The government is "not happy" with problems revealed in a banking sector inquiry released today despite it being cleared of any serious misconduct.
Consumer Affairs Minister Kris Faafoi said banks needed to "lift their game" to make sure customers were protected.
"We are not happy to hear that there are problems, but by identifying them we now have an opportunity to fix them.
"New Zealand customers should get fair treatment and their needs must be put first."
Minister of Finance Grant Robertson echoed Mr Faafoi's concerns and said there was more the sector needed to do.
"This report highlights why we must remain vigilant to the risks that Australian customers are facing.
"This is not an end, rather a beginning to ensure banks deliver on the privilege of being licenced to operate in this country."
The inquiry, by the Financial Markets Authority and the Reserve Bank (FMA-RBNZ), found a small number of instances of poor conduct by bank staff, but none of the widespread misconduct revealed in Australia such as charging dead people fees and lying to regulators.
"The FMA and RBNZ do not consider that widespread misconduct or poor culture issues currently exist across banks in New Zealand," the regulators said in a statement.
But the authority's chief executive Rob Everett said there were serious shortcomings and deficiencies among executives and boards of directors in taking staff conduct seriously.
"The governance of conduct risk in the banks requires serious attention. Boards and senior management must address the recommendations and findings from our review with urgency."
Prime Minister Jacinda Ardern said some of the findings on banks and the impact on their customers were of concern to the government.
Ms Ardern said the government was keeping a close eye on the industry.
"We're of the view banks do need to lift their game to be much better at identifying problems and risks early on and fixing them."
She said there was already legislation before the House to ensure the financial industry in New Zealand was sound, but she did not rule out further change in the future.
Eleven banks were investigated by the FMA-RBNZ and a few instances of improper conduct found, which were taken up with the relevant banks.
Banks not trusted
A survey taken in conjunction with the inquiry showed widespread distrust of banks, especially the big foreign-owned banks.
About two-thirds surveyed trusted their own bank to meet their needs, but only 42 percent trusted the banking industry overall, and consumers were more inclined to trust small banks.
The survey showed about a quarter of respondents were offered products that were not appropriate, and less than half believed the bank had their best interests at heart.
RBNZ Governor Adrian Orr said banks had a responsibility to ensure customers received products and services they understood and were suited to their needs.
"Failure in this responsibility exposes customers, banks, and the wider economy to unnecessary risk - as dramatically demonstrated by the recent Global Financial Crisis."
The inquiry recommended banks invest in systems to identify and fix staff faults, make it easier for staff to blow the whistle on bad behaviour, and to remove sales-linked incentives.
The banks have been given until the end of March next year to report on what action they have taken.
However, the two regulators also noted that official rules need to be strengthened to ensure banks behaved properly and were accountable.