by Jenni McManus
Three weeks after the legislation received the royal assent, the FMA has published its expectation for each standard and a series of questions it wants financial institutions required to comply with the regime to consider.
Submissions are due by 7 September.
The FMA will issue licences under the Financial Markets Conduct Act 2013 and once the legislation comes into effect, expected to be in early 2025, institutions will not be able to offer financial services to consumers without one.
The FMA says it will develop a licence application form and guidelines and expects to begin reviewing applications in mid 2023.
The proposed standards are the first of what’s expected to be a raft of regulations to be read alongside the COFI legislation. The Act lays out only the broad fair conduct principles and minimum requirements for fair conduct programs the government expects financial institutions to comply with.
The government has already flagged incentives and commissions as an area ripe for regulation, with all financial institutions and intermediaries in the distribution chain required to comply.
Under the Act, insurers and banks will not have to manage and monitor the compliance of intermediaries, but the FMA now says they must have policies and systems in their fair conduct programs for managing incentives to mitigate or avoid adverse effects on consumers “so far as is reasonably possible”.
These regulations will be drafted by MBIE and will ban incentives and commissions based on volume and value, such as overseas trips, bonuses for selling a certain number of products and leader boards. Advisers say most of these “soft” incentives have gone already.
On the proposed licensing standards, the FMA says conditions are needed to ensure licence-holders continue to comply with the rules as the licences, once granted, will have no expiry date.
The first covers “ongoing requirements” to keep policies and programs up-to-date. Financial institution must also ensure their directors and senior managers “are and remain fit and proper persons to hold their respective licences”.
The second standard is a requirement to notify the FMA within 10 working days of any material change in the financial institution’s services. As an example, the FMA says changing from a non-bank deposit-taker to a registered bank would require notification.
Next is the need to provide regulatory returns. Financial institutions must give the FMA everything it needs to monitor their ongoing capability to provide services to customers. It suggests these returns might include the type of services provided, the number of consumers, the number and types of breaches and complaints information. The FMA says it will consult with the sector before publishing its final list of requirements.
The fourth proposed standard is around outsourcing. If an institution outsources a system or a process, it must be satisfied that the provider can perform the service to the standard required.
The next proposal involves business continuity systems and what the FMA calls “ensuring operational resilience”. Licensed financial institutions must have and maintain a business continuity plan appropriate to the scope and scale of its business. They must notify the FMA as soon as possible (but no later than 72 hours) after any event that materially impacts the operational resilience of their technology systems.
The final proposed standard is around record-keeping. Records, to be kept for seven years, must be adequate, up-to-date and available for inspection by the FMA “at all reasonable times”.
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