Government to regulate consumer-friendly financial institutions
On the back of reviews into anti-consumer behaviour from banks, insurers and other financial service providers, the Government is introducing new regulations. Marc Daalder reports.
After reviews by the Reserve Bank of New Zealand and the Financial Markets Authority showed banks and other institutions have engaged in predatory practices, Commerce and Consumer Affairs Minister Kris Faafoi has pledged action.
A new "financial conduct regime" will come in legislation soon to be introduced to Parliament, Faafoi said.
The regime will require insurers and deposit takers (including banks and credit unions) to be licensed by the FMA. Licensed institutions will have to meet a fair treatment standard and implement policies along these lines.
The regime will particularly target sales incentives that motivate employees to act against customers' best interests. Volume- or value-based sales targets will be banned.
"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," Faafoi said.
"Removing these types of incentives will provide better protections for consumers from misconduct."
Intermediaries for licensed institutions (such as a car dealership selling insurance on behalf of an insurer) will also have to follow these rules or the licensed entity will be held accountable.
Failure to adhere to the rules could be met with direction from the FMA to change policies or even the suspension of the license.
"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 focused on the interests and needs of customers," Faafoi said.