moneyblog

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.

Minister promises process of review of sales incentives

In this piece on RiskInfo Minister Faafoi and the Honorable Grant Roberston appear to outline a separate consultation process to run alongside the insurance contract law review process, later this year. This process is to review sales incentives in the light of the recent report on the life insurance sector. Link.

Minister of Finance, Hon Grant Robertson, highlighted four changes the Government wishes to see:

• Clearer duties on banks and insurers to consider a customer’s interests and outcomes, and to treat customers fairly
• An appropriately resourced regulator to monitor the conduct of banks and insurance companies, with strong penalties for breaching duties
• Changes applied to both banking and insurance, since the issues identified in both are similar. There are also overlaps between the sectors, with banks often selling insurance products.
• A strong response to internal sales incentives and soft commissions

“We will consult with the public and industry on these changes, but we are going to move as quickly as possible on this because New Zealanders need to have confidence their rights and interests are being protected,” said Robertson.

Faafoi noted that the consultation will run alongside the insurance contract law review currently in progress.

Australia: FINSIA signs up to landmark code monitoring agreement with professional associations

FINSIA Council member News Update announces a code monitoring agreement (see below). What interesting is the interaction between various standards and requirements. Legal standards, regulations, licence requirements, code standards, and contract terms all form a complex web of requirements for an advice business. Governance processes to monitor meeting all the requirements are central to the operation of the business. What can be safely outsourced, versus what must be managed within the business, will be a major issue for advice businesses whatever their size.

 

FINSIA signs up to landmark code monitoring agreement with professional associations 

The Financial Services Institute of Australasia has agreed to be part of a group of six professional financial planning and advice associations developing a code monitoring solution for members to deal with upcoming regulations.

The associations have agreed to work together to submit a code monitoring compliance scheme application to ASIC so the Financial Adviser Standards and Ethics Authority (FASEA) code of ethics can be monitored and enforced.

Chris Whitehead, FINSIA CEO and MD, F FIN, said: “As the professional membership body for the financial services sector, FINSIA brings its expertise to the cooperating associations to help lift professional standards within the sector by the introduction of a defined code monitoring cooperation agreement.  

“FINSIA supports its members by ensuring the financial planning and advice sector is recognised as a profession by developing a scheme by the profession for the benefit of the community.” 

For a copy of the media release, ‘A landmark code monitoring cooperation agreement announced by professional associations’ please click here

FINSIA is committed to keeping its members up to date on initiatives like these that help raise standards of professionalism for the financial services sector.

Looking back on 2018 - Minister Faafoi stands out

Looking back on the year, one of the stand-out performances has been Minister Faafoi. I noticed that recently David Farrar of Kiwiblog (a staunch National Party supporter) rated Faafoi as one of the most effective ministers in parliament. Many in financial services would agree.

Officially Minister Kris Faafoi was elected as a Minister of Civil Defence, Commerce and Consumer Affairs and Associate Minister of Immigration, in the current Labour-New Zealand First coalition government. He has already demonstrated ability and was recently rewarded with the broadcasting portfolio with the recent resignation of Clare Curran MP. Minister Faafoi has delivered a competent performance in every public speech or interview I have seen. That includes more comfort in going ‘off-script’ than was shown by predecessors.

Faafoi’s relationship with the media has also been much easier, as it should be given his background as a TVNZ journalist. That background may also explain his ability to quickly come to grips with the essential details of complex policy. Another advantage is his long-term interest in the problems of people dealing with pay-day lenders and consumer finance. Although not directly related to financial advice, or insurance law reform, they are adjacent areas, and mean broad familiarity with the financial services industry. Reflecting on Faafoi’s knowledge of some of the most difficult areas in consumer finance, it is probable that the Minister understands what really bad conduct looks like. He is likely to be aware of the importance of good conduct to protect potential customers – some less able, and therefore more vulnerable than others.

FSC: Navigating Change - Message 6

Here is the sixth message from the FSC about future changes coming in financial advice regulation. Their goal is to highlight key things advisers need to know about the Financial Services Legislation Amendment Bill, its regulations and the Code of Conduct for Financial Advice. It is a good guide, and well worth checking in with each one.

Insurance Contract Law Review - general background

General background on Insurance Contract Law Review is below. More detailed comments and exploration of the issues is available to subscribers to Chatswood's Quarterly Life and Health report.

The Insurance Contracts Law Review (ICLR) is an important process which has been on the legislative agenda for nearly twenty years since a Law Commission report in 2000 advocated for reform. Insurers, too, generally support many of the issues raised in the consultation document which has been circulated recently. You can find the document at this link: http://www.mbie.govt.nz/info-services/business/business-law/insurance-contract-law-review Submissions have closed, but if you haven’t read it already, you may as well add the document to your reading pile, to get a head start on the next load when submissions are released.

Consumer groups are lobbying for changes to disclosure rules, and other contract terms which they say will pay claims payments fairer. While insurers are concerned that if they lose the right to void a contract based on broad definitions of non-disclosure, they may be forced into the more difficult area of proving fraud. Some form of change is likely, but we need to keep working to defend our right to underwrite and manage claims effectively.

ICLR is a complex set of issues bundled together. Some affect general insurance more than life insurance. ICLR will take some years. That’s good – because it is very complicated, and some choices might pose a major threat to consumer ability to obtain insurance.

The recent claim decline case on Fair Go programme offered Minister Faafoi a good platform to launch the review, but it is an example of how simplification masks the real, difficult, issues in the review. It does not illustrate the central point around the duty of disclosure – that a client is required to disclose anything that might be relevant, even if they are not asked. They were asked. It now turns out that their medical records were incorrect (see this story). Insurers are frustrated by this, they want the right to rely on information they receive from either clients or doctors, which seems fair enough to me.

Reforms in other markets usually leave the applicant with the responsibility to answer questions truthfully, and do not usually require insurers to collect medical evidence in every case.  What most insurers want is to retain the right to underwrite, be fair, offer a good product efficiently. To do that we need to be able to ask questions and rely on the answers.

That’s just underwriting. But perhaps a bigger challenge comes from the review questions around contract terms. Many words could be offered on this subject, but I shall choose only these: unlike other aspects of insurance law, in this area New Zealand is relatively up to date, and Australia is contemplating using our approach as a model for their reform. I would argue to keep our approach.

Another important area is conduct of insurers. While conduct, and how it supports expectations of the community, has been given plenty of media attention there is some legal and regulatory plumbing missing. The RBNZ is the prudential supervisor, but arguably New Zealand lacks a conduct regulator for insurers. You might consider some recent FMA reports as an audition for the role.