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Bill tabled that will bring new conduct rules for financial institutions

A bill has been introduced into Parliament that will allow for regulation of the incentives paid to advisers and salespeople.

Friday, December 13th 2019, 6:00AM 4 Comments

The Financial Markets (Conduct of Institutions) Amendment Bill was tabled in Parliament on Tuesday.

It creates a new regime for the conduct of financial institutions “and their intermediaries”.

It is a response to recent reviews by the Financial Markets Authority and Reserve Bank that showed banks and life insurers lacking a focus on good customer outcomes.

Banks, insurers and non-bank deposit takers will have to obtain a Financial Markets Conduct Act licence.

They will have to comply with a fair conduct principle to treat consumers fairly, including by paying due regard to their interests, at all stages from product design to after a sale; and have a fair conduct programme to build it into the processes of the business.

They will have to comply with regulations that regulate incentives for staff and intermediaries, and intermediaries will have to comply with the in-house conduct programme.

Financial Advice New Zealand chief executive Katrina Shanks said the introduction of the bill was welcome.

“Financial Advice NZ’s members are right behind anything that prioritises customers’ interests to ensure they can access quality advice and products,” she said.

“I’m confident the new regulatory regime that will flow from this legislation will provide additional focus for institutions on the principles of fair conduct and how to apply them, by introducing systems to identify, manage, and remedy conduct issues.

“The move to bring institutions under a fair conduct regime that ensures consumers are treated fairly, starting from the early design of products and services right through to the claims process is very timely because the end user must always be at the centre of product design and suitability.”

She said, while the bill made clear there was a duty on product providers to ensure their products would lead to good customer outcomes – from the design stage to after-sale support, advisers would also have a role to play in that.

“We were pleased to see the carving-out of financial advice providers from this legislation to allow the implementation of the Financial Services Legislation Amendment Act, which also has a strong emphasis on treating clients fairly.

“We believe there are areas in the bill that require further clarification and can be improved. For example, the intent of the bill is to exclude the advice process; the drafting of the bill excludes the financial advice provider entity, while it is unclear whether the adviser is excluded under this classification.

“We would like to see the definition of fair conduct included in the bill so it can be easily identified by consumers.”

She said Financial Advice NZ would also have strong views on the regulation of adviser incentives.

“We also note the bill contains a power to prohibit or regulate the offering or giving of sales incentives for some products. In principle, this is a good idea because we recognise that from time to time this has sent incorrect messaging to those providing advice. However, we will be submitting to the select committee on the processes and controls that need to be in place to ensure New Zealanders can continue to access financial advice."

The bill will come into force no later than two years after Royal assent, allowing time for regulations to be made to deliver the details.

Tags: conduct Financial Advice New Zealand Financial Markets Conduct Act Katrina Shanks

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Comments from our readers

On 13 December 2019 at 12:44 pm Murray Weatherston said:
It would be good if we ordinary mortals could see the text of the Bill. Just checked Parliament's website and it's not there. Maybe us not getting an advance copy shows where we really fit in the grand scheme of things.
On 13 December 2019 at 3:00 pm All hat no cattle said:
@Murray
http://www.legislation.govt.nz/bill/government/2019/0203/11.0/LMS262880.html
On 13 December 2019 at 3:26 pm Skeptical said:
Hey Murray, it'll be on the legislation website. Here's the link http://www.legislation.govt.nz/bill/government/2019/0203/11.0/LMS262880.html
On 16 December 2019 at 11:40 am JPHale said:
Nice that the intent is to have FAP's set outside the legislation in principle, the statement in the first page of the draft doesn't fill me with much confidence that we won't end up with a camel instead of a horse.

"The requirement does not apply to a financial institution acting as an intermediary of another financial institution, or to an intermediary to the extent that it may be giving regulated financial advice. Those restrictions, however, do not limit a financial institution’s obligations to have processes providing for appropriate control of or supervision over their intermediaries, including financial advice providers:"

So FAP's aren't included but the insurer still needs to demonstrate that FAP's are doing the right things.

It raises the prospect of another level of regulation reporting at a minimum and multiple reporting to multiple providers on every client interaction at the extreme end, depending on how strongly a provider's people are at justifying their existence...

I have no objections to regulation oversight, that is needed, it is the multiple layers of regulatory oversight that this potentially creates that is more the issue.

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