Government to ban 'profits ahead of people' tactics by banks, insurers

The Government is aiming to ban banks and insurers from putting "profits ahead of people". 

Consumer Affairs Minister Kris Faafoi said the regulations of financial conduct could see initiatives such as target-based sales banned. 

"Incentives such as overseas trips or bonuses for selling a certain amount of insurance policies can lead to sales staff pressuring customers into buying unsuitable products, like policies they can never claim on," Mr Faafoi said in a statement. 

"The days of the trips to Rome – are gone," he added at a press conference today to announce the proposals. "That practice needed to be long gone years ago.

"Removing these types of incentives will provide better protections for consumers from misconduct."

The Reserve Bank and the Financial Markets Authority found "concerning issues" with the current system, with a lack of focus on the needs of customers and a poor culture of putting profits first.

"We should, and do expect better," Mr Faafoi said. 

New legislation would see a licensing system for banks, insurers and deposit takers like credit unions, it would make sure they meet "high standards of customer treatment" and it would ban incentives based on sale targets. 

"This is new territory, it has not been done before," Mr Faafoi said. 

This would include commissions such as overseas trips, bonuses for selling financial products, leader boards, and performance management based on sale volume. 

"Reviews by the Reserve Bank of New Zealand and the Financial Markets Authority have also highlighted other problems in the banking and insurance sectors, which include weak systems for managing conduct risks and ensuring good conduct is a priority in their business," Mr Faafoi said.

The Insurance Council of NZ said it was "generally" supportive of the changes, saying its members already adhere to a fair insurance code to ensure high standards. 

"It will be important that there is clarity around the overlapping regulatory regimes and that sufficient time is allowed for a smooth transition that minimises regulatory costs," chief executive Tim Grafton said.