In a pre-emptive strike last week, the Financial Markets Authority (FMA) has put banks on notice over any potential back-sliding on previous staff incentive scheme promises.
The open letter to banks from Clare Bolingford, FMA executive director regulatory delivery, includes a friendly request for the institutions to confirm that all inappropriate sales incentives have been removed and to “reflect” on their respective remuneration policies: please reply in writing by the end of the month.
Most frontline and middle-manager sales incentives were banned in the wake of the 2018 bank and insurance sector regulatory reviews with some rules now entrenched in the 2022 Financial Markets (Conduct of Institutions) Amendment Act (COFI).
However, the Bolingford letter was prompted by media (and other) noise on possible recurring bank incentive plans rather than any formal information-gathering from the FMA, according to a spokesperson.
“We have seen and heard reports of banks adjusting their incentives and performance management frameworks to include sales targets,” the spokesperson said. “Given that banks are preparing their fair conduct treatment programmes as part of COFI, this was a timely reminder for banks not to overlook what they had already committed to as part of our bank incentives review in 2018.”
But despite the lack of direct evidence of any off-colour incentives brewing in bank pay plans, the FMA argues the early – and public – warning was justified.
“We are asking the banks to provide assurance to us that no-one should have any fears that banks are re-introducing inappropriate incentives,” the spokesperson said. “It is important to note that we are not talking about breaches of legislation.”
And the direct letter-writing campaign might have greater impact than a swarm of FMA supervision specialists busting into the bank back-office demanding files: maybe.
“We do not always have to use ‘the stick’,” the spokesperson said. “By making our expectations with the Chief Executives public we can be more effective and efficient in seeking reassurance, rather than use more formal, interventionary powers.”
The Australian-owned ANZ NZ and BNZ both reported profit growth last week of 1 per cent and 13.5 per cent, respectively, during the six months to March 31 this year. Banks make most of their profit on lending, of course, but the two institutions also reported modest growth of 8 per cent apiece in funds under management (largely from KiwiSaver) during the six-month period.
ANZ now has almost $37 billion under management while the BNZ fund division grew by $351 million with total assets in excess of $5 billion.