New Zealand announced that it plans to regulate the conduct of financial institutions with new measures including a ban on target-based sales incentives, following a review by regulators.
The government measures also include a new conduct licensing system for banks, insurers and non-bank deposit takers, and a requirement that these entities meet specified standards of customer treatment.
The measures also give the Financial Markets Authority (FMA) the power to direct institutions to change behaviour, improve their systems, and suspend or vary the conditions of a licence, the government said in a statement.
The new financial conduct regime will:
- 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.
- 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)
- Require licensed institutions to implement effective policies, processes, systems and controls to meet the fair treatment standard.
- 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.
- 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.
- 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).