NEW CONDUCT REGIME FOR FINANCIAL INSTITUTIONS

Posted by Kellie Bright on August 23 2022 in News

New legislation has been passed with the intention to drive positive industry behaviour change to ensure the fair treatment of consumers by financial institutions.

The Financial Markets (Conduct of Institutions) Amendment Act 2022 also known as the Conduct of Financial Institutions (CoFI) legislation regulates registered banks, licensed insurers, and licensed non-bank deposit takers who are in the business of being a creditor under a consumer credit contract, acting as an insurer, providing certain specified retail financial services, and acting as an intermediary for any of these services.

Financial institutions need to treat consumers fairly, which means:

• paying due regard to their interests;
• acting ethically, transparently and in good faith;
• assisting consumers to make informed decisions;
• ensuring the services and products that the financial institution provides are likely to meet the requirements and objectives of likely consumers; and
• not subjecting consumers to unfair pressure or tactics or undue influence.

The new regime requires the financial institutions to:

• be licensed by the Financial Market Authority (FMA) in respect of their conduct towards consumers;
• comply with a “fair conduct principle” to treat consumers fairly, through the requirement for financial institutions to establish, maintain and implement a “fair conduct programme” and take all reasonable steps to comply with the programme; and
• comply with regulations that prohibit target-based sales incentives, and financial institutions will also have obligations in relation to how they design and manage other types of incentives.

What to do from here?

The FMA will continue to work with financial institutions to ensure they are prepared for the new regime. The Ministry of Business, Innovation, and Employment will also develop supporting regulations. It is expected that the new licensing applications will open in mid-2023, with the new regime expected to become fully into force in early 2025.

The FMA proposes to release various guides in late 2022/early 2023 to help financial institutions understand and comply with the new licensing requirements and establish their fair conduct programmes. We will provide an update and links to these guides as soon as they are made available. It is important that financial institutions familiarise themselves with the new regime, and take the necessary steps to ensure that their internal policies, processes, systems and controls align with the fair conduct principles.

If you would like more information regarding the above or have any questions, please contact me.

Kellie Bright | Special Counsel | Kellie.Bright@shieffangland.co.nz