The FMA has released its Financial Conduct Report. Here’s what it means for banks and non-bank deposit takers
Banks and non-bank deposit takers are facing intensified scrutiny over how they assess ongoing product suitability and remediate consumer harm, according to the FMA's latest Financial Conduct Report. They are also under watch for how they respond to changes to the Official Cash Rate (OCR).
The regulator has identified four critical areas where banks and non-bank deposit takers need to demonstrate improvement: ongoing product suitability assessments, remediation processes, complaints awareness, and technology investment to mitigate operational risks.
The FMA is demanding that these lenders move beyond point-of-sale assessments to establish robust processes for reviewing whether products remain suitable for customers as their circumstances change. This is a shift from traditional banking practices, where product reviews typically occurred only when customers initiated contact.
Financial institutions must now proactively identify when products no longer serve customer needs and take corrective action. The FMA expects these reviews to be systematic and documented, and to lead to tangible outcomes for customers.
Pushing for greater transparency
Bank actions following OCR announcements are also under watch. The FMA plans to publish comprehensive data on how banks adjust savings and lending rates in response to OCR changes. This aims to directly address consumer concerns about the speed and extent of rate pass-through – particularly the perceived difference in how quickly rates rise versus fall.
The data publication will enable consumers to compare bank responses to OCR movements. This will put pressure on institutions which are slow to pass on rate cuts or quick to implement rate rises.
The banking sector has acknowledged the significant investment required to meet these expectations. New Zealand Banking Association chief executive Roger Beaumont says its members will be “working closely with the FMA” on the points raised in the Financial Conduct Report.
“Under the Conduct of Financial Institutions regime, which came into force a couple of months ago, banks needed to each develop their own Fair Conduct Programme to help ensure they are meeting the needs of their customers throughout the lifetime of that relationship,” Beaumont told NZ Adviser. “Our banks take compliance with the law extremely seriously and have spent significant time and resources to develop and implement their FCPs. They’ll also continue to work closely with the FMA on the takeaways for banks raised in the report.”
Margie McCrone, head of deposit taking at the FMA, said that proactivity will be vital as lenders work to act on the latest findings. The report noted that institutions failing to meet these standards can expect a lot more regulatory attention, and will be monitored closely.
“We’ll be focused on ensuring firms proactively review existing products and services to confirm that they align with consumers’ needs and objectives,” McCrone said.
“Banks and non-bank deposit takers play a crucial role in delivering vital financial products and services to consumers. It is essential that consumers have access to the products and services they need, and can trust these will perform as expected.”
The FMA is asking banks and non-bank deposit takers to consider how they are assessing ongoing suitability of products, how they are remediating issues, how they are raising awareness of complaints options, and finally, how they are investing into technology to improve systems and mitigate operational and conduct risks.
The FMA has made clear that 2025/26 will be a year of intensive monitoring, with particular scrutiny on whether the CoFI regime is delivering tangible consumer benefits rather than just ticking the boxes.
