Bharat Mehta
Partners Life Updated Agreed Value Income Declaration Process

Financial Services Conduct and Culture Review

The FMA has released an interim update on the conduct and culture review. As this mostly concerns banks, I was not sure how interested I would be in the announcement. But it is worth a look. YOu can check out the summary at this link.

One item I would like to understand better is this comment:

   "Currently we consider it is appropriate to prioritise our work on banks and life insurers, we haven’t made any decision as to whether to expand that focus in the future."

If that is a risk-based assessment, then it would be nice to understand some of the thinking behind it. Non-bank lenders are the main missing element in the review. Historically they have been a significant component of consumer complaints. I would be as pleased as anyone else to find that all is well in the lending area. But an economy that has been expanding for a long period tends to find lending processes get looser, or more pro-lending, as the expansion gets older. This is then found out in the inevitable recession. That alone, in my mind, suggests that lending should be included.

But to return to life insurers. In the initial round of requests, there was just one insurer (AMP), in the second round of requests, most other major insurers were asked for information. A critical factor is the extent to which conduct risk extends through the sales process. In vertically integrated organisations, that means looking at the extent to which they are responsible for assessing suitability of product irrespective of whether they are giving financial advice, or just selling the insurance. For companies that use intermediaries, it will be most interesting to see the extent to which we need to take responsibility for the actions of advisers. This could have far-reaching consequences for the future of distribution. It also links in to the review of insurer conduct issues raised in the insurance contract law review paper released by MBIE. I think a good debate about the way we look at these distribution aspects will be key to the success of the conduct review.


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