The FMA and Reserve Bank of New Zealand said today that all banks had committed to remove sales incentives from frontline staff and their managers.
Last year’s report by the FMA and RBNZ on banking conduct and culture required banks to outline their plans to remove sales incentives in line with the following criteria:
- Remove 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.
FMA Chief Executive Rob Everett and Reserve Bank Governor Adrian Orr said all banks had now committed to remove sales incentives for frontline staff and their managers.
“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,” said Mr. Everett.
“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 noted that some banks planned to retain sales incentives for a small group of staff who service business and wholesale customers, as well as a small number of retail customers.
Additionally, incentives based on financial metrics such as overall bank and/or business unit profit remained in place for senior executives at most banks. These roles were generally not directly linked to sales staff or their direct line management. A key focus for future monitoring will involve understanding how these incentives have evolved and what controls are put in place to ensure that potential conflicts relating to sales do not remain.
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.
Banks were asked to provide to the regulators their plans to improve their systems and controls, and increase their focus on the governance of conduct risk in four key areas:
- Greater board ownership and accountability – including being able to properly measure and report on conduct and culture risks and issues
- Prioritising the identification of issues and accelerating remediation
- Prioritising investment in systems and frameworks to strengthen processes and controls
- Strengthening staff reporting channels, including whistleblower processes for conduct and culture issues.
“All the banks have now developed plans to address weaknesses in their systems. 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,” Mr. Everett said.
Mr. 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.”
The London branch of global investment banking giant 
Japanese banking giant Saxo bank’s retail brokerage division – 
On 21 May 2019, 
