UP FRONT | REGULATION
Advisers dance the regulation tango As new pieces of legislation jostle up against each other, advisers may find the banks peering over their shoulders. BY ERIC FRYKBERG
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dvisers watching one law in partial retreat are seeing another one steadily advance. The retreating law is the Credit Contracts and Consumer Finance Act (CCCFA), which has had two extreme elements removed and awaits further reform. The advancing law is the Financial Markets (Conduct of Institutions) Amendment Bill (COFI), which passed its third reading in Parliament in June, three years after it was introduced. This law requires banks, insurers and non-bank deposit takers to be licensed by the Financial Markets Authority (FMA) in relation to their general conduct. The extent that this affects advisers is unclear. Initially, the COFI law would have treated advisers as though they were virtual employees, not intermediaries, of financial institutions. This would have blurred the distinction
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between employees and contractors, and could have expensively replicated the Financial Services Legislation Amendment Act (FSLAA) which set up the FAP licensing programme. The dangers of an obvious legislative double-up were averted when part of the COFI bill was dropped, following an outcry, and a softer version emerged to make the final reading in parliament. But in the end, FSLAA and COFI experienced a separation rather than a divorce, leaving financial institutions still with some responsibility for intermediaries. The unanswered question is: how much?
Banks looking over your shoulder The answer seems to be that advisers will not have to take much direct control, but they will still have to put up with a lot of indirect control. In the words of
one insider, financial institutions such as banks will be “looking over the shoulder” of intermediaries such as advisers. There is already a mass of ethical control on advisers, from the FAP regime, to the CCCFA, to advisers' own ethical and professional principles. But the banks want more. Since they must comply with COFI, they want to make sure people who advance their products for them do the same. Just how to achieve that is the problem. “As usual, the devil will be in the detail,” says the chief executive of the Bankers Association, Roger Beaumont. The association stands by its view that there was no evidence of systemic abuse in the banking industry before the law was even considered. But it accepts the reality that the COFI law is now on the statute books, and that regulations will be developed to put it into effect. “We look forward to working with the FMA and the Ministry of Business Innovation and Employment (MBIE) on the new regulations and processes,” says Beaumont. “Banks take compliance with regulatory obligations very seriously, and will want to help make the new requirements as workable as possible. “Getting it right is in the best interests of everyone involved, as we’ve seen recently with the new consumer-lending rules.”
Time to get the details right There is plenty of time to get this right. Even though the COFI law dates back to 2019, applications for a good-conduct licence will not open until next year and the whole scheme will not be in operation until 2025. But the chief executive of Financial Advice New Zealand, Katrina Shanks, says talks to sort out the details with other stakeholders and state agencies have already begun. “We have got one meeting a week for the next so many weeks.” Shanks says there’s a strong sense of relief that the worst of COFI has been Image: Samantha Barrass
