARD PAMATATAU

The Reserve Bank is close to issuing new conditions for obtaining banking licences as the increase in outsourcing of bank computer systems leads to concerns over the integrity of banking systems.

Industry sources suggest new conditions may encourage banks to process their information in New Zealand, despite a cost-saving desire to outsource information systems to overseas companies.

The issue has surfaced as speculation grows that Westpac Bank is considering a move of its development information systems and then mainframe processing to Australia.

Westpac spokesman, Paul Gregory, said the bank would retain its development IT systems in New Zealand as that part of its computer work was not outsourced to IBM.

"We have over 150 staff working in development and we want them close to our customers."

ANZ National spokeswoman Cynthia Brophy said while no decisions had been made on the final shape of its information systems, the bank had decided to keep a major part of its IT processing in New Zealand.

That was a requirement of the Reserve Bank, said Brophy.

It is understood that there was pressure on National Bank by its new owner to shift more IT work to Australia.

A function of the Reserve Bank is to maintain a sound and efficient financial system and it is understood there is concern about how this might be managed if the systems of an outsource partner, particularly one based across the Tasman, were to fall over.

The Reserve Bank recently granted ANZ and The National Bank approval to merge into a single bank.

As part of that, the Reserve Bank applied new policy objectives in granting the banking licence.

The Reserve Bank said the objectives would be applied to other large banks in due course.

The template included standard conditions of registration relating to things such as capital adequacy and the nature and scope of the business.

Two items added for the ANZ and National merger concerned the role and responsibilities of the bank's board of directors and of its senior management, and the need for the bank to have an independent operating capability in New Zealand.

It is understood that while much of the work so far has been around management issues and reporting lines, additional requirements will be issued focusing on information systems, particularly where outsourcing is involved.

The ANZ National Bank was told it had to maintain systems that would enable the New Zealand bank, if required, to operate independently from key service providers, including, in the case of a foreign-owned bank, to operate independently from its foreign parent.

The four main banks - Westpac, ASB, ANZ National and BNZ, all have Australian owners.

The Reserve Bank said the requirement that ANZ National Bank maintain an independent operating capability was to ensure that the New Zealand bank could continue operating if the provision of management or systems services by an overseas parent bank, or other major service providers, were to be withdrawn - perhaps in the event of the service provider becoming insolvent, for example.

It expects to apply a similar condition to all major banks.

According to the Reserve Bank these "qualities of governance and operating capability" are critical for the best interest of the New Zealand financial system.