The Financial Markets Authority will conduct targeted monitoring of lenders over the coming months, focusing on car loans, mortgage fraud, product design and transaction accounts.
The regulator published its annual financial conduct report on Tuesday, its second such report. The FMA will examine the governance arrangements lenders use to handle conflicts created by commission-based pay structures, including agreements between lenders and intermediaries such as motor vehicle dealers and insurers.
Commission structures present a risk in consumer debt offerings, especially when lenders use third parties to arrange finance. Reliance on intermediaries like car dealers may lead to harmful sales practices including excessive establishment fees and interest rates, according to the FMA.
The regulator said it will "focus on ensuring that lenders, particularly motor vehicle finance providers, have effective processes and controls to manage conflicts of interest arising from commissions, and to detect and deter misconduct incentivised by commission-based relationships". The FMA will use its full regulatory powers to intervene where it identifies harm such as unsuitable or unaffordable loans.
On mortgage fraud, the FMA described the issue as serious, affecting consumers in what will be the biggest financial commitment for most people. The regulator has active investigations underway and plans to help lenders strengthen their fraud prevention systems. "Our focus is on the steps providers can take to minimise risk and improve the detection and prevention of fraud," the FMA said.