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2020: changes to insurance contracts

The Government announced plans reform laws governing insurance contracts. Minister Faafoi has said that consumers will have greater certainty about their insurance cover when they need to make a claim.

Agreed changes include:

• Placing the responsibility on insurers to ask consumers the right questions when processing new insurance policies
• Requiring insurance policies to be written and presented clearly
• Ensuring insurers respond proportionately when consumers don’t disclose something they should have, or misrepresent themselves
• Strengthening protections for consumers against unfair terms in insurance contracts
• Allowing the FMA to monitor and enforce compliance with new requirements

Click here to read more

Fair Trading Amendment Bill Introduced

From MBIE:

The Fair Trading Amendment Bill was introduced to Parliament today.

This Bill is a result of the Government’s work on unfair commercial practices and the review of consumer credit law. The Bill:

• introduces a prohibition against unconscionable conduct in trade;
• extends the current protections against unfair contract terms in standard form consumer contracts to also apply to business-to-business contracts that form part of trading relationships with a value below $250,000 per year;
• strengthens the ability of consumers to require uninvited sellers to leave or not enter their premises, including through the use of ‘Do Not Knock’ stickers; and
• makes a number of minor, technical changes to the Fair Trading Act.

You can follow the progress of the Bill here.

The Bill will likely be considered by Select Committee in early 2020. There will be an opportunity to submit on the Bill at that point.

 

UPDATED - CoFI introduced to Parliament

The daily progress report for parliament yesterday shows the introduction into Parliament today of the Financial Markets (Conduct of Institutions) Amendment Bill.

https://www.parliament.nz/en/pb/daily-progress-in-the-house/daily-progress-for-wednesday-11-december-2019/

The draft bill can be found on the legislation.govt.nz site - or you can just download your copy at this link. Download Financial Markets Conduct of Institutions Amendment Bill

David Chaplin has his brief take on it all at this link: https://investmentnews.co.nz/investment-news/fair-cop-government-sneaks-in-conduct-bill-before-year-end/ 

Reflections on the interactions between likely conduct law and the Financial Services Legislation Amendment Act

Following a recent speech by Kris Faafoi, Minister of Commerce and Consumer Affairs, my compliance consultant and I exchanged views on the interactions between the proposed conduct law and the other parts of the financial services legal and regulatory regime.

It is hard to envisage circumstances where the conduct requirements under the regime proposed for banks, insurers and NBDT entities will not be introduced into the new Licensed FAP regime. It is clear that FAPs will need to meet at least broadly equivalent conduct requirements. A product provider bound by a conduct law would have to require a FAP, perhaps an agent of the product provider, to meet standards if the standards were not going to be extended to the FAP.

Then consider this situation: There is the issue of those FAPs that provide advice on the products of licensed conduct entities where there is no commercial relationship between the FAP and the conduct licensed product provider. Take ABC Advice Ltd charging client fees direct and receiving no remuneration from XYZ Insurer Ltd with ABC Advice Ltd providing advice on XYZ Insurer Ltd products, with or without the knowledge of XYZ Insurer Ltd that ABC Advice Ltd is doing so. XYZ Insurer Ltd will still have conduct obligations to a consumer who is also a client of XYZ Insurer Ltd and ABC Advice Ltd, even in the absence of any contractual relationship between XYZ Insurer Ltd and ABC Advice Ltd. 

Separately to that issue, as the conduct licence is separate from the other licences required by banks, insurers and NBDTs, what does it mean if a conduct licence is withdrawn? It would seem likely that the loss of a conduct licence will be sufficient to put the total entity out of business. That raises so many questions about sanctions short of withdrawal of the licence, and also the need for a process to manage the extreme circumstance of licence removal and how to protect the interests of clients during that period of time.

 

FSC - YouTube channel

Click on the image below to be taken to the FSC YouTube channel

 

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).

More time needed for decent reflection on new conduct proposals

The incredibly short time-frame to respond to proposals for conduct law are really pushing people at the moment. The far-reaching consequences of such law, and regulatory powers they create deserve better than this. 

How to make a submission on the Conduct of Financial Institutions Options Paper:

Step 1: Read the materials in this blog post

Step 2: This is the a good approach to thinking about your submission

• Customer – How does this benefit customers? 
• Facts – use relevant facts to support your submission
• Comparison – How are we different to Australia? The UK?
• Who do you speak for? Build scale into your response, or get together with others
• Don’t make it confidential - unless absolutely necessary
• Make sure you are fully across detail
• Review your submission, get someone who is critical to help with this step
• You don’t have to submit on the whole thing – being specific has value

Step 3: Go to https://www.mbie.govt.nz/have-your-say/financial-institutions-conduct-review/comprehensive-submission-form-conduct-of-financial-institutions-review/

Step 4: Complete your submission on the relevant parts you want to comment on

Step 5: Submit and spread the word

Step 6: Plan for change in your business

MBIE seeks written submissions by Friday 7 June 2019.

Hurry up and wait: FSLAB delayed to April

Events create the pace in politics, and so FSLAB has been delayed due to a decision to bring the current legislative session to a close, based on this parliamentary announcement putting parliament into recess until 2 April. Read it at https://www.beehive.govt.nz/release/revised-plans-parliament-week

FSLAB progress

FSLAB moved from 13 on the parliamentary order paper last Thursday to place 8 on the order paper today.