Laws will levy 'strong' fines on banks, insurers

Wednesday, 25 September 2019

Laws to force banks and insurers to treat customers fairly will soon be introduced, Commerce and Consumer Affairs Minister Kris Faafoi has announced.

The Financial Markets Authority (FMA) would have 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, Faafoi said.

Financial institutions would face 'strong' fines for breaching their obligations.

There would be a 'conduct licensing system' for banks, insurers and non-bank deposit takers such as credit unions, requiring them to meet high standards of customer treatment if they wished to remain in business.

The changes will include an outright ban on volume-based sales incentives that encourage bank staff and insurers to sell people financial products which they don't need, or which are not suitable for their circumstances.

Already the big banks have pledged to remove front-line staff sales incentives, and insurers have withdrawn the expensive overseas trips they use to reward their highest-selling insurance advisers.

'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,' Faafoi said.

The review of the conduct of life insurers found poor value products, claims not being paid when they should have, and overcharging of premiums.

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The FMA would have 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.

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FMA chief executive Rob Everett said gaps had been highlighted in the regulation of banks and insurance in the reports on conduct and culture in both sectors.

Banks, ANZ included, got rid of sales targets for staff. ANZ's Antonia Watson celebrates their demise.

'The Government has said today it intends to close these gaps and give us the mandate to implement and enforce conduct obligations across both sectors.'

The announcement follows an embarrassing two years for banks and insurers in which joint conduct reviews by the Reserve Bank and FMA criticised their behaviour, and the high profile departure of ANZ's former chief executive David Hisco.

Commerce and Consumer Affairs Minister Kris Faafoi plans to create laws requiring banks to treat customers fairly.

Stuff revealed the bank had purchased and then sold to Hisco's wife a luxury home in Auckland for less than it paid for it. It was found the bank should have disclosed the sale as a related party transaction in its accounts.

The two regulators also found banks were error-prone, slow to repay money they had overcharged customers, and had under-invested in their systems despite their vast annual profits.

ANZ CEO David Hisco has gone from the bank after spending thousands of dollars on corporate cars and wine storage.

As a result of the intense scrutiny, banks have publicly stated their intention to change, with ANZ acting chief executive Antonia Watson outlining the investment her bank was making in identifying customers who were getting poor value for money from it.

Financial Markets Authority chief executive Rob Everett and Reserve Bank governor Adrian Orr announcing the results of their probe into banking conduct and culture in November last year.

'Those reviews by the Reserve Bank of New Zealand and the Financial Markets Authority 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,' Faafoi said.

Faafoi said 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.

'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,' said Faafoi.

'Banks want to treat their customers fairly. It's good for customers and good for business. We welcome further steps to help ensure we're doing that. We will work closely with the government and regulators to develop and implement the new requirements,' New Zealand Bankers' Association chief executive Roger Beaumont said.

He said the banking industry understood the high standards expected by their customers and are prepared to meet those standards.

Financial Services Council chief executive Richard Klipin said the focus of the new regime on licensing, expanding the FMA's remit, and ensuring remuneration practices serve good and fair client outcomes is entirely appropriate.

Tim Grafton, chief executive of the Insurance Council of New Zealand, said clarity around overlapping regulatory regimes would be important and sufficient time would be needed for a smooth transition.