The Financial Markets Authority has released a “thematic review” on how financial institutions, including 10 insurers, conduct reviews of existing products and services.
Executive Director, Licensing and Conduct Supervision, Clare Bolingford, says that when financial institutions proactively review products and services “…they can identify and respond to consumer harms, and help promote improvements in the provision of financial services that meet the needs of consumers.”
She says this supports some of the key outcomes the authority wants to see for consumers and financial markets, including fair services, quality ongoing service, and well-informed consumers.
“Institutions such as insurers and deposit takers should treat this report as a guide for continuous improvement. But it does not create new legal obligations.”
She notes that as part of the authority’s normal supervisory activity “…financial institutions can expect proactive reviews of existing products and services to be a continued area of interest for the FMA.”
…Companies should ensure consumer requirements and objectives are central when they design and carry out reviews…
Bolingford says companies should ensure “…consumer requirements and objectives are central when they design and carry out reviews, and should adopt a risk-based and flexible review schedule that can respond to internal and external factors.
“They should also incorporate consumer vulnerability considerations and ensure products and services remain accessible and fair.”
She notes too that strengthening governance and board reporting to ensure accountability and oversight is key, as is improving consumer communication strategies to build trust and transparency.
“And finally, companies should ensure they have established clear processes for tracking and implementing review outcomes, including post-review monitoring.”
Bolingford says the FMA was pleased all 20 participating institutions [which included 10 insurers] confirmed they conduct reviews, with varied approaches reflecting their size and complexity.
Firms could learn from good practice examples in the report, she notes.
“Communication with consumers about review outcomes is inconsistent; some firms have mature strategies although some lack clarity on when, and how, to inform consumers.
“Action tracking from reviews is a developing area, with good practice involving structured follow-up, ownership, and effectiveness monitoring.”
Firms could also learn from opportunities for improvement in the report, she says.
…Off-sale and legacy products and services were often reviewed less frequently than on-sale products and services…
“For example, off-sale and legacy products and services were often reviewed less frequently than on-sale products and services. Risks may be heightened where consumers interact with the product or service less frequently, as it is less likely issues will be surfaced by consumers.
“The FMA’s fair dealing enforcement activity has often related to off-sale or legacy products. Conducting regularly scheduled Reviews may help prevent the types of issues that lead to consumer harm and potential enforcement action.”
Bolingford says the report also highlights the importance of proactive detection of systems weakness.
“As noted in our Financial Conduct Report, conduct risks in the deposit taking and insurance sectors remain high from reliance on legacy technology, systems, and manual controls and processes, as well as inadequate staff training. Failures in systems and technology have led to consumer harm in the past.”
She adds that Dispute Resolution Services were overlooked as a source of insights by the majority of participants “…although we consider them to be a valuable resource. As noted in our complaints info sheet, complaints can offer important insights into what is, and isn’t, working well.”
Click here to read the full report.