Advisers pleased with shape of CoFI law
Financial Advice NZ, is breathing a sigh of relief that the Government's latest set of rule making for the industry appears to be relatively benign.
Monday, February 27th 2023, 6:07AM 
5 Comments
by Eric Frykberg
Chief executive Katrina Shanks says she is “pleased overall” with the way the Financial Markets (Conduct of Institutions) Amendment Act (CoFI) will affect advisers.
CoFI will impose a code of conduct on banks, insurers and non-bank deposit takers. Last week the Financial Markets Authority (FMA) released proposed guidelines for how CoFI will be imposed on advisers.
Shanks is pleased with what she has read about its methods. “We like the emphasis on the risk-based approach towards distribution networks which carry a known risk,” she said.
This was a reference to a section in the proposed guidance where the FMA said costs could be held down for both financial institutions and advisers themselves if they tailored their work to the level of risk that they face.
Shanks was also pleased with another development. There had been fears that CoFI would require firms of intermediaries to have annual external audits, or to commission independent assurance reports, which could be costly.
But the FMA guidance says these will not be mandated.
“There is also a clear message within the guidelines themselves in terms of the training requirements. The guidelines themselves talk about relying on competency, knowledge and skill, which we think is really positive.”
The CoFI law had a chequered history - it was accused of legislative overkill from within the financial sector, and was sometimes called a needless replication of the FAP programme.
The National Party called it a solution looking for a problem. But the party has not pledged to repeal it – unlike the CCCFA rules.
But the outcome so far is a long way removed from the fears that were expressed in the early days, possibly because of strong lobbying from Shanks' group and others.
“We were very strong in our submissions about the unintended consequences of CoFI,” she said.
One of the issues here would have been a needless overlap between CoFI and the requirements of the Financial Services Legislation Amendment Act (FSLAA), which set up the FAP regime.
“I think this guidance has recognised the two different legislative regimes, CoFI and FSLAA, will be able to work side by side instead of overlapping.”
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Comments from our readers
COFI is a dog and advisers and institutions should not cease saying so until it is repealed.
The response seems to be a sigh of relief - "it's not as big a dog as we thought it might have been".
There needs to be a healthy tension between the regulators and the regulated. It's hard to dispute the view that in some cases the regulated have been captured by the regulators - its almost like the associations are arms of the bureaucracy!
Rather than been pleased with the shape of the CoFi Law advisers are wondering why this Act is even been introduced in the first place. Why are Financial Advice NZ apparently celebrating its introduction now as not been too bad?
We already know from past articles that both the RBNZ and FMA advised the Government that CoFi was not needed, stating that consumers already had adequate protection in place. In evidence given to a parliamentary select committee both the RBNZ and FMA were clear that there was no evidence of systemic wrongdoing in New Zealand. The Government chose to ignore this advice from the central bank and the chief regulator of the industry. Let me say that again. The Government ignored the advice of the central bank and the chief regulator of the financial services industry. This is legislation then that has been orchestrated by a bunch of politicians whose ideology makes them have an instant distrust of industry.
All that the Government is achieving now with this law change is increasing the number of civil servants been employed in the already burgeoning Wellington bureaucracy. MBIE of course love new regulation because they get put in charge by the Government to design and administer it. These are the same officials who came up with the changes made to the CCCFA and we all know how much the NZ consumer benefited from that. MBIE will throw around big words like “international best practice” as justification for any additional regulation introduced. The reality is though that MBIE like this Government have an inherent distrust of industry and think they always know best. This is why MBIE never listens sincerely to industry. The CCCFA changes that were introduced in late 2021 should have made that fact abundantly clear.
CoFi is the latest example of overregulation adding unnecessary complexity to an industry which doesn’t need it. Inevitably the costs associated with these changes will get passed on to the consumer.
If there was ever an industry that needed to be strongly regulated it’s the real estate industry where non-disclosure to purchasers remains rife.
The point about providers not needing this legislation I disagree with, as the present self-reporting, hide the skeletons under the carpet approach needs addressing.
The crap I've seen buried over the years definitely has an impact on clients, and this has largely been by the institutions and not the distribution third party advisers.
But it should never have included those covered by the FSLAA regime.
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So an Orchard from Hawkes Bay seeks comparative quotes. Do you do a weeks work for nothing - or tell them "thanks but no thanks" and be in breach