Commerce and Consumer Affairs Minister Kris Faafoi has unveiled a new regime to regulate financial conduct.

It follows the Reserve Bank and Financial Markets Authority’s (FMA) review of banks and life insurers, which highlighted concerns in both sectors, including insurers “passing the buck” to advisers on their client care obligations.

“Those reviews by the Reserve Bank of New Zealand and the FMA 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,” Faafoi said.

“We will soon introduce new legislation to Parliament which will require banks, insurers and other financial service providers to put systems in place to make sure they treat their customers fairly,” he said.

The measures the Government is introducing include a new conduct licensing system for banks, insurers and non-bank deposit takers such as credit unions, the new regime requiring these entities to meet high standards of customer treatment, and a ban on incentives which are based on meeting sales targets.

The ban in sales incentives includes soft commissions, bonuses for selling a certain number of products, leaderboards and performance management based on sales.

There will also be a general obligation for banks, insurers and non-bank deposit takers to consider the risks and harms their remuneration and incentives can create and to design them in a way that is consistent with the fair treatment standard.

Licensed banks and insurers will have to meet a fair treatment standard and implement effective policies and systems. They will be held accountable for sales to consumers by contracted intermediaries who are not financial advice providers, such as car dealers, retailers offering add-on insurance and airlines selling travel insurance.

If they do not meet their obligations, there would be "strong" fines.

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

“New Zealanders need to be confident that the financial advice, products and services they are buying will be appropriate to their circumstances and meet their needs,” Faafoi said.

The regime will come with strong enforcement tools, including giving the FMA the ability to direct licensed institutions to change behaviour, improve their systems and processes and suspend or vary the conditions of a licence.

“By taking action to improve conduct, we’re putting the consumer at the centre and helping banks and insurers to restore confidence in their industry. We all benefit from a well-functioning financial sector that’s focussed on the interests and needs of customers,” Faafoi said.

The FMA welcomed the announcement.

Chief executive Rob Everett said the FMA and Reserve Bank had highlighted gaps in the regulation of banks and insurance in their joint thematic reports on conduct and culture in both sectors.

“The Government has said today it intends to close these gaps and give us the mandate to implement and enforce conduct obligations across both sectors.

“We look forward to working with industry to implement any changes passed by Parliament to ensure banks and insurance companies serve the needs of their customers.”