Banks, insurers and other financial institutions operating in New Zealand have been warned that a tougher regime is waiting in the wings.
New Zealand’s Consumer Affairs Minister Kris Faafoi yesterday announced its plans to introduce a conduct licensing scheme to be administered by the Financial Markets Authority (FMA).
Long expected in the wake of the Hayne royal commission across the Tasman and local reviews that showed disappointing conduct and culture issues, the proposed new regime could see banks, insurers and non-bank deposit takers face fines of up to NZ $5 million for serious conduct breaches. Individuals may face fines of up to NZ$1 million.
The legislation will require financial institutions to meet a prescribed “high standard of customer treatment” and will ban sales incentives 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,” Faafoi said.
He said the new regime would 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.
“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,” Faafoi said.
The Insurance Council of New Zealand put out a statement saying it welcomed the changes as “it’s clear some parts of the financial services sector are not meeting the conduct standards expected”.
“We also welcome the news that sales incentives based on volume- or value targets will be prohibited, especially as they apply to insurance brokers. Legislation in this area will address the first-mover disadvantage insurers struggle with and in removing these incentives help customers have confidence that both the sales and underwriting teams behind their policies have their needs front of mind,” said CEO Tim Grafton.