Incentives for bank staff too highly focused on sales

Incentives for bank staff too highly focused on sales

The Financial Markets Authority (FMA) today published Bank Incentive Structures, its thematic review of how banks in New Zealand incentivise their staff.

The report sits alongside the recently published joint FMA/Reserve Bank of New Zealand (RBNZ) Conduct and Culture review of New Zealand’s banks. Today’s report is published separately, reflecting that this work was carried out by the FMA only.

The expectations of the FMA and the RBNZ in the conduct and culture review:
• Banks should remove incentives linked to sales measures for salespeople and their managers
• Banks should revise incentives structures through all layers of management
• Any bank which, by the end of March 2019, does not commit to this will be required to explain how they will strengthen their control systems to address the risks of poor conduct
• Changes to incentive programmes to be implemented no later than the first performance year after 30 September 2019.

Findings from the bank incentives review:

• Incentive schemes are highly sales focused
• Controls appear to be ineffective at mitigating conduct risks
• Boards and senior management seek and receive little information on the conduct risks associated with incentives
• While banks are making significant changes to their incentive schemes, these do not go far enough to prevent risks of inappropriate sales or poor conduct.

Liam Mason, FMA Director of Regulation, said: “The way that banks choose to reward and incentivise their staff is at the heart of the culture that boards are establishing in these firms. We expect banks to ensure they achieve consistently good outcomes for their customers. This includes designing and managing incentive schemes in a way that delivers positive outcomes for customers over the life cycle of the products they hold.”

The FMA also expects boards and senior management to be proactively identifying and managing the risks of conflicted conduct and poor sales practices associated with volumes based incentives.

The review focused on the incentives in place for frontline bank staff at 21 May 2018. Alongside information requested from nine banks in the review, the FMA spoke to 68 salespeople and 22 managers from the five largest banks by customer number.

This review of bank incentives was set out in the FMA’s Annual Corporate Plan 2017 and the work carried out to align with the Conduct and Culture review.

A copy of the Bank Incentive Structures review can be found here

A copy of the joint FMA/RBNZ Culture and Conduct review can be found here

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