All 11 banks in New Zealand have now committed to removing sales incentives for frontline staff and their managers, the Financial Markets Authority and Reserve Bank of New Zealand say.
Banks were required to outline plans to remove sales incentives in line with the Bank Conduct and Culture Review, produced by both regulators in November 2018.
The review set requirements for the banks to:
- Remove sales incentives linked to sales measures for salespeople and their managers, no later than the first performance year beginning after 30 September 2019; and
- Revise incentives linked to sales measures through all layers of management.
- Where banks do not commit to removing sales incentives, banks should demonstrate how they would implement controls to manage any conflicts or potential mis-selling.
In last year’s report the FMA and RBNZ concluded that banks had not sufficiently put customer outcomes at the heart of their business and that the approach to managing conduct risk was weak throughout the industry.
“Our review highlighted concerns about sales incentives for frontline banking staff. Other banking jurisdictions are also focused on this issue and the commitment to remove these incentives in New Zealand is a significant shift for banks,” says FMA Chief Executive Rob Everett.
Banks were also asked to provide the regulators with plans to improve in systems and governance.
Key areas of the plans include greater board accountability and strengthening staff reporting channels for conduct and culture issues.
New Zealand’s two main regulators of financial and banking services conducted the review to seek whether conduct and culture issues are widespread in New Zealand banks.
Background to this was the observation of misconduct in banking in other jurisdictions.
The establishment of the Royal Commission into the Misconduct in the Banking, Superannuation and Financial Services Industry in Australia in December 2017 was touted as one significant issue. New Zealand’s four largest banks are Australian-owned.
Reserve Bank Governor Adrian Orr says culture comes from the top and boards and senior managers at financial institutions need to be leading by example.
“Our review of bank plans shows there is still work to do at the system-level, but there is a much bigger concern and question about the culture being instilled and fostered at governance level,” he says.
Incentives based on financial metrics such as overall business unit profit remained in place for senior executives at most banks as these were not seen to be directly linked to sales staff or their direct line of management.
The release states that both regulators will monitor the banks’ progress against the reports they have provided, paying attention to the type of behaviour which will be rewarded in the future.