Banks have paid out $109 million in remediation to 952,000 customers after New Zealand regulators reviewed the sector.

Last month the FMA revealed nearly half a million life insurance customers have been paid out $43 million in remediation since 2018 for poorly sold products.

Now it has revealed an even higher level of payouts to bank customers with 266 separate issues being remediated and $109m paid back to customers.

Clare Bolingford, FMA director banking and insurance, said the remediation work showed the extent of weaknesses in the systems and processes across banks and life insurers.

"This demonstrates the significant amount of work required by financial institutions to ensure they are identifying, rectifying, and remediating issues which, to date, have impacted over 1.5 million customers with a total sum of $150 million returned so far."

More remediation was expected with only a third of the life insurance issues fully assessed to date.

Bolingford acknowledged work by banks and insurers to date to fix their customer issues.

"We note that over the past 12 months, boards have displayed a greater understanding of what needs to occur to achieve consistent fair customer treatment."

She said there was likely to be more self-reporting to come as firms continued to look at their businesses.

"The more firms have looked, the more problems they've found. You can reasonably expect our future monitoring activities to consider how well firms have completed, and reported on, these matters," she said.

Bolingford said the work helped the FMA deepen its understanding of the bank and insurance sectors and enabled improved engagement with the industry in seeking to root out conduct problems and prioritise the interests of customers.

The regulator plans to use those lessons in a new conduct licensing regime for the finance sector which will begin in June next year.

The FMA wanted to help implement a new Conduct of Financial Institutions Regime in shaping conduct principles and practices, and prepare for licensing from next year.

It said firms would then be in a better position to demonstrate how they were treating customers fairly through fair conduct programmes.

The Financial Markets Authority and the Reserve Bank jointly undertook conduct and culture reviews of the banking and insurance sectors in 2018 and 2019 and found "significant weaknesses" in the way New Zealand banks govern and manage conduct risks.

The local reviews followed Australia's Royal Commission into the financial sector.

New Zealand Bankers' Association chief executive Roger Beaumont said the banking conduct and culture review four years ago found no systemic issues.

"But it did find that banks needed to do more to ensure they continued to so the right thing by their customers.

"In that time, as the FMA says, banks have worked hard to improve their internal conduct processes and proactively identify any issues and remediate them. Banks are also highly engaged in the new conduct regulation for financial institutions being developed by the government.

"Banks take their compliance obligations very seriously and are keen to ensure the new conduct regulation works well," he added.