The Financial Markets Authority (FMA) has rejected industry complaints of regulatory duplication in imminent conduct rules.
In consultation feedback on proposed licensing conditions under the Financial Markets (Conduct of Institutions) Amendment Act, or COFI, the FMA notes many submitters called for carve-outs to reflect similar obligations under existing legislation.
Requirements to assure outsourcing arrangements in the draft COFI ‘standard conditions’, in particular, triggered a strong pushback from the industry.
“Most submitters appear to disagree with this proposed condition on the basis that the Reserve Bank also imposes obligations in relation to outsourcing. Some suggested that financial institutions should therefore be exempt from the condition,” according to the regulatory response released last week.
“… the FMA cannot rely on conditions on licences issued by other regulators, or on other obligations which are enforced under regimes that are not within the FMA’s remit, to monitor our licensed population. This means that the FMA will not exempt financial institutions from the outsourcing licence condition on the basis that the Reserve Bank also imposes requirements in this area.”
The regulator also knocked back a request from some parties to explicitly carve-out third-party distribution agreements from the COFI licence outsourcing standard conditions.
“We reiterate our comments in the consultation document that we would not expect typical distribution arrangements where a third party is involved in distributing the financial institution’s relevant services and products to be an outsourcing arrangement,” the FMA response says.
“We are not proposing to amend the condition to provide a definitive list of what arrangements may or may not be outsourcing arrangements. Financial institutions need to review their arrangements with providers based on the attributes of those arrangements to determine if those arrangements would be considered outsourcing of a system or process necessary to the provision of their financial institution service.”
Overall, the regulator made few concessions to industry following the consultation – releasing the final version of the six COFI standard conditions last week along with a ‘fair conduct’ program information sheet and a licensing guide for financial institutions captured under the law.
Concocted in response to the 2019 Australian Royal Commission into financial services and subsequent banking and insurance regulatory review in NZ, COFI will require certain institutions to develop ‘fair conduct’ programs that cover goals such as:
- paying due regard to consumers’ interests;
- acting ethically, transparently, and in good faith;
- assisting consumers to make informed decisions;
- ensuring the products and services the financial institution provides are likely to meet the requirements and objectives of likely consumers (when viewed as a group); and,
- not subjecting consumers to unfair pressure or tactics, or undue influence.
Initially, COFI will apply to licensed banks, insurers and non-bank deposit-takers, though the law might be extended to other sectors of the financial services industry at a later date.
Clare Bolingford, FMA banking and insurance director, said in a statement that the COFI documents released last week would help institutions prepare for the new regime.
“The FMA has always taken a facilitative and supportive approach to implementing new legislation and obligations, to help industry understand new requirements,” Bolingford said.
COFI licensing applications open next July ahead of full implementation of the regime due to kick off early in 2025.