The Financial Markets Authority (FMA) has published its Bank Incentives Structures review, which found that incentives schemes in banks are highly sales focused, and the current controls appear to be ineffective at mitigating conduct risks.
The FMA also found that boards and senior management do not search out or receive any significant amount of information on the conduct risks that incentives pose, and the changes banks are making to incentive schemes are not doing enough to prevent misconduct or risks of inappropriate sales.
According to FMA director of regulation Liam Mason, banks are expected to design their incentive schemes in a way that doesn’t put customer outcomes at risk.
“The way that banks choose to reward and incentivise their staff is at the heart of the culture that boards are establishing in these firms,” Mason said.
“We expect banks to ensure they achieve consistently good outcomes for their customers. This includes designing and managing incentive schemes in a way that delivers positive outcomes over the life cycle of the products that they hold.”
The FMA says it expects boards and senior management to be more proactive in identifying and managing conflicted conduct risks, and has instructed banks to remove sales-based incentives for their salespeople and managers. Any bank that does not commit to this before March 2019 will be required to explain how they are ensuring that their incentive programmes are in line with good customer outcomes.
The Bank Incentives Structures review took into account information provided by nine banks, 68 salespeople and 22 managers from New Zealand’s largest banks. It was published separately to the joint conduct and culture review being undertaken with RBNZ.