The financial institution conduct legislation in-waiting could wield influence well beyond its regulatory borders, according to DLA Piper partner, Tracey Cross.
In fact, Cross said several DLA Piper fund manager clients have already carried out ‘culture and conduct’ reviews despite remaining exempt from the prospective law.
Under the Financial Markets (Conduct of Institutions) Amendment Bill – known colloquially as COFI – banks, non-bank deposit-takers and insurance firm will be subject to a new conduct licensing regime.
“Just because you’re not a bank or insurer doesn’t mean you shouldn’t consider a response to the [proposed] law,” she said. “Fund managers, DIMS [discretionary investment management service] providers and KiwiSaver schemes, for example, can all benefit from looking at the COFI world to learn how they can improve behaviours.
“The ultimate goal is to ensure firms treat customers well – who can argue that isn’t the right thing to do?”
As reported early in August, COFI has emerged from the select committee process with some important, but not fundamental, amendments.
Among a raft of changes, the COFI transition period will be extended to three years from the original two while the statutory duty of captured institutions to ensure third-party intermediaries to comply with conduct programs was dropped in favour of training obligations. The revision also removed the statutory duty of third-party intermediaries to comply with the various COFI conduct programs of all the institutions they deal with.
As well, the select committee put a new restraint on the power of government to ban any incentives by regulation alone.
Cross said the COFI recommendations would improve how the proposed law works in practice and show the select committee “listened to the industry submissions”.
“It reaffirms the importance of making submissions,” she said.
The amendments introduce a welcome flexibility in how institutions could respond to COFI, Cross said, recognising that “not one size fits all”.
COFI has been parked in the parliamentary queue until after the now October 17 election date. The bill, due for its second reading, was initially opposed by the National Party but should still pass – more-or-less in its current form – once the next government gets around to it.
In the interim, Cross said some institutions were already developing conduct and culture programs in line with COFI.
And even those formally outside the regime – such as fund managers and financial advisers – would need to understand how the bill could affect their businesses.
Of course, COFI would open up financial institutions to further legal liability in the future – although the draft law only allows for civil breaches.
In NZ at least, most large-scale legal actions against financial institutions have historically been pursued by regulators. But while civil class actions are rare in NZ, a new DLA Piper global arrangement with two litigation funders has the potential to change the frequency.
Under the deal announced last week, all DLA Piper firms (including NZ) would have access to a pool of up £150 million provided by UK-listed Litigation Capital Management (LCM), and the newly formed, Aldersgate Funding to back non-recourse “large-scale litigation and arbitration”.
Alicia Murray, DLA Piper NZ litigation partner, said the agreement was a game-changer for the local class action market, which has to date relied mainly on Australian funders.
“There is nothing else like [the LCM/Aldergate offer] in NZ,” Murray said. “It will make it easier for to fund litigation against financial services firms [and other sectors] where there is a good chance of success.”
In the release, she said the new funding deal allowed DLA Piper clients “to pursue recourse through litigation and arbitration on a risk-free basis”.
LCM and Aldergate would fund 100 per cent of legal costs associated with any claim while the agreement also enabled DLA Piper to in-source “adverse cost cover and security for costs as necessary”.