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[The Wrap] NZers will be left exposed if CoFI is repealed

The National Party plans to get rid of CoFI if it wins this year’s election. I won’t mince my words. It’s an even dumber policy than what it proposes for KiwiSaver and will leave most New Zealanders unprotected if, and when, things go wrong in financial services.

Friday, August 25th 2023, 2:45PM 15 Comments

by Philip Macalister

First some background. The genesis of CoFI is none other than the Royal Commission in Australia which exposed horrendous behaviour by banks and insurers.

In response to that commission the Financial Markets Authority and Reserve Bank used this as an opportunity to examine banks and insurers in New Zealand.

Of course, the New Zealand companies said they have had nothing to hide even though many of them are Australian owned and many of the companies in Australia which ran foul of the commission were run by Kiwis.

Oddly enough since this started significant conduct issues have been found in New Zealand and some pretty hefty fines handed down. Just look at the cases like ones where AIA, Cigna and ANZ all pleaded guilty and ended up paying multi-million dollar fines.

Just to say bad conduct won’t happen here is naïve. We’ve seen it in other jurisdictions including Australia and the United Kingdom and there is no reason why it won’t happen in New Zealand.

The FMA and RBNZ pushed Parliament for conduct regulations giving birth to CoFI.

Here’s the point, if we were to see behaviour in New Zealand like what happened in Australia our regulator has no enforcement powers.

Considering that banks and insurers touch pretty much every New Zealand that leaves the population exposed.

Former FMA chief executive Rob Everett talked about conduct from the day he started at the regulator and the day he left. Getting CoFI through Parliament was one of, if not, his most important goal.

National has offered nothing to fill the void left by repealing CoFI.

You can argue CoFI was over-engineered which is probably correct. Financial services regulators, by habit, have a tendency to over-engineer things – just look at the DIMs regulations.

Then there is the little issue of costs. How much the financial services industry has invested in preparing for CoFi is anyone’s guess. But it’s tens of millions of dollars if not hundreds. As for the manhours – again a huge number.

If CoFI is repealed then you may as well cut the FMA’s head count by 100 people.

How advisers can sing the praises of repealing CoFI probably just shows a lack of understanding – and a certain irony.

Financial advisers are already heavily regulated and have been through a couple of iterations of regulation.

Meanwhile, banks and insurers have had only a light touch. By championing the repeal of CoFI advisers are leaving themselves regulated and leaving the big end of town, as many call it, far less regulated.

It’s rather ironic that the Financial Services Council has not said boo about the announcement – especially as it said at the same conference that the Nats dropped the policy that it was planning to become a lobby group.

What a great opportunity to start being a lobbyist – or maybe they support the policy as its members get off the conduct hook?

CoFI was borne out of what was a horrendous situation in Australia.

The question is if CoFI is repealed who is looking after consumers in New Zealand?

Certainly not the National Party.

PS: What is the thinking behind this policy? It won’t win votes from the banks and insurers as they probably all vote National. If the public believe it will 

Tags: CoFI Opinion

« Where the FMA is headedTough times ahead for NZ economy: Nikko economist »

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Comments from our readers

On 25 August 2023 at 3:18 pm Murray Weatherston said:
Hi Phil
What a lot of rot.
Regulations are't costless to the consumer.
On 25 August 2023 at 5:03 pm Amused said:
When the Reserve Bank & FMA fronted up to the Finance and Expenditure Committee in 2021 and talked about the big review that they'd undertaken into the insurance and the banking sector the broad conclusion was "We've found no systemic issues."

Of the billions of banking and insurance transactions that take place in New Zealand every year they found isolated cases but there was no systemic issue. The Government subsequently chose to ignore this advice from the Reserve Bank & FMA.

If the Government had wanted to beef up existing regulations to safeguard consumer protection, why not just strengthen the Banking Ombudsman's role? Why not give her some more responsibility, more funding, and more powers? She's already in place. Why not?

