Conduct of financial institutions review

The Government is introducing a new regulatory regime to govern conduct in the financial sector.

In late 2018 and early 2019 the Financial Markets Authority and the Reserve Bank of New Zealand published two joint reviews into the conduct and culture of banks and life insurers in New Zealand.

These reviews identified a number of issues with bank and insurer conduct, and gaps in how we regulate them.

As a result of these reports, and the findings of the Australian Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry, the Government consulted on potential options to improve the conduct of financial institutions to ensure good outcomes for customers. Consultation closed on 7 June and 85 submissions were received.

Conduct of financial institutions review discussion paper

Read the submissions(external link)

New financial conduct regime

Following public consultation on options and discussion with industries bodies to inform drafting, the Government introduced new legislation regulating the conduct of financial institutions on 11 December 2019.

The Financial Markets (Conduct of Institutions) Amendment Bill will:

  • Require banks, insurers and non-bank deposit takers (together, financial institutions) to be licensed in respect of their general conduct towards consumers. The licensing regime will be monitored and enforced by the Financial Markets Authority.
  • Require financial institutions to comply with a principle to treat consumers fairly.
  • Require financial institutions to establish and maintain effective fair conduct programmes throughout their businesses that ensure they meet the requirement to treat consumers fairly.
  • Require financial institutions to comply with their fair conduct programme.
  • Require financial institutions and intermediaries involved in the chain of distribution to comply with regulations that regulate incentives. These regulations will be able to prohibit sales incentives based on volume or value targets, eg soft commissions such as overseas trips, bonuses for selling a certain number of financial products, leader boards, and performance management based on volume of sales.

The Bill has been through the Select Committee process and been reported back to Parliament. Feedback from submitters has led to a number of changes to the Bill. You can read the Finance and Expenditure Committee report on the Parliament website(external link).

The main changes are to:

  • Clarify the fair conduct principle by inserting a non-exhaustive list of factors relevant to the requirement to treat consumers fairly.
  • Clarify what fair conduct programmes must include by putting key requirements into the Bill that were previously only covered by regulation-making powers.
  • Remove the requirement for financial institutions to publish their fair conduct programmes. Instead, the Committee has inserted a requirement for financial institutions to provide their fair conduct programmes to the FMA, along with a requirement for financial institutions to publish a summary of the programme covering key information that will assist consumers to understand how the financial institution will comply with the fair conduct principle, make informed decisions in dealings and interactions with the institution, and understand how to make a complaint.
  • Reduce the extent the obligations apply to intermediaries by removing the duty for intermediaries to comply with fair conduct programmes and removing the duty for financial institutions to ensure intermediaries comply with fair conduct programmes.
  • Narrow the range of intermediaries to which the power to regulate or prohibit incentives can apply (limited to intermediaries involved in the chain of distribution eg sales and advice).
  • Insert a list of matters that the Minister must have regard to before recommending the regulation or prohibition of incentives. In particular, the Minister must be satisfied that the matters to which the incentives regulations relate are not more appropriately dealt with in primary legislation.

Next steps

The Bill is now awaiting its second reading. Then it will go through Committee of the Whole House and third reading before being passed. Timing of these steps will be confirmed after the General Election.

The regime will require regulations to support its operation. Regulations are likely to be required in relation to:

  • further requirements for fair conduct programmes
  • the prohibition or regulation of incentives related to volume or value based targets, and who these should apply to
  • exemptions for specified financial institutions from the requirement to hold a licence on appropriate terms and conditions (eg participants within certain insurance markets where the licensing requirement may be an onerous and costly administrative burden).

These will be developed following a further policy and consultation process. 

Feedback welcome

We welcome feedback at any time about our work on the conduct of financial institutions. If you would like to contact us, please email

Related documents and information

Review of insurance contract law

You may also be interested in the insurance contract law review which is currently underway.

Last updated: 07 August 2020 Last reviewed: 07 August 2020