Good conduct is not just an issue for the banks and insurers - every individual in the financial markets needs to be focusing on customer-centric outcomes.

In 2018, following close behind the Australian Royal Commission, the Financial Markets Authority (FMA) and the Reserve Bank of New Zealand (RBNZ) completed their joint review into the conduct and culture of 11 New Zealand banks. This review was the first of its kind in New Zealand and was quickly followed by a similar review of life insurers in January 2019.

With regard to the banks, significant weaknesses in the governance and management of conduct risks were identified. These weaknesses resulted in several issues that required remediation. It was also noted that the banks’ lack of proactivity in identifying and remediating conduct issues and risks meant vulnerabilities remain. In conclusion the FMA and RBNZ believed that the overall standard of banks’ approaches to identifying, managing and dealing with conduct risk needed to improve markedly.

The life insurers did not fare much better and the FMA’s view was that life insurers had been too complacent when it came to considering conduct risk, too slow to make changes following previous FMA reviews, and were not focused enough on developing a culture that balances the interests of shareholders with those of customers.

Trustees Executors’ General Manager, Corporate Trustee Services, Matthew Band says that since these two reviews, the subject of conduct has gathered momentum. “It’s not just an issue for banks and insurers – every individual in the financial markets needs to be aware of their conduct and should be listening to the calls for fundamental cultural change within financial institutions of all sizes, and the prioritisation of customer-centric outcomes”.

“We are all in a time of seismic change; the treatment of customers and the concept of customer interest and good customer outcomes is under the microscope. No longer is it enough for us to cite our own ethical approach through careful brand communications – intent must be matched with actions”.   

In June 2019, Trustees Executors sent out a conduct thematic review questionnaire to industry participants across managed investment schemes and non-bank deposit takers. The purpose of the review was to understand the level of conduct risk management maturity, to identify any gaps and weaknesses, to prompt entities to start focusing on good conduct, and to see how they could add value.

Trustees Executors’ review indicated that although considerable work had been undertaken in some organisations, there were still improvements to be made in the governance and management of conduct risks, particularly in the areas of developing robust risk assessment, risk frameworks, and communicating risks to vulnerable customers. Overall, participants recognised they still had work to do when it comes to identifying, managing and dealing with conduct risk.

There is going to be continued regulator focus on conduct and in the FMA’s latest Annual Corporate Plan (of 2019/2020) they include conduct and culture as one of their key strategic priorities.

Whether you are an adviser, a fund manager, insurer or banker you should take note of the response from the FMA’s Chief Executive, Rob Everett, to a question that he is consistently asked at conferences and seminars, the question is: 

“What do we need to do to meet the FMA’s expectations of good conduct?”

His response to that question:

“At its core, conduct is about how market participants behave and how they serve the needs of customers, including the culture and governance that drives that behaviour. For me, it’s boards and senior managers asking themselves some fundamental questions.

1. Is our culture focused on serving the needs of customers?
2. Are our customers treated fairly at all times?
3. Are our products designed with customers in mind?
4. Are our incentive structures aligned with the interests of customers?
5. Do we have a good understanding of the conduct risks inherent in our business and are we managing these effectively?”

Band says a key focus for Trustees Executors in 2020 is to continue working with their clients to discuss conduct improvements and to agree and assist in the remediation of identified gaps and weaknesses to help them on their good conduct journey.

“Fundamentally, everyone in our industry has a responsibility to ensure customers receive products and services they understand, which are suited to their current and future needs. This underpins good conduct. If we all strive to act in the best interests of our customers at all times we will reduce our risk exposure, and enhance the reputation of our industry."

Trustees Executors provides specialist Corporate Trustee and Supervisory Services to some of New Zealand's leading financial instituitons, banks and fund managers. We pride ourselves on our values and collaborative culture, robust and effective communication, sound governance and the relationships we build with our clients and regulators. 

Talk to us about how we can help you with conduct, compliance, risk and operational best practice.