The Bill passed its first reading in the house. I am grateful to the FSC for this summary of key points from the proceedings in the house. Link to the draft law is below as well.
Key points in the introduction to the House:
The Bill seeks to address the regulatory gap as there is currently no explicit legislative mandate for the regulation of the general conduct of financial institutions. The Bill is intentionally fast tracked to protect consumers and to maintain confidence.
- New conduct regime requiring licensed entities and intermediaries to have policies, processes, systems, and controls in place to ensure they're considering consumers' interests and treating them fairly in all aspects of their business.
- Requires banks, insurers, and non-bank deposit takers to be licenced by the FMA in respect of their general conduct (with ongoing supervision), and licensing gives consumers confidence that licensed entities have been checked and meet the appropriate standards of conduct. Licensing will provide the FMA with a full range of tools to monitor, supervise, and enforce the new regime.
- Where more detailed obligations are required, regulations can provide more guidance. A principles approach is intended to enable institutions to determine their own policy systems and controls.
- Gives a regulation making power relating to incentives as a mechanism through which sales incentives based on volume and value targets will be prohibited. This prohibition applies not just to licensed entities but also to all intermediaries. Includes any and all incentives, whether monetary, such as commissions, bonuses, or other non-monetary rewards. This approach was taken as conflicted remuneration and incentives are seen as one of the biggest issues driving poor outcomes for consumers in the financial sector. It is intended that this prohibition on target-based incentives will address the fact that targets create an increasingly strong incentive to sell and therefore can encourage the person making the sale to prioritise their own interests over those of the customer. This prohibition still allows people to be remunerated for sales, but removes the particularly problematic target-based remuneration.
National Response: Not support the Bill (in current form).
- Duplication with FSLA.
- Note quoted Chapman Tripp.
- Expressed concerns with the blanket regulation making power in relation to incentives and who they apply to without further scrutiny by government.
- Argued that there are better and less onerous ways of ensuring an obligation to ensure a customer is not going to be harmed simply by the existence of incentives, when incentives are essentially part of a sales business.