Faafoi foreshadows conduct licensing regime for financial institutions
By Jenny Ruth
Sept. 25 (BusinessDesk) - The government is planning to introduce a conduct licensing regime governing banks, insurers and non-bank deposit takers which will be administered by the Financial Markets Authority.
Commerce and Consumer Affairs Minister Kris Faafoi says customers can expect fairer treatment under the new regime from financial services providers.
"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," Faafoi says in a statement.
"Those reviews by the Reserve Bank of New Zealand and the FMA have also highlighted other problems in the banking and insurance sectors which include weak systems for managing conduct risks and ensuring good conduct is a priority in their business," he says.
"We will soon introduce new legislation to parliament which will require banks, insurers and other financial service providers to put systems in place to make sure they treat their customers fairly."
Financial institutions will be required to implement "effective policies, processes, systems and controls to meet the fair treatment standard."
They also face obligations in relation to how they design their remuneration and any other sales incentives and how they manage the risks those incentives create.
Soft commissions, such as overseas trips and bonuses based on the volume of sales, will be prohibited.
The institutions will also be accountable for sales to consumers through third parties, such as retailers, car dealers and travel agents and/or airlines, who provide add-on finance and/or insurance.
"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," Faafoi says.
"Removing these types of incentives will provide better protections for consumers from misconduct."
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 license, Faafoi says.
"Financial institutions will face strong financial penalties for breaching their obligations under the regime," he says.
"By taking action to improve conduct, we're putting the consumer at the centre and helping banks and insurers to restore confidence in their industry."