CoFi is legislation orchestrated by a bunch of politicians whose ideology makes them have an instant distrust of industry. This is why Minister of Commerce Duncan Webb was quoted earlier in the year blaming the industry for not engaging with the Government and MBIE regarding the disastrous CCCFA changes. Recently we learnt that MBIE was in fact at fault overzealously rewriting the regulation and ignoring numerous warnings from the industry about the impact of the changes on credit worthy borrowers. Mr Webb’s predecessor was foolish enough to listen to MBIE’s advice, but he also chose to ignore the industry himself.

Let the regulations that exist now exist, there is no problem. There is no systemic issue as reported by the central bank and chief regulator of the industry. Inevitably the costs associated with these proposed CoFi law changes will get passed on to consumers.

And just a reminder also that the world’s eighth largest bank HSBC recently pulled out of the NZ residential home loan market leaving consumers with one less home loan option available now. HSBC sighted increasing regulation as part of the reason for their departure.

On 28 August 2023 at 2:37 am Skeptical said:
Thoroughly confused by this article. Seems like someone is more interested in posting an agenda than factual reality?

Take for example AIA’s breach that you cite - this is an issue that AIA found themselves, remediated and then self-reported to the FMA. Regulation didn’t do anything to help the consumer. In fact, regulation does the opposite of encouraging self-reporting and self remediating.

Despite my username, I don’t think so poorly about the providers that I think given the chance they’ll act with malice. Rather the opposite, I’m far more concerned with 120 people in Wellington that have never stepped inside an insurance advisers office deciding how these businesses should be run.
On 28 August 2023 at 9:27 am Iwillfindoutandletyouknow said:
Does anyone else remember the Simpsons episode with the bear patrol?
On 29 August 2023 at 11:26 am JPHale said:
Stock in trade for advisers are contracts, and the security of those contracts is the promise we make in giving advice.

The lack of regulation of financial services providers (those that make the products we sell) means they operate with impunity while advisers bear the brunt of the issues with things changing and not working.

Chatterbox’s comments on one of my articles has a laundry list of things to consider that relate to CoFI

Additionally, the prime example of conduct is Southern Cross in this area since 2016 removing benefits without compensation or consideration too.

A few of the bigger items:
-Affiliated provider requirements where there were no affiliated providers, effectively using claimants as the bulldozer to drive providers to become affiliated providers. Did it work? Yes. Did it control costs? Probably. Did it harm client's at the time? Certainly.
- keeping people on policies that could have had benefits, supercare to wellbeing, for the same premiums without the extras for 4 years, lack of value.
-Removal of death benefits, funeral fund options for clients that couldn't get cover elsewhere. No option to retain the cover on a separate policy with additional premiums, just removed with a month's notice.
- The removal of non-surgical hospital cover from all plans in 2020 in a way that no one in the industry has noticed of commented on in three years! Even the research providers have missed it, because its a fundamental expectation of cover assumed to be there.

Do we need CoFI hell yes!
On 29 August 2023 at 7:49 pm Murray Weatherston said:
Can't say that I recall that episode of the Simpson's but now they you have teased I'd like to be told the message of the episode. It must be apposite to the CoFI circus.
On 29 August 2023 at 8:19 pm Skeptical said:
JP - one could both agree and disagree with your conclusions simultaneously.

Was SX behaviour appalling? Yes, a fair conduct principal can help with this. This extends to the other issues addressed - historic product pricing ring fencing to subsidise new business etc comes to mind.
However is it rational to enthusiastically welcome legislation that is a first step into regulating commissions? No, this doesn’t fix the problem raised.

If CoFI purely addressed an ability to escalate issues for greater oversight on product provider responsibility, sure I’d agree with you - whether CoFI is the right vehicle to do so, would also be open to debate. However outwardly signalling that they are intent on regulating commissions is an awfully large fly in the soup.
On 29 August 2023 at 8:29 pm LNF said:
To JPHale
There are yearly renewable contracts and contracts that are yearly renewable - Huge difference
On 30 August 2023 at 8:28 am JPHale said:
@LNF yes there are and on the most part the life insurance industry is protected with the later.

