Finance sector urged to support customers through tougher economic times

Samantha Barrass, chief executive of the Financial Markets Authority. Photo / Dean Purcell.

New Zealand’s financial sector needs to show it will support customers through good economic times and bad, the head of the Financial Markets Authority told industry players.

Around 150 members of the industry gathered at Auckland’s Cordis hotel in an event held by the Financial Services Council billed as a regulatory and economic scene-setter for the year ahead.

Samantha Barrass, FMA CEO, said both Treasury and the Reserve Bank were predicting a recession this year.

“New Zealand financial services face a series of significant milestones, while at the same time the economy faces serious headwinds.

“This will be an opportunity for the sector to show it can support customers through the good times and the bad. Making sure customers are properly assisted through this period will be an important priority.”

Barrass said the obligation on financial players to treat customers fairly was an ongoing requirement. The regulator will begin licensing banks, insurers and non-deposit takers from July under new Conduct of Financial Institutions (CoFI) legislation which will mean they have to meet new requirements around how they treat customers.

She said the CoFI fair conduct programme was not subject to economic conditions and nor were the requirements of the FMC Act.

“It is in the moments of economic distress that these protections particularly need to endure.”

The industry faces more change this year with a new licensing regime for financial advice coming into full force in March, the start of conduct licensing for banks and insurers as well as a climate disclosure regime.

But the focus on the new legislation did not mean it would be moving on from past breaches being dealt with.

“Yes, we are looking to the future to deliver CoFI and all the other new regimes, but that does not mean issues that have occurred should simply be ignored. These cannot be brushed aside as legacy issues if customers are still affected, or out of pocket, today through systems that should have been fixed years ago.”

Last week Cigna was told to pay a $3.5 million penalty for misleading people about its policies.

Barrass said it continued to have fair dealing breaches reported to it by a variety of financial institutions despite it being almost five years since it and the RBNZ undertook a conduct and culture review of the life insurance and banking sectors.

She said NZ was catching up to international norms in terms of financial regulation while New Zealand was at the forefront when it came to the new climate change reporting regime.

Barrass also warned firms against looking to “wriggle around” the borderline of the regulations.

“Recent reports around performance management frameworks, correct or otherwise, provide a good example of what to avoid. In this case, the important outcome is that consumers do not feel under pressure when making important decisions about their financial well-being.

“Whether it’s a bonus motivating this, a desire to be seen as a high achiever or the fear of losing a job, it’s just wrong. When the FMA talks about outcomes-focused regulation, this is what we mean.”

Barrass said the benefit of licensing conditions, fair conduct programmes and an outcome-focused approach was that it was able to take a holistic approach to whether firms were avoiding processes and behaviour that could lead to poor outcomes.

“We will purposefully look to take a broad approach to how we can use our powers to make sure there is a strong focus on consumer experience of the financial sector. We’ve highlighted conflicted conduct as a major barrier to delivering fair treatment and good outcomes.”