UP FRONT • REGULATION
The next piece of the puzzle
I
Matthew Martin takes a closer look at the ‘CoFI’ Bill – the latest in a series of moves to overhaul the financial services sector.
t's probably the last thing mortgage advisers and lenders want to think about right now, but by mid-2022 it will probably become a reality. The Financial Markets (Conduct of Institutions) Amendment Bill, known as CoFI, will be back for its second reading in the first few months of the year, adding – if passed - to the ever-increasing list of regulations covering the sector. Advisers and industry experts say they understand the basis of the bill, but are not so pleased with the additional costs it will impose on practitioners. But, they say, it's a bridge they will cross when they come to it. First, however, a bit of background on CoFI and what it means for the institutions and advisers will oversee.
Regulating conduct of financial institutions Introduced by Government in December 2019, the legislation intends to regulate the conduct of financial institutions. CoFI will require banks, insurers, non-bank deposit takers and lenders to be licensed in respect of their general conduct towards consumers. It means that financial institutions will need to establish, implement and maintain effective, fair-conduct programmes throughout their businesses, to ensure they treat consumers fairly. It will also require financial institutions and intermediaries involved in the chain of distribution to comply with regulations which regulate incentives. These regulations will be able to prohibit sales incentives based on volume or value targets – for example,
014
TMM 01 • 2022
soft commissions such as overseas trips, bonuses for selling a certain number of financial products, or leader boards. If passed, the bill will see businesses needing to apply for another licence from the Financial Markets Authority (FMA), and to set out what is required for the conduct of intermediaries. From April to June 2021, the Ministry of Business, Innovation and Employment (MBIE) consulted on two discussion documents relating to CoFI. The bill was discussed briefly in Parliament in June, with National Party list MP Nicola Willis (now deputy leader) immediately criticising it as "...a compliance heavy, box-ticking exercise". Willis said her party opposed 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".
Multiple concerns MBIE said in a statement that stakeholders had raised several concerns, including the proposed requirements for financial institutions to oversee and train any intermediaries distributing or managing their products to ensure good outcomes for consumers. "They have also raised concerns about the overlap with the obligations that apply to some intermediaries under the new financial advice regime – the Financial Services Legislation Amendment Act (FSLAA). "Stakeholders' concerns have centred around the breadth and scope of the definitions and obligations, and the potential cost and burden of compliance."
‘Industry experts say they understand the basis of the bill, but are not so pleased with the additional costs it will impose on practitioners’ MBIE sought feedback on options for amending the bill to address the concerns, particularly concerning the definition of an intermediary, the obligations for intermediaries, and the obligations for employees and agents. "Feedback on these proposals will inform officials' advice to the Minister of Commerce and Consumer Affairs to enable policy decisions." The FMA says it, like everyone else, is waiting on the outcome of those amendments and the completion of the second reading. "The Government will need to decide whether amendments should be made to the Bill (via Supplementary Order Paper) and whether regulations are necessary to support the new regime, taking into account the feedback received from the consultation,” the agency said in a statement. "The FMA will continue to engage with industry before and after the policy decisions are confirmed by Government to ensure that the expectations on financial institutions are clear."
