The regulators on Monday released their report into the conduct of the banking sector. A similar process is still under way with life insurers.
It was sparked by revelations of misconduct by the Australian banks, in that country's Royal Commission of Inquiry.
While the New Zealand report found no widespread or systemic issues to address, it highlighted changes to be made. Banks had been slow to move on conduct issues, the report said, and had not invested enough in their systems and processes.
Banks highlighted conduct risks associated with the limited oversight of the customer interactions happening between third-party advisers and other intermediaries.
In Australia, concerns were raised about advisers and brokers, particularly whether they were acting in the interest of the customer or product provider, and how their remuneration structures affected customer outcomes.
“While our review was limited in this area, we found little evidence of banks having enhanced controls and oversight of their higher-risk products and distribution channels,” the FMA/RBNZ report said.
“More work is required to ensure banks are comfortable with the quality of conversations and advice that occur via intermediary channels and that the incentives offered to intermediaries are aligned with good customer outcomes.”
The report said there were inherent conflicts of interest in the provision of financial services and this was particularly apparent in vertically or horizontally integrated firms such as banks, which manufactured financial products and provided advice and sales.
“We have seen these conflicts play out in the design of sales incentives and the lack of investment in systems and processes for measuring and reporting on customer outcomes.”
It has called for all banks to change their incentive structures by the end of September next year, and to report in March on how they will do so.
The report noted that several banks were already making changes in this regard, but they did not go as far as the regulators thought necessary.
"Removing incentives linked to sales measures is a significant step... we expect banks to revise their incentive structures for frontline salespeople and all layers of management."
The regulators said they also wanted to address regulatory settings to enable them to respond more effectively to retail banking misconduct and its drivers.
“The governance of conduct risk in the banks requires serious attention. Boards and senior management must address the recommendations and findings from our review with urgency," FMA chief executive Rob Everett said.
"The FMA published a guide to good conduct in February 2017, but some banks have only now started to consider these issues, with most of the initiatives not going deep enough.”
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