Release of Cabinet Papers on the CoFI Bill and update on progress

An update on the progress of the Financial Markets (Conduct of Financial Institutions) Amendment Bill (the Bill) and release of papers on the subject has been made by MBIE staff:

As you may be aware, the Bill is currently awaiting the completion of its second reading. In 2021, MBIE released two discussion documents which consulted on proposed policy changes to the Bill and regulations to be made under it. At the beginning of this year, the Minister of Commerce and Consumer Affairs sought to the approval of Cabinet to make changes to the Bill and introduce some regulations, informed by this consultation.

The proposals included:

  • ensuring that the Bill’s provisions as they apply to intermediaries are appropriately targeted, workable and do not duplicate other regulatory requirements
  • changing the Bill to appropriately capture the Lloyd’s insurance market
  • adding a requirement to the Bill for financial institutions to take into account the potential for customers to be in vulnerable circumstances when designing their fair conduct programmes
  • making regulations under the Bill to prohibit the offering of sales incentives based on volume or value targets to employees and intermediaries.

Cabinet has recently agreed to the Minister’s proposals, and has authorised the drafting of a Supplementary Order Paper and appropriate regulations to give effect to these changes.

In the interests of keeping all interested parties informed of the Bill’s progress, MBIE has this morning proactively released the Cabinet Paper, Regulatory Impact Summary, and the Cabinet Minute on its website. You can find these documents here, alongside previously released documents:

Should you have any questions about the Bill, please email

Legal and regulatory update for the life and health insurance sector

16 March 2022 – The Commission for Financial Capability released commentary titled, “A deep dive into Pacific People’s financial capability.”

17 March 2022 – FMA update released, including the following:

  • Speech by Samantha Barrass, FMA Chief Executive, to Financial Services Council Connect

  • ‘No action’ relief as a result of COVID-19

  • a project to review five existing class exemptions due to expire this year, with consultations on the last two also released today, with submissions closing on 11 April 2022:
    • Multiple-participant Schemes - Participation Agreements exemption notice 2017, expires 22.10.22
    • Disclosure Using Overseas GAAP exemption notice 2021, expires 3.11.22
    • Financial Statements for Schemes Consisting Only of Separate Funds exemption notice 2017, expires 17.12.22
    • Irrigation Companies exemption notice 2018, expires 31.12.22
    • Small Co-operatives exemption notice 2021, expires 31.12.22

17 March 2022 – MBIE advised of the release of a range of documents relevant to the legislative proposals relating to the Conduct of Financial institutions (CoFI). The documents are available on the MBIE dedicated CoFI webpage.

Investment News NZ: "Australia product regs offer bitter pre-taste of COFI"

Investment News NZ, a service run by respected journalist David Chaplin, describes ASIC's new Design and Distribution Obligations (DDOs) as offering a bitter pre-taste of COFI" - referring to New Zealand's draft Financial Markets (Conduct of Institutions) Amendment Bill. Investment News quotes a range of sources in Australia as closing products rather than meeting the additional costs and risks of the new compliance obligations:

"ASIC lists three core obligations for the various parties involved in the financial product chain, requiring:

  • issuers to design products in synch with the “likely objectives, financial situation and needs” of targeted end consumers;
  • issuers and distributors to take “reasonable steps” to ensure products only reach the defined client market; and,
  • issuers to monitor “consumer outcomes” and review products in light of the DDO end game."

Only the most cynical and short-term thinking generates products that would breach the first obligation. Occasionally time can cause a product to drift from being an effective solution to being considerably less effective - and those products should, of course, be cut from any offered range. So on this point most product providers would agree with the regulator and also no incur any meaningful marginal cost if they already have a professional product management function.

