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Conduct and customer outcomes: New regime for banks and insurers

September 26, 2019


Partners James Caird, Jania Baigent, Josh Cairns, Anne Callinan, Andrew Harkness, Andrew Matthews, Helen Smith

Financial services regulation Insurance

A new regime focussed on conduct and customer outcomes for the financial and insurance sectors will be introduced to Parliament by the end of 2019. Key features include a conduct licensing regime, increased powers for the Financial Markets Authority, and strong financial penalties.

Conduct and non-financial risks have been the focus of recent reviews by the Reserve Bank of New Zealand and the Financial Markets Authority (FMA) following the revelations of the Australian Royal Commission of the finance, superannuation and financial services industry (ARC). Yesterday, the Government announced a significant new financial conduct regime for banks, insurers and non-bank deposit takers.

In a nutshell, the new regime will consist of:

  • a conduct licensing regime for banks, insurers and non-deposit takers, to be administered by the FMA

  • a new “fair treatment standard”, together with regulations specifying what policies, processes, systems and controls are required to meet that standard

  • obligations relating to remuneration and incentive schemes, including a ban on incentives based on volume or value targets

  • new powers for the FMA to direct licensed entities to change their behaviour, improve their systems and processes, and suspend or vary licence conditions

  • accountability by licensed entities for sales by contracted intermediaries

  • strong civil and pecuniary penalties for breaches of the regime.

In many respects, these changes aren’t surprising. New regulations and increased powers for regulators were inevitable post-ARC, and are in-step with such developments across the Tasman. The major banks have already been making changes (for example, sales targets for front-line staff have been discarded), and they have been implementing and improving systems to self-assess and monitor non-financial risks. The insurance industry is also making changes, albeit not quickly enough for the FMA.[1]

Conduct and culture changes take time to implement. The introduction of the new regime will be part of a longer process for entities realigning their businesses to meet the developing expectations of their regulators and customers.

The devil will be in the detail, and we will be closely following the proposed legislation and regulations as they are further developed. The new regime does, however, signal that the prospects of any royal commission in New Zealand into the financial services industry is surely remote.

Contact one of our experts for further information in respect of the new regime and how it affects your business.


[1] Simpson Grierson FYI article 20/9/19 Life insurers - continued focus on conduct and culture