FMA executive director of regulatory delivery Clare Bolingford signed off on the letter to chief executives warning that it has been four years since the FMA reviewed bank incentive structures (BIS Review).
In the letter she says, the design and management of bank incentive schemes influence how banking staff act and what behaviour is valued. In the BIS Review the FMA described incentives as including variable pay, fixed pay (salary), competitions, and performance management such as how staff are selected for promotion, and how staff are selected for performance improvement plans and, ultimately, termination of employment.
“In December 2018, we asked all banks involved in the BIS Review to implement changes to their incentive schemes to remove incentives linked to sales measures for salespeople and their managers, no later than the first performance year beginning after 30 September 2019. We defined sales measures as measures that are achieved by retail customer sales or referrals, whether at an individual or a team level. This includes sales/referral numbers, sales value and asset or liability growth.
“These changes were intended to reduce conflicts of interest that can hinder the fair treatment of consumers. As you know, we have been monitoring banks’ progress with their actions plans to address the recommendations of both the BIS Review and the joint FMA and Reserve Bank Conduct & Culture Review. In many cases, we are encouraged by the changes that have been made.”
Bollingford goes on to say the FMA has recently received reports suggesting that in some instances, banks have reintroduced sales targets or other changes that are not likely to be in the best interests of consumers.
“We are concerned about these reports and any reports of actions by banks that may result in consumer harm.
“We are now asking you to take the following actions to provide assurance that the incentives you provide to your staff are designed and managed in a way that supports the fair treatment of consumers.”
Banks have been asked to reconfirm that they have removed sales linked incentive schemes by 31 May and reflect on whether staff incentives are aligned with the outcome of fair treatment of consumers.
