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CoFI debate back on agenda

After numerous delays and extended rounds of consultation, the Financial Markets (Conduct of Institutions) Amendment Bill (CoFI) is heading back to Parliament.

Tuesday, 27 July 2021

by Matthew Martin

Parliament began the Bill's second reading on June 10, with just two MPs speaking before the debate was interrupted, and is expected to resume on Tuesday, August 3.

However, the Financial Markets Authority (FMA) says New Zealand's insurers are not ready to implement the Bill saying general insurers "...broadly have a poor understanding of, and commitment to, good conduct and culture practice".

In June, Minister Poto Williams started the second reading saying some changes to the Bill had been made after consultation.

Williams said 59 submissions were made with the majority supporting it in principle but after the second round of consultation, Williams said there would be further amendments.

The minister said the Bill fills a legislative gap and it was important to ensure consumers were treated fairly. She said there can be an imbalance of power between institutions and customers.

"The select committee has recommended that minimum requirements for fair conduct programmes be clarified and included in the Bill," Williams said.

"This is in response to submitters feedback that leaving the detail of conduct programmes to regulations would leave the regime uncertain."

Under the Bill, the minister will have the power to make regulations related to incentives. Cabinet has already banned value or volume-based incentives and the minister will have a list of matters that have to be considered.

Also, intermediaries, such as financial advisers, will not need to comply with an institution's conduct programme.

Concerns were raised that the regulation-making power was too broad. In response, the minister said the group of intermediaries this power extends to has been narrowed.

MBIE is currently consulting on intermediary provisions for the bill "...to ensure the intermediary obligations are right-sized and will work in practice".

While the vast majority of those submissions supported the intent of the Bill most of those submitters said it was too broad in its scope and needed clarification.

National MP Nicola Willis criticised it as "...a compliance heavy, box-ticking exercise".

Willis said her party opposes the bill but acknowledged the fact that "...financial institutions, banks, insurers and the like should have controls in place to ensure they are focused on the best interests of their customers".

In its submission, AIA NZ said it was concerned the scope of the proposed regime was too wide and, in some cases, overlaps existing licensing regimes.

"That wider scope creates commercial uncertainty for market participants and creates an additional layer of complexity and cost upon the financial services industry where the case for imposing that burden has only been partially made out, or where recently introduced legislation is in the process of being implemented."

AIA NZ said commercial uncertainty and added red tape could result in increased costs and negative outcomes for New Zealand consumers.

On the other hand, Consumer NZ said the Bill did not go far enough and would not bring about desired changes in the industry.

"We remain concerned about the potential harm to consumers from sales incentives used to remunerate staff and sales representatives in the industry."

It also said there should be a review of the amendments within two years of the changes being implemented to ensure they adequately addressed any problems.

Comments from our readers

On 29 July 2021 at 4:24 pm ChrisB said:
Given that the regulatory environment has only just changed, you would think some time for the industry to settle in would be advisable. More compliance, more restrictions, this will lead to an industry driving with the handbrake on. If we haven't fixed the perceived issues with this recent (FAP) change, I wonder what the problem really is?

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