But it is a rare piece of new law or regulation which comes with no trade-offs. Costs begin to emerge when you consider the possibilities under the second two obligations. A product provider could offer a product to distributors and consumers with little concern for how they used it. In practice most still preferred to offer more warnings and guidance the more exotic or risky a product became. A few did not, or were happy to play down risks. It seems that in every market cycle in the investment sector this occurs. In life and health insurance we have always known that a few (we hope, very few) clients, have treated insurance as a kind of lotto ticket. In some cases a rare 'bad apple' adviser has not tried to dissuade them much, of if they have tried, the client has simply bought online or direct.The tricky part is in knowing what 'reasonable steps' are under new regulations and how to meet them. Costs are inevitably added. Some rarely used, yet useful, products will be deemed too difficult or too risky to use.

The toughest - and perhaps the costliest - rule is to monitor consumer outcomes. This requires a lot of thought about what represents a good outcome, how the product supports that, and monitoring which may (although it does not have to) inject insurer compliance requirements deeper into intermediated adviser-client processes such as annual reviews. How frequently and how carefully this has to be done could describe a big range of possible outcomes. Different companies will take different approaches. Clients may balk at some of them - it seems inevitable that some advisers will. There is a risk that some adviser - client processes are so defined by compliance that differentiation becomes impossible. Worse, clients may simply shrug and walk away from more complex products and advised engagements in favour of less effective, direct, engagements. We believe that advice can make a difference. The more complex a client's situation the bigger that difference can be.

The crucial lesson from this point is not to try and avoid the requirements but for all parties - insurers, advisers, and regulators, especially regulators, to engage creatively, flexibly, and with an open mind on compliance technology, to try to reduce the costs and maximise the benefits. We all say we will, but it does take real effort not to slip into dreary functional norms.



AIA self-reported breach details, and more daily news

After AIA reported their shortcomings to the FMA as part of their submission for the FMA/RBNZ conduct and culture review of life insurers, the FMA filed charges in the Auckland High Court claiming that three causes of action under the Fair Dealing provisions (Part 2) of the Financial Markets Conduct Act 2013 (the FMC Act) were breached. The FMA based their case on:

  • purported enhancement of policy benefits
  • charging premiums after the termination of a policy and treating policies as terminated when they should have remained in force, and,
  • incorrect inflation adjustments.

AIA has said that a Notice of Admission will be filed and has agreed to admit to the breaches. A penalty hearing before the High Court will be held where the FMA will ask that AIA should be ordered to pay $700,000 as penalty.

“Life insurer AIA has admitted making false and/or misleading representations to customers in proceedings brought by the Financial Markets Authority (FMA) - Te Mana Tātai Hokohoko.

The case was filed in the Auckland High Court and alleges three causes of action under the Fair Dealing provisions (Part 2) of the Financial Markets Conduct Act 2013 (the FMC Act).

AIA has agreed to admit all causes of action and will file a Notice of Admission of the breaches in the High Court.  The matter will proceed to a penalty hearing before the High Court where the FMA will seek declarations of contravention, and where the parties will submit that AIA should be ordered to pay a pecuniary penalty of $700,000.

The FMA case is based on three core breaches regarding incorrect and misleading communication to customers holding various life insurance and associated policies:

  • purported enhancement of policy benefits
  • charging premiums after the termination of a policy and treating policies as terminated when they should have remained in force, and,
  • incorrect inflation adjustments.
  1. Passback benefits:

AIA wrongly told certain customers they were entitled to passback benefits (cover enhancements to an existing policy), without clarifying that the benefits only applied to post-2003 policies. The information customers received in anniversary letters misrepresented the benefits, and in some cases misled them about their policies.

  1. Termination Dates issues:
  • Premiums beyond termination: AIA continued to charge premiums when customers had no cover. Letters were sent to certain customers with policies approaching the end of their duration, specifying when cover would cease, but the letters contained the incorrect date.
  • Cover Cessation: AIA wrongly ceased cover for certain customers while their policies remained in force, which resulted in some customers, whose claims had been accepted, being underpaid on those claims. Customers were informed by cover cessation letters.
  1. Inflation Adjustments: AIA applied incorrect inflation adjustments to premiums. Many AIA customers choose to have their sum-assured adjusted in line with inflation, with premiums increased accordingly. Policy anniversary letters were sent to customers where the inflation adjustment had been incorrectly applied, and, as a consequence, some customers were charged excess premiums.

