Firms needing COFI guidance prompted to seek advice from regulators

“We don’t just see this as about complying with the minimum standards in the law,” says director

Firms needing COFI guidance prompted to seek advice from regulators

As the Financial Markets (Conduct of Institutions) Amendment Bill awaits its second reading, the financial services sector is preparing to work within stricter guidelines around customer care - and the FMA is urging firms with questions to seek advice directly from them.

The new conduct regime will introduce a new licensing system for banks, non-bank deposit takers and insurers, and will also make them accountable for their adviser networks. It will also ban sales incentives based on volume targets, and will require license holders to have strong processes around identifying, managing and remedying conduct issues.

The Bill intends to address the risk of “real harm” to customers following a series of conduct and culture reviews, and FMA director of supervision James Greig said that it would open up a “whole new world” for the regulators in terms of what they can do to better protect customers.

“The COFI Bill will introduce licensing for all providers, but also a wider range of tools for us to address any misconduct or deficiencies,” Greig said.

“The legislation is really going to open up a whole new world for us in that regard, as, up until now, there has been a gap in terms of the conduct regulation that applies.”

“As we get into that new regime, it is going to open up a plethora of new areas for us to get our heads around,” he said. “It will also be a good opportunity for financial service providers to think about how they comply with the main duty, which is putting the customer first.”

Commenting on the implementation of the Bill, FMA director of banking and insurance Clare Bolingford said that the regulation will not just be about complying with the “minimum standard”. She said the FMA has seen “a mix of practices” so far, and organisations should be delving into their culture and their systems, identifying potential risk areas, and thinking about how to avoid the need for remediation - or a repetition of past mistakes.

“We see conduct as an enduring issue because it really matters, and it’s about what the customer experiences in practice, and it’s about the behaviour of an organisation over time towards those customers,” Bolingford said.

“We don’t just see this as about complying with the minimum standards in the law. It is about understanding what good practices are in your front line, in your systems and controls, and in your governance and operations.”

“This means that when those issues are identified, its really important that the root causes of the issues are identified and fixed - and we understand that this can take some time,” she explained.

“But as we understand more about some of the poorer practices and mistakes that have been made in the industry, what we are seeing is that there is quite a mix of practices in terms of how those issues are identified and fixed, and how those root causes are worked through to make sure there doesn’t need to be a re-remediation in the future.”

Bolingford urged any firms who feel they need more guidance to approach the FMA directly, and also to make use of the materials it has already made available through its numerous guides, reviews and information pages.

“We’re very happy to actually work with firms on this, because we do see those mixed practices out there,” Bolingford said.

“So if your firm does experience an issue when it comes to conduct, what we can do is sit down with you and go through some of the good practices that we’ve seen. But our expectations on conduct are already set out, and firms have a lot of material that they can use.”

“There’s our good conduct guide from 2017, which sets out a number of questions you can ask yourself about how your firm operates in practice, and whether you do have good conduct principles in place,” she said.

“We also have our conduct and culture reviews for banks, life insurers and the fire and general market. You might look at those as quite sector-specific, but in terms of the broader recommendations, we actually think it’s quite useful for the entire licensing population to have a look at those and consider how they might impact on your business.”

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