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The financial sector is called upon to support customers in difficult economic times

Samantha Barrass, Chief Financial Officer. Photo / Dean Purcell.

New Zealand’s financial sector needs to show it will support clients in good times and bad economic times, the head of the Financial Markets Authority has told industry players.

Around 150 members of the industry gathered at the Cordis Hotel in Auckland for an event hosted by the Financial Services Council, which is seen as the regulatory and economic enabler for the coming year.

FMA CEO Samantha Barrass said both the Treasury Department and the Reserve Bank are forecasting a recession this year.

“New Zealand’s financial services industry faces a number of significant milestones while at the same time the economy faces serious headwinds.

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“This will be an opportunity for the industry to show they can support customers through good times and bad. Ensuring customers are adequately supported during this time will be a key priority.”

Barrass said financial stakeholders’ commitment to treating customers fairly is an ongoing requirement. The regulator will start licensing banks, insurers and non-deposit-takers under new CoFI (Conduct of Financial Institutions) legislation from July, meaning they will have to meet new requirements around how they deal with customers.

She said the CoFI fair conduct program is not subject to economic conditions or the requirements of the FMC Act.

“In moments of economic hardship, these protective measures must be particularly effective.”

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The industry faces further changes this year, with a new financial advisory licensing regime coming into full force in March, the start of behavioral licensing for banks and insurers, and a climate disclosure regime.

However, the focus on the new legislation did not mean that treatment of previous violations would continue.

“Yes, we are looking to the future to deploy CoFI and any other new regimes, but that doesn’t mean that issues that arise should simply be ignored. These cannot be brushed aside as legacy issues when customers are still being impacted today, or out of pocket, by systems that should have been fixed years ago.”

Last week, Cigna was ordered to pay a $3.5 million fine for misleading people about its policies.

Barrass said fair dealing violations continued to be reported to him by a variety of financial institutions, although it has been nearly five years since he and the RBNZ conducted a behavioral and culture review of the life insurance and banking sectors.

She said New Zealand was catching up with international norms when it came to financial regulation, while New Zealand was at the forefront when it came to the new climate change reporting system.

Barrass also warned companies against wanting to “circumvent” the limit of the regulations.

“Recent reports on performance management frameworks, right or wrong, provide a good example of what to avoid. In this case, the important finding is that consumers do not feel pressured when making important decisions about their financial well-being.

“Whether it’s a bonus motivating this, a desire to be seen as an achiever, or fear of losing the job, it’s just wrong. When the FMA speaks of result-oriented regulation, that’s what we mean.”

Barrass said the benefit of licensing terms, fair behavior programs and a results-based approach is that it’s able to take a holistic approach to whether firms are avoiding processes and behaviors that could lead to poor results.

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“We will purposefully try to take a broad approach on how to use our powers to ensure there is a strong focus on the consumer experience in the financial sector. We have highlighted inconsistent behavior as a key barrier to fair treatment and good outcomes.”

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