A long-list of Dos and Don’ts for banks, insurers and others
September 26, 2019
The Government has proposed to introduce a new set of rules and governance procedures to banks, lending institutions, insurance companies and others to protect the larger interests of customers.
Commerce and Consumer Affairs Minister Kris Faafoi said that a new Legislation will be introduced to Parliament shortly, providing for cleaner, more transparent and accountable business practices for all financial institutions.
Mr Faafoi said that customers can expect fairer treatment from banks, insurers and other financial service providers after the legislation is passed.
Fair and better management
“Under this new regime, we are aiming to ban things like target-based sales incentives, which put profits ahead of people, as has been identified in recent reviews,” he said.
Mr Faafoi sand that the Reserve Bank of New Zealand (RBNZ) and the Financial Markets Authority (FMA) had highlighted problems in the banking and insurance sectors in their reviews in recent months.
The reviews had also highlighted weak systems for managing conduct risks and specified the need for ensuring good conduct as a priority in their business.
The new measures
The new measures will include (a) a new conduct licensing system for banks, insurers and non-bank deposit takers such as credit unions (b) prescribing all related institutions to meet high standards of customer treatment (c) a ban on incentives which are based on meeting sales targets.
“Incentives such as overseas trips or bonuses for selling a certain amount of insurance policies can lead to sales staff pressuring customers into buying unsuitable products, like policies they can never claim on. Removing these types of incentives will provide better protections for consumers from misconduct,” Mr Faafoi said.
He said that New Zealanders need to be confident that the financial advice, products and services they are buying will be appropriate to their circumstances and meet their needs.
The new regime will be backed by strong enforcement tools, including giving the FMA the ability to direct licensed institutions to change behaviour, improve their systems and processes, as well as suspend or vary the conditions of a licence.
Customer interest on top
Financial institutions will face strong financial penalties for breaching their obligations under the regime.
“By taking action to improve conduct, we are putting the consumer at the centre and helping banks and insurers to restore confidence in their industry. We all benefit from a well-functioning financial sector that’s focussed on the interests and needs of customers,” Mr Faafoi said.
What is in Store
The new financial conduct regime will do the following:
- Create a conduct licensing regime for banks, insurers and non-bank deposit takers regarding their general conduct. These institutions will be licensed by the Financial Markets Authority
- Require licensed institutions to meet a fair treatment standard (for example, to pay due regard to the needs and interests of customers and treat them fairly)
- Require licensed institutions to implement effective policies, processes, systems and controls to meet the fair treatment standard
- Create obligations for financial institutions in relation to how they design their remuneration and any other sales incentives, and how they must manage the risks those incentives create
- Prohibit sales incentives based on volume or value targets (e.g. soft commissions such as overseas trips, bonuses for selling a certain number of financial products, leader boards, and performance management based on the volume of sales). This prohibition will apply to banks, insurers, non-bank deposit takers and their intermediaries
- Make licensed entities accountable for sales to consumers by the entities’ contracted intermediaries who are not financial advice providers (non-adviser intermediaries include car dealers, retailers selling add-on finance and insurance, and travel agents or airlines selling travel insurance).
FMA welcomes move
FMA Chief Executive Rob Everett welcomed the announcement, saying that FMA and RBNZ had highlighted gaps in the regulation of banks and insurance in their joint thematic reports on conduct and culture in both sectors.
“The Government has said that it intends to close these gaps and give us the mandate to implement and enforce conduct obligations across both sectors. We look forward to working with industry to implement any changes passed by Parliament to ensure banks and insurance companies serve the needs of their customers,” Mr Everett said.