Financial Markets Authority (FMA) Chief Executive, Rob Everett, gave a cautionary address on the deterioration of trust and repercussions of poor conduct at the FSC national conference held last week (see: 2018 FSC Conference Wrap…).
In his presentation, Everett spoke on the Australian Royal Commission and its influence on the New Zealand financial services industry; on the crisis in trust from the consumer; and on the FMA’s Conduct and Culture Review in progress.
Referring to the Australian Royal Commission, Everett said, “the importance of good conduct and good behaviour out of what we’re hearing in Australia I don’t think could be any clearer”.
He noted the FMA is waiting for the initial report from the Royal Commission to be released and in what ways it will be relevant to New Zealand.
However, he emphasised they are determined to ensure the Royal Commission is treated as an opportunity in New Zealand.
He said the events in Australia are “…an opportunity for you the industry and for us, the regulator, to ask some hard questions about how the industry behaves, about how we regulate it, about what we are all here for”.
“We hope that at the end of that process, a truly customer-centric industry will be in place or at least working towards being in place, because we know that doesn’t happen overnight,” he said.
He warned there is a “crisis in trust” from the consumer and public and questioned the way in which financial services firms can differentiate themselves in the conduct space.
“You may debate whether the current model for financial services is too heavily focussed on the terms for shareholders or the terms for management – it certainly doesn’t look like it’s too heavily focussed on the terms for customers,” he said.
One of the big challenges financial services firms face is how to re-engineer themselves so that the customer needs are being properly met.
“You can’t ‘will’ good conduct in a financial services firm above a certain size, you actually have to wire it in.”
“You can’t ‘will’ good conduct in a financial services firm above a certain size, you actually have to wire it in,” Everett said, adding that the boards of financial services need to change their view on how much money senior management should be making and on how much money shareholders can expect to make.
“You need to focus unrelentingly on your customers,” he said. “For boards and managements more generally, I can’t stress enough given the events over the last ten months in Australia, that this can’t be changed by tinkering at the edges – the change has to be much more fundamental.”
On the Conduct and Culture Review in progress, Everett said the FMA is not trying to “unearth isolated but dramatic failings to publicly humiliate banks and insurers with,” but rather it is focussing on finding out if the fair treatment of customers is actually embedded within financial services firms in New Zealand.
He listed some of the questions the FMA is asking banks and insurers, which include:
- What are the criteria for paying and promoting people?
- What are the fundamental design principles used in their product development?
- How are complaints handled?
- What do they do even when facts indicate there has been no breach of the law but there is still a disappointed or confused customer?
- How do they build their processes or training so customers understand the limitations of the product being sold to them or the risks involved?
He pointed out that they are frustrated in places at the pace of change and warned that “…that frustration will manifest itself over time as we become less understanding and less tolerant of firms that talk a good game but don’t put the hard yards in to make sure it happens”.