New financial conduct regime for fairness
Hon Kris Faafoi
Minister of Commerce and Consumer
Affairs
25 September 2019
PANUI PĀPĀHO
MEDIA STATEMENT
New financial conduct regime makes
banks and insurers treat their customers fairly
Customers can expect fairer treatment from banks, insurers and other financial service providers as the Government moves to introduce a new regime to regulate financial conduct, Commerce and Consumer Affairs Minister Kris Faafoi said today.
“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,” Kris Faafoi said.
“Those reviews by the Reserve Bank of New Zealand and the Financial Markets Authority (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,” Mr Faafoi said.
“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,” he said.
The measures the Government is introducing include:
•
a new conduct licensing system for banks, insurers and
non-bank deposit takers such as credit unions.
•
the new regime requiring these entities to meet high
standards of customer treatment.
• 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.
“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,” Minister Faafoi said.
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.
Financial institutions will face
strong financial penalties for breaching their obligations
under the regime.
“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. We all benefit from a well-functioning financial
sector that’s focussed on the interests and needs of
customers,” Mr Faafoi said.
The new financial
conduct regime will:
1. 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.
2.
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)
3.
Require licensed institutions to implement effective
policies, processes, systems and controls to meet the fair
treatment standard.
4. 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.
5.
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.
6.
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).
More information on the review is available
at https://www.mbie.govt.nz/business-and-employment/business/financial-markets-regulation/conduct-of-financial-institutions-review
ends