AIA self-reported the breaches to the FMA, when asked to provide information as part of the joint FMA/Reserve Bank of New Zealand conduct and culture review of life insurers in 2018. AIA has told the FMA that remediation for affected customers has been completed, and the FMA will be seeking confirmation of this as part of the process.

In deciding to bring this action, the FMA took into account a number of factors, including AIA’s self-reporting, its remediation efforts, the nature of the alleged misconduct, and the number of affected customers.

The FMA considered the seriousness of the breaches, and the length of time it has taken to deal with impacted customers, warranted enforcement action. The FMA is determined to hold such misconduct to account and send a strong message of deterrence to the market. The FMA case only captures breaches that occurred from 1 April 2014 – when the FMC Act came into force – but some breaches occurred prior to this and continued after the Act came into effect.” Click here to read more

AIA have emphasises that they self-reported the issues and completed remediation: 

AIA NZ and the Financial Markets Authority (FMA) have reached an agreement with regards to issues that AIA NZ self-disclosed to the FMA in June 2018 at the commencement of the joint FMA/RBNZ Conduct and Culture Review.

“After conducting an internal review, we found a small number of instances where we may have fallen short of our own standards and commitment to being as transparent as possible with our customers.  Since self-disclosing these issues to the FMA, we have worked relentlessly to remediate these complex issues, whilst engaging and cooperating with the FMA throughout. We have also worked swiftly with the FMA to come to a resolution” says Nick Stanhope, AIA NZ CEO. 

“Our remediation process is complete and, if a customer was impacted by one of the issues, they have already heard from us directly and we have put the issue right.  As part of this remediation, we have also reviewed our systems and processes to ensure this does not happen again. We always strive to do the right thing by our customers and community, and this situation is no different,” concludes Stanhope.

In other news

RBNZ: Review of the Insurance Solvency Standards webinar to be held on 5 August at 10am

FMA: FMA pings adviser for unauthorised advice

From Stuff: Taranaki widow battled for almost a month to get funeral insurance payout after husband's tragic death

From Good returns: CoFI debate back on agenda

Partners Life share Customer Outcome Matrix update, and more daily news

Partners Life has released more information on the Customer Outcome Matrix (COM). Partners Life has implemented the system changes that allows full automation of the process. From 10 May 2021, advisers will be able to view the results of COM in MPL. Although bonus rates are underpinned until 30 September 2021, Partners Life has said that they aim to provide at least 3 months visibility to the COM reporting on any upcoming bonus commission changes.

“We have communicated regularly on the progress we have made on the Customer Outcome Matrix (COM) and are very excited to announce that we are now implementing the system changes to ensure the full automation of the process. This means that advisers will be able to view the results of COM in MPL from Monday 10 May 2021.

We have always maintained that we have wanted to provide at least 3 months visibility to the COM reporting prior to any Bonus Commission changes coming into effect, allowing you sufficient time to review your own reporting and to be able to understand the feedback and how this relates to your engagement and servicing of clients.

Please remember, as previously communicated, bonus rates are underpinned until 30 September 2021.”

In other news

Asteron Life: to celebrate underwriting rules on AsteronConnect, weekly draws will be running from 6 May – 4 June. Winners will receive $200 to use at local restaurants. 

Asteron Life: draft e-Apps which are completed but not submitted by 9pm 9 May 2021

will no longer be visible in AsteronConnect as some of the questions are changing

Asteron Life: AsteronConnect  webinars will be held on Monday 10 May, 3pm-4pm and Thursday 13 May, 9.30am-10.30am

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.