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Financial Advice New Zealand hopes for COFI changes

Financial Advice New Zealand, is hopeful of untangling at least some of the bureaucratic knots which risk strangling a big portion of the financial advice industry.

Thursday, May 12th 2022, 7:23AM 10 Comments

by Eric Frykberg

It has been talking with high level institutions to stop the Government from pushing through legislation that grapples with issues that were settled by another law three years ago.

Financial Advice NZ's chief executive Katrina Shanks said those talks had been going “very well.”

The controversial new bill is the Financial Markets (Conduct of Institutions) Amendment Bill, or COFI.

Shanks said in principle, that bill was fine, because it produced a code of conduct for institutions such banks, insurers or non-bank deposit takers.

But midway through parliament, the bill was changed to bring oversight to the financial advice sector.

However, that sector was already governed by the Financial Services Legislation Amendment Act of 2019 (FSLA).

FSLA administers the Financial Advice Provider, or FAP, regime, which advisers have been busy complying with at considerable cost in time and money. The process began last March and is due to finish next March,

But having a second set of rules dumped on advisers part way through implementation of the first set of rules was a law too far for Shanks.

“All of a sudden you had two conduct and culture legislative requirements,” she said.

“You would have had the Financial Markets Authority (FMA) monitoring one lot of supervision.

“Then you would have had the product providers enforcing conduct and culture requirements, but differently, because with different legislation there would be different requirements.”

As these concerns developed, the Government decided to stall the COFI bill part way through the parliamentary process, pending delivery of a Supplementary Order Paper (SOP) which would clarify what was to be done.

That SOP is being prepared by the Ministry of Business, Innovation and Employment (MBIE) and the FMA. Shanks has been in touch with staff there to make her concerns known and is pleased with how the talks have progressed.

“I think they have been going very well, we have raised legitimate concerns over the legislation and about unintended consequences of that legislation on financial advisers.

“The intention was never that the financial advice would have two significant pieces of legislation for conduct and culture. It was only originally intended that FSLA would govern conduct and culture for financial advisers.”

The final contents of the SOP are still awaited.

A related problem with the COFI bill was that it originally intended that financial institutions such as insurers should train, manage or supervise intermediaries such as advisers who deal with their products.

This produced complaints that the obligation was broad and unworkable, and could cause advisers to reduce the number of institutions they work with to avoid having to comply with multiple programs.

This in turn could reduce competition and choice for consumers, which would undermine the intent of the legislation.

Shanks noted that FSLA required competency, knowledge and skill among advisers, so further training by institutions would be redundant.

In a cabinet document released in March, the Government pulled back on the idea of training and managing intermediaries but still wanted them covered by the COFI law.

Any further change in this regard is dependent on the final shape of the SOP.

It is unclear when that will be released, although the Government has said it wants the legislation finished by mid-year.

Tags: CoFI

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Comments from our readers

On 12 May 2022 at 7:47 am Murray Weatherston said:
I'm still surprised the institutions haven't kicked back more against this COFI legislation.
Financial institutions are now going to need two separate licences to operate. A ban needs a banking licence, an insurance company needs an insurance licence.
But now they will need a second licence covering "conduct" from FMA.
All this just loads more cost into the system, and who pays ....well the customer.
I've recently logged an OIA with MBIE asking for any papers where the Government and its officials have ever estimated the cost to the financial institutions of implementing and then maintaining this proposed legislation.
On 12 May 2022 at 9:33 am Amused said:
That SOP is being prepared by the Ministry of Business, Innovation and Employment (MBIE) and the FMA. Shanks has been in touch with staff there to make her concerns known and is pleased with how the talks have progressed. “I think they have been going very well, we have raised legitimate concerns over the legislation and about unintended consequences of that legislation on financial advisers.

Here we go again…

Respectfully it’s a futile exercise engaging with anybody at MBIE. As has been shown repeatedly MBIE officials’ attitude to industries and businesses is that they alone know best. Whatever is discussed with MBIE staff will fall on deaf ears I'm sorry no matter how impassioned you are.

MBIE’s sole purpose nowadays appears to be adding unnecessary cost and complexity to New Zealand industries and consumers. The CCCFA changes recommended by MBIE last year have been a complete disaster for thousands of consumers trying to secure credit. Many couples have been locked out of owning a home consequently. Banks warned MBIE and the Government that these changes would negatively impact borrowers, but they were ignored.

