Royal Commission triggers letter to insurers from FMA and RBNZ

Response to the Australian Royal Commission into misconduct in Banking, superannuation and other financial services (Royal Commission)

As you will be aware we met recently with the Board of the Financial Services Council. We discussed the issues raised at the Royal Commission that pertain to life insurance providers. At the meeting we reiterated our views that the nature and extent of the issues within financial services in Australia and the obvious cross-over in terms of entities, people and practices into New Zealand demands a strong response from the industry here, and from the regulators. We acknowledge the strong support and engagement we received from the FSC Board.

We would like to set out the expectations of the FMA and the Reserve Bank as to next steps and to clarify the information and actions required from your organisation. Our objective in this exercise is to understand what work you have undertaken to review your operations to promptly identify and address any conduct and culture issues. We expect you to show us what you have done in order to be comfortable that there are no material conduct issues within your business. We anticipate that you will be familiar with our Conduct Guide (published in February 2017) and may be extending or enhancing your work in response to the guide as it intersects with issues raised at the Royal Commission. There may also be issues you are looking at more broadly as a result of that inquiry.

We consider that the window for you to demonstrate to consumers, regulators and other stakeholders that they can have full confidence in the financial services industry in New Zealand is narrow, and you will have seen we have encouraged proactive leadership from the retail Banking sector. Given the breadth of your business activities here in New Zealand we would like to ask you for the same information that we have requested from the Banking sector.

Aspects of financial services conduct and culture fall within the regulatory remit of both the Reserve Bank and the Commerce Commission. This letter has been shared with and has the support of the Commerce Commission. In addition, we advise that the responses we seek from you will be shared with both of these agencies.

The purpose of this exercise is for us to understand how you have obtained assurance that misconduct of the type highlighted in Australia is not taking place here. To clarify, we request a written response from your organisation outlining:

The actions you, your Board and your senior teams have taken to identify and address conduct risk arising directly or indirectly from your firm’s actions, including product design and distribution, incentives setting, and claims performance. This should include any “gap analysis” work against the expectations set out in the FMA’s Conduct Guide
Any specific plans and actions you have taken (or have underway) to respond to the issues and themes arising from the Royal Commission
Any other work you have underway or that is planned to proactively identify and address potential conduct and culture risk
Any work underway to remediate any identified issues where conduct by your firm has resulted in detrimental outcomes for customers.
We envisage receiving from you a summary document that provides an overview of your programme of work including:

Please provide this overview to the FMA no later than Friday 22 June 2018. We will then assess this summary information and schedule a follow up meeting with your core team to discuss your response, agree next steps, timetable, further information requests and ongoing reporting. We will also work with you to schedule a meeting with your Board of Directors to discuss this work as appropriate.

We intend to be fully open and transparent in our inquiries and interactions with you and we expect the same approach from you. We encourage early discussion of any areas where you anticipate that some remediation may be appropriate or where you are considering changes to product offerings, sales practices or business structures.

We will also continue to focus on areas we have previously signalled as priorities, including:

Please also share this letter with your Boards of Directors. We will publish this letter on our website in the interests of transparency.

Rob Everett, chief Executive, Financial Markets Authority
Adrian Orr, Governor, Reserve Bank of New Zealand

Comments from our readers

On 24 May 2018 at 2:52 pm Chatterbox said:

FMA have no idea where the main theme of leeching value and misconduct operates, and is caught up in focusing on advisors. Very little addressing of product manipulation systems that amend over time, material changes made to products under the same brand and name to avoid prospectus changes, unilateral changes to reduce liability over time, without authority, misleading regulators, and sanctioning practices to get around the banking system and so on...all window dressing by FMA to try to look its doing its job after the market has been infected for years with misconduct. Not to mention the unit buy and sell price margin sham that has yet to be exposed. Instead its all about commissions and bonuses, avoid the fees charged for non-existed expenses against products by using actuarial projects as to the future risk that will never arrive, and so on and so on the entire industry is a cauldron of holes through which consumers lose billions in value every year without realizing. The industry has captured the Government and regulators who hope the industry looks after itself.

Royal Commission triggers letter to insurers from FMA and RBNZ

The FMA and the RBNZ have sent the letter below to the chief executives of New Zealand’s licensed life insurers

Thursday, May 24th 2018, 12:13PM 1 Comment

Comments from our readers

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