CoFI submissions available online

Submissions on the Financial Markets (Conduct of Institutions) Amendment Bill have been released on the Parliamentary website. Available via weblink at

The release of the submissions was highlighted for us in the Investment News e-mail received recently, with the specific COFI story available at

Noting that there are 53 submissions, I am, of course, glad to see the quote from one of our preferred compliance consultants (Rob Dowler) who had their submission selected and included in the Investment News article.

I encourage readers to consider the article. In particular the central question of having different principles for each participant, and the limited range of initial participants. Contrast that with the suggestions for a single set of requirements for fair treatment, and extending these to a wider range of companies. 

As submissions are supported by the exploration at Select Committee hearing next week it will be interesting to hear if the definitions of incentives may come in for some discussion. Regular readers will know that we consider the definition to be too vague for distributors to have long-term confidence in the approach to remuneration - discouraging investment and delaying a shift to more spread commission models preferred in Australia.


Deep dive into client base valuations - and a comment on risk

We worked alongside Kurt Owen of Base to offer advisers insight into the factors considered when determining the value of an adviser’s client base and overall business. Click here to understand what does into an accountant’s valuation of a client base with input from a life insurance expert.

Please bear in mind that this is a framework presentation and the material in the presentation is illustrative only. The market has received some substantial shocks, and with new draft conduct law on the horizon, which appears to establish a framework that could ban commission, there are substantial risks in the medium term outlook. 

Annotation 2020-03-18 143637

Three draft laws affecting financial services progressing through the house...

Parliament recommenced this week with first reading being completed on 12 Feb for three Bills relevant to the financial services sector:

  • Financial Markets (Conduct of Institutions) Amendment Bill completed first reading, referred to the Finance and Expenditure Committee with report back due by 23 June 2020. (see more details in the blog post below).
  • Fair Trading Amendment Bill read for the first time, referred to the Economic Development, Science and Innovation Committee with report back due by 12 August 2020.
  • Financial Market Infrastructures Bill read a first time, referred to the Finance and Expenditure Committee with report back due by 12 August 2020.

Dates for closure of submissions on each are yet to be announced, but the likelihood of enactment before the election can potentially be gauged from the report back dates.

Consultation on the legislation being proposed for insurance contract changes is expected later this year.

My compliance guru, Rob Dowler, advises me that he has completed drafting his submission on the Conduct Bill some time ago while awaiting the call for submissions. He advises that his key submission points will be:

  • Why is a “conduct licence” being introduced rather than simply legislating requiring compliance with the proposed conduct requirements?
  • Why restrict the application of the legislation to licensed banks, insurers and non-bank finance companies? Why not capture all financial service providers? In fact, why not capture all commercial enterprises?

Good points. I know that quite a few industries share some of the information asymmetry that makes financial services a sector where the utmost good faith needs to be shown when dealing with customers: many technology companies offer similarly intangible services that have a lot of hidden complexity and are not fully understood by consumers. 

Conduct of Financial Institutions

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. 

Financial Markets (Conduct of Institutions) Amendment Bill Legislation

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.

From 1 February, OnePath becomes Cigna

Cigna formally absorbs OnePath from 1 February. Quoting from an email sent to advisers recently they announced: 

"We’re pleased to let you know that we have received approval from the Reserve Bank of New Zealand, and on 31 January 2020 the OnePath business will be transferred to Cigna. This means the two businesses will begin operating as one – Cigna"

Congratulations to Cigna on the successful completion of the merger. Adviser familiar with other mergers will be able to appreciate how quickly, and in many respects smoothly, this has gone. Also announced under the same email are changes to the agency agreements. These, like AIA's recent changes, introduce new obligations for both advisers and Cigna. These relate to the expected requirements under the Conduct of Financial Institutions Bill. Although these requirements will probably undergo some change, the transfer of all OnePath business to Cigna means that a new agreement was required.