Bank Conduct and Culture Review: the FMA/RBNZ comment on banks’ action plans

The Financial Markets Authority (FMA) and Reserve Bank of New Zealand (RBNZ) issued a media release on 24 June 2019 regarding banks’ responses to their Conduct & Culture Report (the Release). The key focus of the Release was on changes to banks’ incentives programmes, with the two regulators noting that all banks had outlined plans to remove sales incentives for frontline salespeople and their managers.


The FMA/RBNZ’s Bank Conduct and Culture Review began at the end of April 2018, with their Report issued in November 2018.  The 11 banks assessed were then required to develop a plan to respond to both specific and industry-wide feedback, and report to the FMA/RBNZ on progress by 31 March 2019.  The FMA/RBNZ have now reviewed the banks’ end of March reports and issued the Release, available here.

What does the Release say?

Banks commit to removing sales incentives for frontline staff

The Release’s main focus was on how banks had changed their incentives programmes.  The Bank Conduct and Culture Report set out the FMA/RBNZ’s expectation that banks would ‘revise’ their sales incentive structures for frontline salespeople and through all layers of management, which in essence was an expectation that banks remove such sales incentives.  Any bank that did not commit by 31 March 2019 to removing sales incentives for those staff would be “required to explain how they will strengthen their control systems to sufficiently address the poor conduct that arise with such incentives”.[1]

The FMA/RBNZ reported in the Release that:

  • all banks had outlined plans to remove sales incentives for frontline salespeople and their managers;
  • however, some banks planned to retain sales incentives for a small group of staff who service business and wholesale customers, as well as a small number of retail customers;
  • additionally, incentives based on financial metrics such as overall bank and/or business unit profit remained in place for senior executives at most banks;
  • future monitoring would focus on understanding how such incentives had evolved and the controls in place to ensure no ongoing potential conflicts in relation to sales.

Concerns continue regarding culture

In addition to the comments regarding incentives, the FMA/RBNZ noted that their review of banks’ actions plans indicated that:

  • all banks had now developed plans to address weaknesses in relation to conduct and culture risks in their systems;
  • there is still work to be done at the “system-level”;
  • however, there is a “much bigger concern and question” about the culture that is being instilled and fostered at the governance level;
  • the FMA and RBNZ will be monitoring progress in relation to embedding new processes and governance systems at banks.

Our view

Banks’ commitments in relation to the removal of sales incentives for frontline staff and their managers is not surprising; as was widely reported, many banks had taken steps in this direction before the Bank Conduct and Culture Report was issued, having seen which way the wind was blowing.[2]

It is also unsurprising that the FMA and RBNZ will be continuing to monitor banks’ action plans to see how conduct and culture-related change is embedded.  Both the New Zealand regulators and Australian entities (including the Hayne Commission) have focussed on the central role of boards in setting the right tone for their organisations, and driving cultural change.  This will be a work-in-progress for banks (and others) for the foreseeable future.

What happens next?

This is a busy time for financial institutions and insurers, as well as those looking to examine and further regulate their conduct and activities.

  • MBIE is currently considering submissions in response to their Options paper on the Conduct of Financial Institutions, with a view to legislation being introduced by the end of 2019.
  • Life insurers are due to report by the end of June to the FMA/RBNZ on the equivalent Conduct and Culture Report for the life insurance sector.
  • Submissions on the MBIE Options paper on the Insurance Contract Law Review are due by 28 June.
  • As noted above, the FMA/RBNZ will continue to monitor progress by the banks against their action plans arising from the Conduct and Culture Report.

If you have any questions in relation to the FMA/RBNZ’s Release, or any matters relating to the Bank or Life Insurer Conduct and Culture Reports, please contact one of our experts.

Our previous commentary on the Bank Conduct and Culture Report, and the related FMA Incentives Report is available here and here.


[1] FMA and RBNZ’s Bank Conduct and Culture Report, November 2018, page 11, available here.

[2] E.g. media reports in August and October 2018:;;

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