Insurer dobs in adviser

Lets hope the court deals to this guy. There is more than enough business available for compliant and hard working advisers without this sort of behaviour ( and that extends to inappropriate replacement).

Unclear how it would not be a criminal offence. Its fraud and they should go to jail.

I suspect the reason the FMA is seeing more of this poor conduct lately has little to do with economic conditions and is rather the culmination of years of legislative and regulatory change. Combined that with their own high-profile enforcement action, and conduct guidance stretching back more than 10 years, I think it should come as no surprise to the that financial institutions are starting to refer rogue advisers their way.

When COFI came into full force on 31st March, this introduced a requirement that financial institutions establish, implement, and maintain a fair conduct programme (FCP), designed to ensure compliance with the fair conduct principle (“treat consumers fairly”). A FCP must include policies, processes, systems and controls to ensure that intermediaries operate in a manner consistent with the fair conduct principle (as distinct from the FCP). Where conduct is identified that falls short of this mark, reasonable steps must be taken to mitigate any actual or potential adverse effects of the failure (446J(1)(d)), ensuring any deficiencies are remedied “within a reasonable time” (446J(1)(b)(iii)).

The penalties for breach of one of these (Part 6) provisions is the same as for a breach of a Part 2 “fair dealing” provision. This is where successful prosecution plays a role in informing financial institutions of the potential cost of serious FCP issue. In the case of serious failures of systems and controls leading to breaches of fair dealing provisions, the FMA has secured multiple high-profile judgements (Vero - $3.9M, Cigna - $3.5M, Westpac - $3.25M to mention a few).

Financial institutions have much to gain from self-reporting breaches, co-operation with subsequent investigation, and early admission. In FMA v AIA NZ [2022] this reduced the penalty by 30% from $1M to $700,000. In a June 2023 COFI Guidance Note on Intermediated Distribution, the FMA encourages pro-active self-reporting of serious deficiencies in the intermediated distribution channel (page 23). Other relevant FMA publications in this area include: A Guide to the FMA’s View of Conduct (February 2017); Life Insurer Conduct and Culture (January 2019); and Fair Conduct Programme Insights Report (April 2025).

Finally, there is the issue of remediation. The tombstones are not the problem, after all, no actual clients were directly harmed in the making of that $260,937 of commission. But what of all the real clients of the adviser? Where there’s smoke there’s fire - Le Zhou didn’t wake up one day and decide to try his hand at tombstoning. I’d wager that his book would be rife with non-disclosure (“we don’t need to tell the insurer that”) and cleanskins (“just sign this, I’ll take care of the rest”), not to mention replacement that has left clients in a worse position.

All insurers Le Zhou worked with are now on notice that he was a bad apple, and hopefully their FCPs can respond in a way that identifies and remediates any affected policyholders. Remediation might be as simple as providing the client the opportunity to review their application to ensure full disclosure was made, with any retrospective disclosures fairly underwritten and on the assumption that the client originally entered into the contract in good faith (voiding as a remedy is off the table).

The other option is to wait until claim time, when the client is vulnerable, and try to unravel the mess at that point. That doesn’t seem fair to the client.

The idea that any recent legislation has helped identify or prevent the age old problem of criminals being criminals is laughable.

For all the talk about getting rid of of cowboys, all the work and costs advisers have put in to qualifications, documentation, processes and constantly having a feeling of big brother could knock on your door any day... only for this guy to walk right past it all and make hundreds of thousands of dollars.

The remedies for dealing with him existed well before 2021, so all that's really changed is the cost we all pay to do the job as well and as honestly as we always did.

@Agressively_passive

You are correct that the criminal pathway for dealing with tombstoning was in place prior to March 2021, but the old system was slow. An example of the sluggish pace can be seen in the “Fraud would cost adviser authorisation” article published on Good Returns in August 2015. This is a case of an AFA who tombstoned 122 policies, and the FMA was needing to wait for a criminal conviction before being able to deregister the culprit.

Compare that to the present case. The measures used to remove Le Zhou from the industry are all part of the new regime. Old regime: Assuming that Le Zhou was an RFA, he wasn’t subject to (and therefore would not be in breach of) the code of conduct at the time. It is hard to see how tombstoning would be captured by section 33 (care, diligence, and skill) and even if it was, options for regulatory response were limited to issuing warnings or written directions.

New regime: Failure to meet license conditions, with special mention of Code Standard 2. As I understand things, the failure to act with integrity is an indirect breach of licensing conditions by way of failing to meet duty 431M of the FMCA, as required by 402. Given that lack of integrity is not a fleeting state of character, it is a short leap to “not a fit and proper person” and “likely to breach its market services licensee obligations” again. Boom, gone, very good.

Has all the extra legislation (and resulting work and cost to industry participants) helped prevent the criminal activity in this particular case? No, but then again, no law perfectly prevents its own transgression. Has all the extra legislation helped identify wrongdoing (and prevent further harm)? I think it has.

The recent cancellation of Filcare Services Limited’s FAP license is a good example. Fidelity and AIA cancelled Filcare’s distribution agreements and referred the case to the FMA. FMA investigated, identified multiple breaches of “new regime” requirements, and Filcare jumped before it was pushed. Prior to the new regime I’m (confidently) betting that only the first of these things (cancelled agencies) would have occurred and Filcare would still be placing business with other insurers. Now, the FMA has the power to do something about this conduct (thanks to FSLAA), and insurers (thanks to COFI) are required to cast a FCP net over their intermediated distribution channels, and report serious issues to the regulator.

While I agree with Paul’s comments, historically with this case and Filcare the providers would have taken similar action in prior reigemes.

The difference would have been less visibility and probably no Police involvement.

The outcome at the provider level would have been similar, agencies cancelled and clients reviewed/reallocated appropriately. Having observed this handled well more than a few times.

What is different now is the other providers not directly impacted. Historically they would have had to find out themselves as the behaviour moved to the next insurer.

Today it is more visable, and things like licenses and registrations being cancelled is facilitating removable of bad apples faster.

But as Agressively_Passive said, none of the new rules have prevented this happening in the first place.

Frankly, I don’t want more oversight, I have enough regulation to deal with already, at the same time the only way to prevent these things is more regulaition and oversight.

Where my suggestion comes back to how providers engage advisers. More stringent development of newbies needs to be the approach before allowing them to fly solo.

At the moment the general restriction is a couple of years advising and away you go on your own.

There needs to be more criteria around this, including direct review of the advice they are providing. If there’s a quality issue at this point, then they don’t get their wings.

We’re still a soft touch, with little in the way of qualitative assessment to ensure quality of advice. We’re going to see the FMA keep rolling along with examples, but this is all after the fact and isn’t setting standards at the front end.

There is much to improve, at the same time limited resources, money, and will to do so.