New government legislation will ban overseas trips or bonuses being used to incentivise staff tasked with selling banking and insurance policies.
Commerce and Consumer Affairs Minister Kris Faafoi announced stricter controls on banks and insurers today in the wake of reviews by the Reserve Bank and the Financial Markets Authority, which highlighted problems in both sectors.
"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.
"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."
"The days of the trips to Rome are gone if you sell 10 policies, and that practice needed to be long gone many years ago,'' he said.
Legislation will be introduced soon that will require banks, insurers and other financial service providers to put systems in place to make sure customers are treated 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," Mr Faafoi said.
The stricter controls will also be backed by stronger enforcement tools for the FMA to direct licensed institutions to change behaviour, improve their systems, as well as suspend or vary the conditions of a licence.
"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," Mr Faafoi said.
"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."
He is also putting the hard word on the banking and insurance sectors to clean up their act or risk being shut down.
Mr Faafoi said the FMA will be empowered to suspend or vary the conditions of licences if bad behaviour continues.
"I think it's pretty inherent now on the banks, the insurance sector, and the wider finance sector now that they've been given a message that if they don't clean up their act to make sure they're working in the best interests of consumers and their customers, then their licence will be at stake,'' he said.