The report into the 11 biggest banks, released yesterday, passed a damning verdict on banks’ sales incentives and policing of staff. It also highlighted a series of issues with intermediary relationships.
The report found a number of banks "highlighted conduct risks associated with their limited oversight of the customer interactions that occur through brokers and other intermediaries”.
While the FMA and RBNZ review does not single out the mortgage advice sector, it also placed the spotlight on the remuneration structures used by banks and third parties. The report raised concerns about whether intermediary pay “impacts customer outcomes”.
In a warning sign for the industry, regulators said “more work” was required to ensure intermediary incentives were “aligned with good outcomes”.
The report said there was “little evidence” New Zealand banks monitored “higher-risk products and distribution channels”, and called on banks to ensure they were “comfortable with the quality of conversations and advice” from intermediaries.
The report echoes concerns raised by Australia’s Royal Commission. The Commission’s interim Haynes report suggested broker sales incentives led to misconduct and called for an end to value and volume-based commissions for mortgage advisers.
The FMA and RBNZ report also criticised the way banks offer advice. It found “inherent conflicts of interest”, “particularly apparent in vertically or horizontally integrated firms" that manufacture products and provide advice. The regulators said the conflict of interest influenced sales incentives and prevented staff from identifying inappropriate sales.
Banks have until March to respond to individual concerns raised by regulators.