FMA's Clare Bolingford says regulator has heard some banks may have reintroduced sales targets, wants confirmation they haven't

The Financial Markets Authority (FMA) is asking bank bosses to reconfirm they've removed incentives linked to sales measures for salespeople and their managers after receiving reports suggesting in some instances, banks' sales targets have been reintroduced.

FMA Executive Director of Regulatory Delivery, Clare Bolingford, has written to bank CEOs. In the letter Bolingford notes the FMA asked banks in December 2018 to implement changes to their incentive schemes to remove incentives linked to sales measures for salespeople and their managers. This was to be done no later than the first performance year beginning after 30 September 2019.

These changes, she says, aimed to reduce conflicts of interest that can hinder the fair treatment of consumers. Bolingford says in many cases the FMA's encouraged by the changes made. 

"However, we have also recently received reports of activity within banks suggesting that in some instances, sales targets have been reintroduced or other changes have been made that are not likely to be in the best interests of consumers. We are concerned about these reports and any reports of actions by banks that may result in consumer harm," says Bolingford. 

Thus the FMA is now asking banks to provide assurance staff incentives are designed and managed in a way that supports the fair treatment of consumers. 

"Reconfirm to us that you did implement changes to your incentive schemes to remove incentives linked to sales measures for salespeople and their managers, and that these changes remain in effect as at the date of this letter. Please provide this confirmation by 31 May."

"Reflect on the incentives for your staff and how these are aligned with the outcome of fair treatment of consumers. In this context, we are considering the broad range of actions - including performance management and promotion opportunities - that influence your staff, not just sales-based targets," says Bolingford.

"We encourage you to think beyond the influence that sales-based targets can play in consumer outcomes – regardless of whether an incentive payment is made to staff when the target is met - and consider the importance of understanding how all of a firm’s processes, procedures and culture can, directly or indirectly, influence either the right or the wrong behaviour by staff. In our future engagements with you, we will be asking you for an update on your reflections and any changes you have made as a result."

She goes on to say the FMA has signalled an "outcomes focused approach" to regulation.

"This approach ensures regulations and rules are a means to an end, rather than an end in themselves. The real end is fair outcomes, which is what we are looking to achieve through our focus on incentive schemes and the behaviours and outcomes that those schemes lead to," says Bolingford.

*There's more from Bolingford on the FMA's conduct of financial institutions oversight in this episode of tghe Of Interest podcast.