Long-delayed financial institution conduct legislation has left the industry rudderless with some titanic decisions dead ahead, according to Dentons Kensington Swan (DKS) partner, David Ireland.
Ireland said with the final details of the Financial Markets (Conduct of Institutions) Amendment Bill – or COFI to its friends – still under wraps, institutions remain unsure of how to position for the looming legislation.
But he said signals from the regulator and government have seen some businesses set course in the dark, regardless.
In particular, Ireland said many firms concerned about the potential impact of COFI on distribution relationships (the subject of two consultation papers last April) have taken a conservative position on issues such as adviser remuneration and other long-term contractual obligations.
“Businesses are trying to prepare for what they anticipate the COFI regulations will be but that’s seen different results across the industry,” he said. “It’s incredibly frustrating that the decision [from the April 2021 consultations] have taken so long – and there’s nothing published yet from MBIE [Ministry of Business, Innovation and Employment].”
The COFI second reading was interrupted last June to squeeze in the valedictory speech of outgoing veteran National MP, Nick Smith. Despite several close calls over the intervening months, the legislation hasn’t quite made it to the debate chamber during a highly disrupted parliamentary year.
Ireland said once the second reading is out of the way, the government is expected to introduce a supplementary order paper (SOP) for round three that takes into account feedback from the previous consultations.
However, until the MBIE post-consultation recommendations and SOP are in place “there will be an important part of the puzzle missing” as institutions and advisory firms try to piece together cohesive conduct policies and systems.
“The danger is that firms lock-in overly conservative conduct provisions that may not be necessary under the final legislation,” Ireland said. “And once systems are in place they tend to be hard to unravel.”
COFI, which has bounced up and down the parliament daily order paper since last June, is ranked eighth on the government to-do list this Tuesday (March 8) directly behind the New Zealand Bill of Rights (Declarations of Inconsistency) Amendment Bill and the Incorporated Societies Bill.
“Optimistically, you could say the low priority government has given to COFI suggests the changes industry has already made to meet conduct expectations have reduced the urgency of the legislation,” Ireland said.