Faafoi foreshadows conduct licensing regime for financial services industry

Faafoi foreshadows conduct licensing regime for financial services industry | Insurance Business

Faafoi foreshadows conduct licensing regime for financial services industry

Commerce and Consumer Affairs Minister Kris Faafoi has foreshadowed the upcoming conduct licensing regime for the financial services industry, reassuring customers that they will receive fairer treatment.

This week, the government announced that it will introduce a conduct licensing regime governing financial institutions, which will be administered by the Financial Markets Authority (FMA).

“Under this new regime, we are aiming to ban things like target-based sales incentives which put profits ahead of people, as has been identified in recent reviews,” Faafoi said.

“Those reviews by the Reserve Bank of New Zealand and the FMA have also highlighted other problems in the banking and insurance sectors which include weak systems for managing conduct risks and ensuring good conduct is a priority in their business.”

Read more: Tower backs government's plans to regulate financial conduct

Under the new conduct licensing regime, financial institutions are required to implement “effective policies, processes, systems, and controls” to make sure that they’re treating customers fairly.

They will also face obligations in relation to how they design any sales incentives and how they manage risks brought by these incentives. Moreover, they will be accountable for sales through third parties who provide add-on finance and/or insurance.

“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,” Faafoi explained.

“Removing these types of incentives will provide better protections for consumers from misconduct.”