New Zealand regulators welcome banks’ commitment to get rid of sales incentives for frontline staff

Maria Nikolova

Some banks plan to keep sales incentives for a small group of staff who service business and wholesale customers, as well as a small number of retail customers.

The Financial Markets Authority (FMA) and Reserve Bank of New Zealand today welcomed the commitment by all banks get rid of sales incentives from frontline staff and their managers.

The comment follows last year’s report by the FMA and RBNZ on banking conduct and culture which required banks to present their plans to remove sales incentives in line with a number of criteria, such as:

  • 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.

The regulators noted that some banks planned to keep sales incentives for a small group of staff who service business and wholesale customers, as well as a small number of retail customers. Also, 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.

An important focus for future monitoring will involve understanding how these incentives have evolved and what controls are implemented to ensure that potential conflicts relating to sales are no longer present.

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 core 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,” FMA Chief Executive Rob Everett said.

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