FMA director of regulation Liam Mason details the type of bank pay incentives the regulator would like to see rewarded, says incentives linked to sales should go completely

By Gareth Vaughan

A good customer outcome for a bank is a customer understanding the product they've got, a product that meets customer expectations, a product that performs as expected and is suitable for the customer over the long-term, says Financial Markets Authority (FMA) director of regulation Liam Mason.

Speaking to interest.co.nz about the FMA's bank incentive structures report, Mason said it's important to remember that incentives work, they signal to staff what behaviour is valued in an organisation, and what sort of behaviour will be rewarded.

"And if it's just simple sales [incentives], then given the relationship between banks and customers, we think that's a very high risk signal to be sending. We think the better thing to do is remove them [incentives linked to sales] completely," said Mason.

"We're very happy for banks to reward performance. What we want them to think about is how they can set up their structures so they're rewarding staff who provide better outcomes so they look after their customers."

Asked how better customer outcomes could be judged, Mason said a good customer outcome is one where a customer understands the product they've got, the product meets the customer's expectations, the product performs as expected and it's suitable for the customer over the long-term.

"That's the challenge that we are setting for banks. Because bank customers have a long-term relationship with their institution, they [bank staff] are in a position to be able to check in with customers to see whether the long-term products that they've sold remain suitable for them over time. That's what we'd like to see them [banks] setting up to reward," Mason said.

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10 Comments

Hi Gareth

This might be of interest to you, Martin North of Digital Finance Analytics interviewing John Dahlson - Formerly of ANZ. A very interesting watch.

https://www.youtube.com/watch?v=5r6eGSkMMp0

Yes good comments, Banks profits are way to high, powerful, complex and risky; they need to be split up urgently between Retail and Investment banking to protect the greater economy.

NZ's retail banks are hardly renowned for their investment banking arms...

The markets businesses of the four banks are comparatively small and aren't even reported in the NZ numbers. They are reported on product lines and consolidated in the parents numbers.

And yet they were active in the 2008 GFC; ANZ /ING Frozen Fund scheme was fairly scandalous. DFG Dahlson pointed out banks are analytically driven from the top down, customers for profit rather than responsible regulators of the Economy, bearing in their privileged position.

Why don’t the FMA read banks financial reports? Most banks are slashing costs (including customer service and anyone you might get advice financial from) as they’ve realise their ability to grow is constrained by increasing regulation. The bank of the future is a website, app. and chat bot – it’ll be a beautiful thing, perfectly streamlined for maximising profits!

Interesting non-specific preferences expressed by FMA - somewhat in contrast to the s25 letters issues to non-institutional financial advisers following the Business Replacement ("Churn") Report.
a) Customers buying risk insurance product can't possibly know if a product will "perform to expectations" until a claim occurs
b) Payment Protection Insurance clients with credit cards are not, and never have been monitored for claims eligibility. This has resulted in clients being charged fees with no chance of a claim being admitted. The UK authorities have forced banks to set aside 18bn Sterling to meet overcharging liabilities - yet our regulator doesn't even appear to be interested in investigating if similar practices here deserve attention. Double standards and distinctly uneven application of regulations.

I agree, there seem to be very few cases of strong enforcement here. Nothing on any of the financial markets post GFC like the UK, USA, Europe and even Australia where fines have ranged from 10's of millions to billions. Has NZ had class-leading regulators for its retail and wholesale financial services sectors, or is it too small and intimate and exposed to offshore bank capital to rock the boat? At best you could argue that this pragmatic approach is better suited to such a small nation. A more sinister view would be that regulators are under-funded, under-skilled and fearful of taking on such large organisations.

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Interesting non-specific preferences expressed by FMA - somewhat in contrast to the s25 letters issues to non-institutional financial advisers following the Business Replacement ("Churn") Report.
a) Customers buying risk insurance product can't possibly know if a product will "perform to expectations" until a claim occurs
b) Payment Protection Insurance clients with credit cards are not, and never have been monitored for claims eligibility. This has resulted in clients being charged fees with no chance of a claim being admitted. The UK authorities have forced banks to set aside 18bn Sterling to meet overcharging liabilities - yet our regulator doesn't even appear to be interested in investigating if similar practices here deserve attention. Double standards and distinctly uneven application of regulations.