FMA RBNZ Bank Conduct and Culture Review November 2018

Click here to view the full ‘FMA RBNZ Bank Conduct and Culture Review November 2018’ document.


The overall objective of this review was to understand whether there are widespread conduct and culture issues present in banks in New Zealand.

The conduct of banks directly affects customers. High standards of conduct support the fair, sound, efficient and transparent delivery of banking products and services, as well as confident participation by retail customers, businesses and investors in banking. Poor conduct is a contributing factor to poor customer outcomes and loss of trust in the banking system, and can be associated with other banking risks.

One of the key drivers of conduct is a bank’s culture. Culture influences how management and staff behave on a daily basis. An effective culture within banks includes consistently putting customers at the centre of decision-making, product design, sales and advice processes, and all day-to-day activities.

Our work set out to assess the maturity of systems, controls and governance around conduct risks within the sector. We decided to focus our review on retail banking services, as these are used by nearly all New Zealanders.


Our review found a small number of issues related to poor conduct by bank staff. Issues relating to system or process weaknesses were more commonplace. Based on these findings, conduct and culture issues do not appear to be widespread in banks in New Zealand at this point in time. However, we are concerned about banks’ lack of proactivity in identifying and remediating conduct issues and risks in their business. More broadly, we identified weaknesses in the governance and management of conduct risks. This is a vulnerability that, if left unchecked, has the potential to lead to widespread issues.

We make a number of recommendations to improve oversight, controls and processes. Boards and senior management need to ensure these improvements are made with a sense of urgency. However, these measures will prove unsustainable if a bank does not have a truly customer-focused culture.

Banks have started to consider culture and conduct issues, but this work has generally been slow and relatively recent, and mainly in response to overseas events. Most of the initiatives we have seen only begin to address issues and risks, and do not go deep enough.


Our review confirmed that all 11 banks need to more effectively identify, manage, remediate and report on conduct risks and issues, to deliver consistently good outcomes for customers. Banks need to proactively work to achieve maturity in this area.

We will be providing individual feedback that is specific to each bank, along with our general observations. Each bank will need to provide us with their plan to address our feedback by the end of March 2019, and then report to us on their progress implementing the plan. We will monitor progress, and take further action if we are not satisfied with the outcome or level of urgency.

There are five key aspects of our findings and recommendations that are common to all banks, and should form the basis of their plans.

All financial services providers, including those operating in the wholesale space, would also benefit from assessing their conduct against these themes.

Board ownership and accountability for conduct and culture

  • Boards need to take ownership for driving change in conduct and culture within their bank. They must be proactive in considering what information they require to obtain assurance of good customer outcomes. Boards need to clearly direct management to devise frameworks and metrics, and collect information that gives a good indication of customer outcomes and standards of conduct.
  • Measurement and reporting on conduct and culture should include both ‘lead’ and ‘lag’ indicators, so banks can monitor and mitigate emerging risks, as well as identify misconduct that has already taken place. Banks cannot rely on the absence of identified issues as an indicator of good conduct.
  • Banks need to review how they define and record customer complaints, and make it easy for customers to raise concerns.

Identify and remediate issues

  • Banks need to be proactive about identifying and remediating issues. Remediation should always be prioritised – which we have seen is not always the case.
  • We expect all banks to review their conduct and culture against relevant issues arising from the ARC. This work should be adequately resourced and given high priority.
  • Where banks have not identified any issues requiring remediation, bank boards and senior management need to seriously challenge whether this is because there are no issues, or because there are weaknesses in the processes and systems for identifying and recording issues.

Strengthen processes and controls

  • Many issues we have seen appear to have stemmed from weaknesses in systems and processes. All banks need to focus on strengthening the frameworks, processes and controls that prevent, detect and manage conduct and culture issues. This will require prioritising investment, and should be an area of ongoing focus for banks beyond the conclusion of this review.

Staff reporting channels

  • Banks need to educate their staff on what good conduct and culture looks like, and have effective mechanisms for staff to report deviations from this. Formal whistleblower policies and other less-formal reporting channels need to be accessible, confidential and comprehensive enough to identify conduct and culture issues.


  • Banks’ incentive structures need to be designed and controlled in ways that sustain good customer outcomes. Removing incentives linked to sales measures is a significant step toward this goal. We expect banks to revise their sales incentive structures for frontline salespeople and through all layers of management. Most banks have acknowledged the need to make significant changes to their incentive schemes. Progress appears to be in a positive direction, with banks generally reducing the focus on sales performance. However, none of the changes announced by banks to date go far enough to create a sustainable culture of good conduct.
  • We expect banks to implement changes to their incentives programmes no later than the first performance year after 30 September 2019. In March 2019, we will ask all banks how they will meet our expectations regarding incentives, and we will report on their responses. Any bank that does not, at that date, commit to removing sales incentives for salespeople and their managers will be required to explain how they will strengthen their control systems to sufficiently address the risks of poor conduct that arise with such incentives.