Long experience has show us that MBIE’s involvement in any regulatory process does end well for that industry. The next casualty on the list appears to be the building industry over the proposed new building code. Builders are pleading for MBIE and its officials to engage with them over the Ministry’s wildly optimistic cost estimates for energy efficient homes but just like with the proposed income insurance scheme MBIE has not sought the industry’s input.

The best thing that industry heads could do currently is meet with opposition MPs and lobby for MBIE to be overhauled or better yet disbanded. Hopefully a change of Government at the next election will see the latter happen and then as a country we can all breathe a sigh of relief.

Regulation is supposed to benefit consumers not disadvantage them!
On 12 May 2022 at 10:17 am Tash said:
Whether intentional or not, the Government is pushing us back 30 years. Soon there will be very few independent advisers, the vast majority of advisers will be nominated Reps, no choice and no real advice for customers, no product competition or development, full control by providers and the winner will not be customers it will be the organisation that spends the most on advertising regardless of its offering.
On 12 May 2022 at 10:18 am w k said:
the below explains why.
Quote: "Regulatory imposts have raised the cost to operate a practice here and when the full costs were provided to the then new FMA CEO, he confirmed that they had never added this up previously so didn’t know."

conclusion: the regulators are very poor at costing, and managing finances never existed in their agendas. will fail if they run their own business.

and more licences? that's job creation. when there is nothing else left to do, create a problem, devise a "solution", before you're made redundant.
On 12 May 2022 at 10:34 am Matron said:
It's kinda ironic that Katrina Shanks (FANZ) is doing a lot of the donkey work and highlighting what the institutions (i.e. FSC) should be pushing back on.

Surely COFI is a bigger priority for the FSC right now as opposed to promoting a "three-month, pan-sector campaign to take meaningful action to improve the financial wellbeing of our wāhine".
On 12 May 2022 at 1:06 pm Murray Weatherston said:
The 2nd Reading debate resumed last night just before knock-off time for the House.
There was time for 2 speeches.
The first was from Labour's Duncan Webb. It took less than the 2 min 41 sec timestamp on the video. He came across to me as arrogant. My impression of his body and visual language - my words not his - were like this. I don't really want to be here but we have to put up a speaker. The Bill is good, we've got the numbers, if we have to go through with this charade, I'm going to take the minimum time.
The other speaker was Andrew Bayley (National) who was cutoff before finishing because the time had come to shut up shop - it must have been 10pm.
He said National was opposed to the Bill. He made many points that I wish the heads of the financial institutions were shouting from the rooftops. However I suspect they don't want to be seen in public disagreeing with the Headmaster.
At the start he commented on the brevity of his esteemed colleague's speech immediately before him. I had the impression he would have prepared to have another night to hone his speech, and had perhaps been caught on the hop - expecting to speak tomorrow.
The pity is his remarks are likely to have exactly zilch influence on the ultimate outcome.
Watching Parliamentary debates would drive a tee-totaller to drink - they are just "going through the motions" process to fill the allotted time.
On 12 May 2022 at 5:59 pm LNF said:
When I saw the RBNZ Governor sitting alongside the then FMA CEO commenting about industry "behaviour" and the FMA CEO with his head in his hands - I knew exactly where this was heading

I phoned and spoke with the CEO of FANZ and said basically "when are you going to state the facts - Advisors work for their clients best interests"

She told me this was all going to result in Advisers being held in high regard. My answer albeit more polite was "pigs a***

Sorry to say - I am right, and why I have exited the industry after 50 years
On 13 May 2022 at 8:12 am Amused said:
Typo - I meant to say long experience has show us that MBIE’s involvement in any regulatory process does NOT end well for that industry.

Agree with all of the comments posted above.
On 13 May 2022 at 10:37 am Barry Read said:
Hi Murray - Banks and Insurance Companies who give financial advice will need 3 licences to operate. Reserve Bank: Bank/Insurer, FMA: FAP and now COFI. The overlap with these 3 licences as well as existing Acts that cover all businesses is incredible. Compliance is the new Black.

On 13 May 2022 at 1:50 pm Murray Weatherston said:
Question for Katrina
"If you thinks the bill is in principle fine, why do you think National and ACT voted against the 2nd reading?"

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