The Government is launching a crackdown on banks, insurers and other financial service providers in a bid to make them "treat their customers fairly".
Commerce and Consumer Affairs Minister Kris Faafoi says the new regime, announced on Wednesday, will regulate financial conduct and protect customers.
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"Under this new regime we are aiming to ban things like target-based sales incentives, which put profits ahead of people," Faafoi says.
"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.
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
These will be enforced by giving the Financial Markets Authority (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.
Financial institutions will face strong financial penalties for breaching their obligations under the regime.
"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," Faafoi says.
Action taken after damning reviews
The Government's actions come after damning reviews into New Zealand's banking and insurance sectors.
A major review of the conduct and culture of our biggest banks in 2018 found that many Kiwis don't trust them.
It did not find evidence of widespread misconduct, but their findings were enough to prompt a stern warning from regulators.
"Some banks appear reactive at best to these issues, and complacent at worst," says FMA CEO Rob Everett said at the time.
And a 2019 report into the New Zealand life insurance industry from the FMA and Reserve Bank said it puts profit ahead of people.
It found "extensive weaknesses" in life insurers' systems, and a "lack of focus" on customers. There were "several instances of poor conduct" and a "small number of cases of potential misconduct".
"Overall the report shows the life insurance sector in a poor light," Everett said at the time.
"Life insurers have been complacent about considering conduct risk, too slow to make changes following previous FMA reviews and not sufficiently focused on developing a culture that balances the interests of shareholders with those of customers."