Financial institutions caught by the just-introduced conduct-licensing legislation should be able to apply for entry tickets by the middle of next year.
Parliament passed the Financial Markets (Conduct of Financial Institutions) Amendment Act, or COFI, into law on June 28 with the royal stamp of approval inked the following day, setting a deadline at last for legal and compliance teams across the industry.
COFI has endured a convoluted journey into being in a COVID-affected process spanning about two-and-a-half years including a one-year gap between the start and finish of the second reading.
In a post-COFI update last week, the Financial Markets Authority (FMA) promised to “continue its established approach of open engagement and consultation with the industry to prepare for the new licensing requirements”.
“Applications are expected to open in mid-2023. The Ministry of Business, Innovation and Employment will also develop supporting regulations,” the FMA update says. “The regime is expected to come fully into force in early 2025.”
As reported last week, government amended the final version of COFI to soften the impact on third-party distribution and advisory firms that deal with financial institutions now governed by the law. Financial advice businesses and other external distributors faced the risk of undue institutional interference, and potential dual compliance regimes, under the original legislative wording.
COFI requires banks, insurers and non-bank deposit-takers (NBDTs) to establish ‘fair conduct’ systems and “take all reasonable steps to comply” with them in practice.
“The new law will enable regulations to be made to prohibit target-based sales incentives, and financial institutions will also have obligations in relation to how they design and manage other types of incentives,” the regulatory update says.
FMA chief, Samantha Barrass, said in a statement that COFI brings NZ into line with other jurisdictions by making financial institutions accountable for how they sell products and treat customers.
“While fund managers, derivatives issuers, and advice providers are already subject to FMA licensing, the same supervision and monitoring powers will now apply to banks, insurers and NBDTs,” Barrass said.
“This will bring all these firms’ engagement with consumers of their products and services into the FMA’s remit. We will be evolving our regulatory approach and embracing the opportunity to encourage and nurture a trusted financial sector which treats all consumers in Aotearoa New Zealand fairly.”
The regulator has also been granted a significant, mostly industry-funded, budget upgrade to implement the COFI regulations along with a rash of other new responsibilities including adviser-licensing and climate-reporting.
According to the FMA, the COFI rules need “to be workable across a diverse range of business models”.
“The FMA expects firms to avoid a tick-box compliance approach and adopt good practice to achieve good conduct risk management and fair consumer treatment and outcomes,” the update says.
In a statement last week, Commerce Minister David Clark said COFI finally addresses problems identified in the 2018/19 joint regulatory reviews of insurance and banking sectors in NZ. The FMA and Reserve Bank of NZ investigations, sparked by the earlier Australian Royal Commission into financial services, uncovered evidence of some poor practices but no systemic problems.
“… the reviews found a major imbalance in power between financial institutions and consumers, products which had been designed without good customer outcomes in mind, sales incentives based on volume or value targets and generally weak systems for managing risk,” Clark said. “There was also a lack of accountability when it came to ensuring good conduct is maintained by financial institutions.
“… This new regime puts customers firmly at the centre. It will ensure that New Zealanders can be confident that the financial products and services they are buying will be appropriate to their circumstances and meet their needs.”