Banks given a year to ditch incentives
Banks have been given just over a year to remove sales incentives that pressure staff into selling products such as personal loans, credit cards and insurance.
Those that do not remove sales incentives will have to convince regulators they have systems in place that can prevent the misselling of financial products and services to customers.
A review of the biggest 11 banks in the country, published yesterday by the Financial Markets Authority (FMA) and the Reserve Bank (RBNZ), cleared New Zealand banks of the widespread abuses of customers identified in the Australian royal commission of inquiry into banking.
But the FMA-RBNZ report found banks were prone to errors, had underinvested in systems despite huge profits, and were dragging their feet on phasing out sales incentives that worked against customers’ interests.
Survey data released with the report found that although twothirds of consumers trusted their own bank, only 44 per cent believed banks put customers’ long-term interests first.
The review was published at a sensitive time for the banks, following announcements by ANZ, Westpac and BNZ of combined after-tax profits of $4 billion.
The banks had begun to change the incentives, prompted by criticism of banks in Australia. But the FMA-RBNZ report said: ‘‘[N]one of the changes announced by banks to date go far enough to create a sustainable culture of good conduct.
‘‘We expect banks to implement changes to their incentives programmes no later than the first performance year after 30 September 2019. In March 2019, we will ask all banks how they will meet our expectations regarding incentives, and we will report on their responses.
‘‘Any bank that does not, at that date, commit to removing sales incentives for salespeople and their managers will be required to explain how they will strengthen their control systems to sufficiently address the risks of poor conduct that arise with such incentives.’’
The FMA-RBNZ review found that cock-ups resulting in customers being overcharged were concerningly commonplace in banking, blaming ‘‘underinvestment’’ and system ‘‘weaknesses’’.
Where banks had estimated the financial impact of such errors, ‘‘an estimated 431,000 customers had been impacted, at a total estimated remediation cost of $23.9 million’’.
The estimated average impact per customer was relatively small, between $5 and $100.
The report also found bank staff were not making use of whistleblower systems, and some had systems that made it hard for customers to complain, or did not record all complaints.
‘‘This suggests whistleblower policies are not particularly effective,’’ the review found.
Each bank has received individual feedback on the review’s conclusions. This will not be published publicly.
‘‘[N]one of the changes announced by banks to date go far enough.’’ FMA-RBNZ joint report