If adopted as-is the in-transit financial institution conduct legislation could force AMP NZ out of the intermediary game, the wealth manager says in a submission.
According to the AMP Wealth Management submission, the draft Financial Markets (Conduct of Institutions) Amendment Bill would create onerous compliance duties on ‘intermediaries’ as loosely defined in the legislation.
Under the bill, AMP says, intermediaries such as life insurance advisers would have “different obligations” for each institution they deal with leading to costly compliance programs and consumer confusion.
“If the difficulties for intermediaries as mentioned above remain, AMP WMNZ will have to consider the viability of operating as an intermediary,” the submission says. “It will have a significant effect on the compliance function and the resources it requires may make it unviable. This could occur throughout the financial services industry and the follow-on effect could be detrimental to the customer. Exit by Financial Institutions and/or intermediaries would mean less competition in the market, a narrower range of products and potentially price increases due to the lack of competition and increased compliance costs.”
Most of the 53 submissions lodged on the conduct of financial institutions (COFI) legislation support the AMP claim that the bill as drafted is vaguely defined, impractical while likely to create inequities and costs across the industry.
Despite the general agreement on COFI’s problems, the submitters – including insurers, banks and industry associations – offer a range of different solutions.
While some groups call for specific carve-outs from the COFI obligations, others suggest extending the proposed conduct standards to all financial services firms. AMP, for instance, along with industry bodies representing stock brokers, financial advisers, credit unions and supervisors recommend a more tightly defined COFI universe (typically excluding their own sectors).
However, many of the main targets of the COFI legislation – banks and insurers – call for a more broad-scale application of the conduct proposals.
For example, BNZ argues that the “definition of financial institution should be extended to all financial service providers that provide one or more relevant service (as defined in the Bill)”.
“BNZ submits that if the scope is not extended to all financial service providers, the proposed regime may not achieve the objective of ensuring conduct and culture in the financial sector delivers good outcomes for all customers i.e. narrowing the scope of the Bill may fail to deliver the required improvements in the areas where it is most needed,” the bank’s submission says.
But the bank submission also says COFI should be simplified to establish a common fair conduct standard for all those caught by the law rather than the multiple self-produced programs as proposed in the draft law.
Industry consultant Rob Dowler, too, says the proposed law should create a single set of standards that apply to all parties caught under the existing Financial Markets Conduct Act (FMC) rather than a separate, narrow new COFI-based licensing regime.
“While acknowledging that these institutions have been specifically identified as targets for the new legislation because of identified coverage gaps and recent negative reviews, it is not clear why the opportunity is not being taken to simplify the Financial Markets Conduct Act by simply applying the same standards to all financial institutions,” Dowler says.
Originally intended to impose new conduct standards and remove conflicted remuneration in a limited range of entities (banks, insurers and non-deposit takers), COFI could seep into other sectors under wide-sweeping ‘intermediary’ obligations. The requirement for institutions to oversee conduct of third-party intermediaries who use their products, for instance, may rope in licensed financial advisers who are otherwise excluded from the proposed regime.
Introduced by Commerce Minister Kris Faafoi last December, the bill was “designed in response to recent reviews that have identified that certain institutions, particularly banks and life insurers, lack focus on good outcomes for customers and have ineffective systems and controls to identify, manage, and remedy conduct issues”.
But the government also reserves the right to extend COFI across the financial services industry at a later date.
Overall, the submissions suggest COFI will need a significant redraft as the Finance and Expenditure Committee (FEC) prepares to hand down its final report on August 12.
Many COFI submitters, including the Financial Services Council, further called for a delayed implementation of any legislation until the Financial Services Legislation Amendment Act (now due to start next March following a COVID-19 related nine-month postponement) settles in.
Given the tight deadline and the coronavirus-led disruption to the government’s legislative program, COFI could struggle to make it into law before the September election.
In May the Australian government also put on hold a raft of pending legislation drafted in the wake of the 2018/19 Royal Commission into financial services.