Financial Markets Authority chief executive Rob Everett, left, and the Reserve Bank Governor Adrian Orr.
Financial Markets Authority chief executive Rob Everett, left, and the Reserve Bank Governor Adrian Orr.
The finance industry has been urged to "scrub" its products and services and take action now rather than waiting for the Government to legislate.
Rob Everett, chief executive of the Financial Markets Authority, told attendees at the annual financial sector conference held by the Financial Services Council, that the industrywas at a crossroads.
"Public trust in financial services as a whole is at historic lows across the world. Here in New Zealand, the situation has generally been better but more recently public trust has been shaken."
ANZ - the country's largest bank - has been rocked by issues this year including a censure from the Reserve Bank over the way it calculated capital requirements and the departure of its former chief executive David Hisco over an expenses scandal.
Everett said this time last year it and the Reserve Bank had yet to publish the results of a review of the conduct and culture of the banking sector.
That review, which came out in November, found "significant weaknesses" in the way New Zealand banks govern and manage conduct risks, and said changes needed to be made.
Since then the regulators put pressure on the banks to ditch internal sales incentives which were based on volume targets amid concerns they were driving poor outcomes for consumers.
Everett said all of the banks had now committed to removing those.
Earlier this year the FMA and RBNZ released a damning report on the life insurance sector.
"I think it is fair to say we were not impressed," Everett told the conference attendees.
"I know we now have the attention of the boards and management within that sector. Unfortunately, their previous lack of focus and resource on conduct and how to build organisations that serve the customers told us we should recommend to the Government that legislative intervention was required."
Everett said while its reviews did not find a widespread breach of the law or misconduct across the banking and life insurance sectors it had found processes and practices that were sloppy and were not adequately designed to look after customers.
"We saw insufficient focus on the risks posed to customers of poor behaviour whether by deliberate conduct or sloppiness."
Everett said firms were continuing to review their products and practices and he expected to see "more damaging headlines".
"There will be more remediation, more repayments to consumers."
"Good conduct is up to you – the industry – providers and advisers. Given what we've seen in other countries, I have to ask why you are waiting for us to come knocking – look at what we are saying, and think about how it applies to your business."
Everett said he had been giving the industry the same message for years about putting customers at the heart of the business model and moving beyond compliance to serving the needs and interests of customers.
"Some of you may simply be hoping we'll shut up and go away or are waiting for a law change to ensure a level playing field with your competitors.
"Your response is 'we can't or won't change on our own – you need to make us change'. I would warn you to be careful what you wish for."
Finance Minister Grant Robertson told the finance industry they needed to regain their 'social license'. Photo / Mark Mitchell
Finance Minister Grant Robertson also spoke at the event and told the sector they needed to regain their "social license".
"In most cases it is not your fault. It is not something you have done personally. But it is about a form of social capital. The connections we have in our community for one another. The critical role you play in those connections in financing them - the work you do in supporting people's financial wellbeing.
"It's a really important form of social capital which I believe has been undermined in recent years. We have all got a responsibility to rebuild that."
Robertson ruled out a Royal Commission into the New Zealand financial sector and said it believed that undertaking one would just delay it taking action.
"We have the ability to learn the lessons from the Australian Royal Commission, add that to the culture and conduct working that has been done by the FMA and Reserve Bank and actually make changes and that is what we are in the process of doing."
