The FMA and Reserve Bank of New Zealand (RBNZ) have announced that all banks have outlined plans to remove sales incentives from frontline staff and their managers.
The banking conduct and culture report released last year required banks to outline their plans to remove sales incentives, and if they did not commit to this, to explain how they would manage resulting conflicts of interest. FMA Chief Executive Rob Everett and RBNZ Governor Adrian Orr have confirmed that all banks have now submitted plans to remove sales incentives for frontline staff and their managers, though some banks plan to retain sales incentives for a small group of staff and retail customers.
“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,” Everett said.
“We will now move to monitoring the banks’ progress against the plans they’ve provided. The real test of the success of these commitments will be the type of behaviour that is rewarded in the future.”
The regulators also noted that targets based on financial metrics remained in place for senior executives at most banks, but acknowledged that these roles were generally not directly linked to sales staff or their direct line management. Understanding these incentives and how they influence client outcomes will be a “key point of focus” for the regulators’ future monitoring efforts.
The FMA and RBNZ concluded in last year’s report that the approach to managing conduct risk was weak throughout the banking industry and that the 11 banks reviewed had not sufficiently put customer outcomes at the heart of their business.
“All the banks have now developed plans to address weaknesses in their systems,” Everett said. “They reflect our findings that there is more work to do to embed conduct risk into these firms. The real test will be how plans are executed and it is Board and senior management’s responsibility to ensure they deliver good customer outcomes.”
Commenting on the development, Orr said: “Culture comes from the top and boards and senior managers at our 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. Boards are critical in leading the cultural shift that is needed to promote long-term customer outcomes. It is critical to embed new processes and governance systems within banks, and we will be monitoring their progress with this important work.”