Medical insurance falls into the former as a result is needs providers to add guarantees to their wordings. Only two on-sale products currently have this.

Insurance for things is fine on yearly renewable, you change stuff and things can be modified the change is expected and manageable.

Insurance for people is different and while they renew yearly they should not be yearly renewable, because people do not have the ability to modify their present health to suit a contract.

The contract is taken on the basis that future health needs need to be accommodated and provided for without the risk of expected cover response will be removed.
On 30 August 2023 at 8:37 am LNF said:
Oops. should have typed there are yearly renewable contracts and contracts that are renewable yearly.
On 30 August 2023 at 8:45 am JPHale said:

True, the reality is there needs to be regulation of providers and CoFI is what we have. Is it potentially a sledgehammer for a walnut? Possibly, but we need to start somewhere.

Having been in and out of insurers over the last 20 years the reality is there's stuff that happens that shouldn't, and it gets buried.

If it costs money it's not desirable but often recoverable. If it impacts people who have nothing to do with the event, lack of cover, claim, or medical events, then yes that very much is a problem, because they often can't recover from that, they don't have alternative support.

The point here is our financial services companies work at the core of society, society doesn't function without them, and a healthy society has a basis with a financial services system that is beyond reproach.

The behaviour of SX I have highlighted is a prime example of why people don't have faith in insurers and other financial services companies, because they do shady shite like this and largely get away with it.

Some will say, don't air our dirty laundry, I'm of the opinion sunlight is a great disinfectant.

As I pointed out in my correspondence to Southern Cross, I do what I do because this industry failed my family when it needed it most, I'm here to make sure those around me don't face the same issues blindly uninformed. Because largely the issue is people don't know what they don't know.

And if we are to ever bring in those that are
Skeptical then we need to a damn sight better on the conduct and integrity piece.

The industry has proven that it can't do it themselves, so external regulation and oversight is the alternative.

As to commissions, the only people talking about commissions are commentators here and Sue Chetwin.

The reality is the FMA sees commissions as a form of remuneration for the work we do. The value of that is determined by the insurers and largely since FSLAA they have gone up not down. The piece that may have a change is asset vs servicing, but even all of that is still an assumption at this point.

So yes, CoFI may be flawed, but we certainly need it and it needs to have teeth.
On 30 August 2023 at 10:26 am JPHale said:

Contracts that restate risk every year with a new contract vs contracts that roll over premium with reviews...

The former is F&G and Medical and the latter is life insurance. (In line with my comments above)
On 30 August 2023 at 12:24 pm JPHale said:
On a lighter note, I don't know how CoFI is going to solve this crap from providers.

You have to laugh, otherwise you'll cry!

"However, we are not able to make the changes for ownership As per current owner is Clients Trustee Services Ltd , and the directors that is under NZ company registry are (John Wayne SMITH and John Wayne SMITH) The current form with have received only have one verifiable signature of one director.

FFS! strangely accurate statement that now creates a barrier I have to solve somehow.

If people are wondering where I find the material to write about, it's delivered to my inbox daily...

Happy Hump Day!
On 30 August 2023 at 9:16 pm Murray Weatherston said:
I would have one John Wayne SMITH resign as Director. That would leave a single Director.
On 31 August 2023 at 9:04 am JPHale said:
@Murray :D :D true, though in this case, it was just plain provider admin not reading what they were writing.

The next bit to this, which they were attempting to convey with the above, was they needed the sign-off of the second listed director, which had been missed.

As the document had been signed by two directors, I made the mistake of assuming, as they were accounting professionals completing the documents prefilled with requirements, that they would have the documents signed off by the directors of the companies they operate and are directors of.

Clearly, that was a poor assumption as we go back for the fourth time to get the correct documents completed...

A day in the life, huh?

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