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Chatswood Consulting Diversity Statement

Summary of proposed new conduct regime for financial institutions

A series of announcements today provide us with the expected update on the proposed new conduct regime for financial institutions. Here are the important links. Summary is below.

https://www.fma.govt.nz/news-and-resources/media-releases/fma-welcomes-government-announcement-on-expanded-remit/

https://www.beehive.govt.nz/release/new-financial-conduct-regime-makes-banks-and-insurers-treat-their-customers-fairly

https://www.mbie.govt.nz/business-and-employment/business/financial-markets-regulation/conduct-of-financial-institutions-review/

In summary, the regime will involve the following:

  • Create a licensing regime for banks, insurers and non-bank deposit takers (such as credit unions) regarding their general conduct. These institutions will be licensed by the Financial Markets Authority.
  • Require licensed institutions to meet a fair treatment standard (for example, to pay due regard to the needs and interests of customers and treat them fairly)
  • Require licensed institutions to implement, effective policies, processes, systems and controls to meet the fair treatment standard. Regulations will specify what these policies, processes, systems and controls must include.
  • Outline what obligations financial institutions have in relation to remuneration and any other sales incentives, and how they must manage the risks those incentives create.
  • Prohibit sales incentives based on volume or value targets (e.g. soft commissions such as overseas trips, bonuses for selling a certain number of financial products, leader boards, and performance management based on the volume of sales). This prohibition will apply to banks, insurers, non-bank deposit takers and their intermediaries.
  • Make licensed entities accountable for sales to consumers by the entities contracted intermediaries who are not financial advice providers (non-adviser intermediaries include car dealers, retailers selling add-on finance and insurance, and travel agents or airlines selling travel insurance).

Comments

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J-P Hale

I think it was a good day for advisers and advice businesses with these announcements.

The majority of professional advised will welcome some balance with the changes happening that mean smaller advice businesses have a better footing to compete with the big boys, and ensure that access to the market for consumers is not unreasonably restricted.

The announcement from government that commission in an acceptable yet to be determined form is here to stay also gives comfort that many of the present rem models have a place. Which is also comforting we don't have a government hell bent on repeating the mistakes our neighbours have made.

It also suggests that they have listened to the overseas research that says fee based insurance advice achieves the opposite of what the government intends.

Fee based approaches with banning of commissions in other markets has resulted in less access to advice, less advisers to give the advice, increased costs of advice, and also little to no change in premiums people pay while being less insured and more exposed to social support from the government.

What is also interesting is the comparisons on commissions given by the detractors don't include our main trading partners in comparison, commission discussions include countries like Israel but exclude South Africa and the UK.

Why? Because they don't support the intended dialogue by including them.

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