WELLINGTON (Reuters) - New Zealand said on Wednesday that it plans to regulate the conduct of financial institutions with new measures including a ban on target-based sales incentives, following a review by regulators.
The government measures also include a new conduct licensing system for banks, insurers and non-bank deposit takers, and a requirement that these entities meet specified standards of customer treatment.
The measures also give the Financial Markets Authority (FMA) the power to direct institutions to change behaviour, improve their systems, and suspend or vary the conditions of a licence, the government said in a statement.
Financial institutions will face strong financial penalties for breaching their obligations, it added, although no further details were provided on the penalties.
“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,” said Commerce and Consumer Affairs Minister Kris Faafoi.
Faafoi said the government will soon introduce the new legislation to parliament soon.
New Zealand’s financial sector has been in the spotlight in the past year, as a Royal Commission inquiry in neighbouring Australia made a series of revelations of wrongdoing by major financial institutions, many of them parent companies of New Zealand’s largest banks.
The Reserve Bank of New Zealand alongside the FMA had reviewed New Zealand’s bank culture and conduct and not found the problems seen in Australia, but said there were weaknesses in banks’ risk management and that tighter regulation was needed.
The regulators also said last week that they were disappointed by life insurers’ response to a conduct and culture review.
Reporting by Praveen Menon; Editing by Sam Holmes