To prepare for the Conduct of Financial Institutions (CoFI) regime, the Financial Markets Authority - Te Mana Tātai Hokohoko (FMA) - is seeking feedback on proposed guidance that covers arrangements where financial institutions distribute products and services through intermediaries.
CoFI will introduce a new conduct regime to ensure financial institutions (banks, insurers and non-bank deposit takers) comply with a fair conduct principle to treat consumers fairly, and to establish, implement and maintain a 'fair conduct programme'.
These programmes must account for intermediated distribution arrangements where an intermediary or agent is involved in the distribution of a financial institution's products or services, such as insurance or mortgages, or car dealers selling vehicle insurance.
In a consultation paper published today, the FMA outlined its general expectations for intermediated distribution arrangements which can be applied across different sectors and distribution models.
Clare Bolingford, FMA's Executive Director Regulatory Delivery, said: "Our approach throughout the implementation of CoFI and the new advice regime has been to consult and collaborate with industry. The draft guidance is the result of a series of workshops with financial institutions and intermediaries. The overall purpose of the guidance is to ensure intermediary arrangements are designed to promote fair outcomes for consumers. These arrangements need to clearly assign roles and responsibilities, and include processes for monitoring their effectiveness."
The draft guidance covers any situation where an intermediary is involved in the distribution of a financial institution's products or services. Intermediaries that provide financial advice are required to be licensed by the FMA as a financial advice provider (FAP) or operate under a FAP licence. These intermediaries are subject to their own set of conduct duties under the financial advice regime in Part 6 of the Financial Markets Conduct Act, and must comply with the Code of Professional Conduct.
Both CoFI and the financial advice regime require consumer interests to be considered in relation to the distribution of products and services. The FMA considers that the CoFI and financial advice regimes are complementary, with broadly consistent overarching policy objectives. The policy intention is that the dual regimes create a shared responsibility between financial institutions and FAP licenced intermediaries for fair treatment and outcomes for consumers.
The overarching principles in legislation focus on designing products and distribution methods that are consistent with the fair conduct principle, reviewing these regularly to ensure they remain fit for purpose, and ensuring deficiencies are remedied within a reasonable time.
The proposed guidance is non-prescriptive and designed to allow institutions flexibility to design their own approach to aligning with the fair conduct principle.
Ms Bolingford said: "Once CoFI is embedded across the industry, the FMA's monitoring will focus on whether entities are delivering fair outcomes for consumers. Therefore, we encourage financial institutions to work with their intermediaries now, to ensure their fair conduct programme is more than just a checklist for compliance; it needs to be a useful and practical blueprint for implementing and maintaining systems that prioritise fair treatment of all customers."
Feedback on the proposed guidance can be provided until 14 April 2023.
