Legal and regulatory updates for the life and health insurance sector

21 Sept 2020 – FIU posted to its website the August 2020 AML/CFT Suspicious Activity Report.

21 Sept 2020 – The Takeovers Panel released the latest version of CodeWord, Issue 51, containing commentary on:

  • Being careful with the Code if holding shares through different entities
  • Recent guidance updates, including:
    • Schemes of Arrangement
    • Lock-up Agreements
    • Exemptions
    • Creeping Acquisitions
  • New Class Exemption – Voting Agreements for Schemes of Arrangement
  • Covid-19 Class Exemption
  • No more cheques

Legal and regulatory updates for the life and health insurance sector

15 Sept 2020 – NZ Police FIU and ACAMS issued invitations to the 2020 AML/CFT conference to be held between 10-11 November 2020, providing for both on-site and virtual conference access. https://www.police.govt.nz/advice-services/businesses-and-organisations/financial-intelligence-unit-fiu/fiu-acams-conference

17 Sept 2020 – RBNZ released the outcomes from a COVID-19 stress test of New Zealand banks. https://www.rbnz.govt.nz/news/2020/09/stress-test-reinforces-importance-of-bank-capital

18 Sept 2020 – DIA advised on its website of the release of an AML/CFT Supervisors updated enhanced CDD guideline, dated August 2020, noting also the intent to shortly publish a webinar on its website which will deep dive into the enhanced CDD obligations. https://www.dia.govt.nz/AML-CFT-Updated-enhanced-CDD-guideline


Fidelity Life licensing questionnaire, and more daily news

Fidelity Life are asking all advisers who have agencies with them to complete a licensing questionnaire. The questionnaire will allow Fidelity Life to understand what an adviser’s agency structure will be in the new regime, this will allow the insurer to continue accepting new business and paying commission. The questionnaire will be emailed out to advisers shortly and must be completed by 14 November 2020.

“So we can keep accepting your new business and paying you commission under the new adviser licensing regime, we need to know what your agency structure is going to be from 15 March 2021.

To make it easy for you we’ve developed a questionnaire. We’ll be emailing these out shortly so keep an eye out for yours.

So we have time to reflect these changes in our systems please respond by 14 November 2020.”

In other news

Fidelity Life: Building Better Businesses Live training to be held 18 September 2020

Fidelity Life: Disclosure Live: understanding the new disclosure requirements training to be held 22 September 2020

Fidelity Life: Part 1 of the online product accreditation programme, Learning HQ, is available now 

Fidelity Life: Part 2 of the online product accreditation programme, will be available in October 2020 


Legal and regulatory update for the life and health insurance sector

16 Sept 2020 – Treasury published the pre-election economic and fiscal update. https://www.treasury.govt.nz/news-and-events/news/2020-pre-election-economic-and-fiscal-update-published-today

16 Sept 2020 - MBIE released a statement that the Government planned responding to the retirement income policy review this year, but is taking further time to consider New Zealand’s retirement settings in light of the impacts of COVID-19. https://www.mbie.govt.nz/about/news/update-on-government-response-to-retirement-income-policy-review/

17 Sept 2020 – Minister of Commerce and Consumer Affairs, Hon Kris Faafoi, released a statement that the  Government is working on how New Zealand’s retirement income policies and settings can best support Kiwis in light of the COVID-19 economic recovery, with the help of the Retirement Commissioner’s latest review. https://www.beehive.govt.nz/release/economic-recovery-guides-govt-response-retirement-income-policy-review


Deloitte report on the New Zealand life insurance sector

Deloitte's report on the New Zealand life insurance sector provides a comprehensive overview of the structural differences between the New Zealand environment and the markets with which it is often compared. It provides context for the comparisons that are inevitably made as part of the debate over issues such as efficiency, commission payments, claims ratios, and channel mix. Rather than give quantitative answers to challenges - such as concerns about the level of commissions - it seeks first to explain the situation. Some assertions are made, usually about the possible causes of some features of the market, but refreshingly, without advocating for any particular prescription. Except for one: the report suggests caution. I think that is wise. Dramatic changes have been made to the Australian life insurance sector. It appears to be much the worse for them. In a sector where contracts are commitments for decades of cover, often with fixed terms, and sometimes with fixed premiums, it seems wise to exercise caution. Anyone writing a background paper for a strategy session would do well to set this as background reading or use the issues as a checklist for their decision-screens. What solutions you may bring to each of the issues, that will be up to you. Link: https://www2.deloitte.com/nz/en/pages/financial-services/articles/deloitte-issues-paper-life-insurance-sector.html#  


Legal and regulatory update for the life and health insurance sector

7 Sept 2020 – Dentons Kensington Swan advised that a number of existing exemptions relating to brokers and financial advisers have been extended so that the expiry of each coincides with the commencement of the Financial Services Legislation Amendment Act 2019 (‘FSLAA’) on 15 March 2021. The notices, all dated 27 August 2020, are as follows:

  • Financial Markets Conduct (Offers of Financial Products Through Authorised Financial Advisers Supplying Personalised DIMS) Exemption Notice 2020n (Effective 6 Nov 2020)
  • Financial Advisers (Non-NZX Brokers—Client Money) Exemption Amendment Notice 2020 (Effective 30 Sept 2020)
  • Financial Advisers (NZX Brokers—Client Money and Client Property) Exemption Notice 2020 (Effective 1 Dec 2020)

Legal and regulatory update for the life and health insurance sector

4 Sept 2020 – The FMA released a consultation paper on the proposed Auditor Regulation Act (Prescribed Minimum Standards and Conditions for Licensed Auditors and Registered Audit Firms) Notice 2020, intended to replace two previous notices proposed to be revoked. Submissions close on 21 Sept 2020. https://www.fma.govt.nz/compliance/consultation/consultation-prescribed-min-standards-conditions-licensed-auditors-registered-audit-firms/

2 Sept 2020 – FMA issued a warning that it is aware of a case where scammers have been impersonating the FMA while operating a scam relating to money remittance services. https://www.fma.govt.nz/news-and-resources/warnings-and-alerts/fma-impersonated-in-suspected-money-remittance-scam/

3 Sept 2020 – Deloitte issued a paper commissioned by Partners Life exploring observations made in the RBNZ Bulletin, which provided commentary around the profitability of New Zealand’s life insurers, the value for money of life insurance, and life insurers’ ability to meet minimum capital requirements.

https://www2.deloitte.com/nz/en/pages/financial-services/articles/deloitte-issues-paper-life-insurance-sector.html#

3 Sept 2020 – The Commerce Commission announced that it has signed a multilateral framework enhancing international cooperation on competition enforcement with the Australian Competition and Consumer Commission, the Competition Bureau of the Government of Canada, the United Kingdom Competition and Markets Authority, the United States Department of Justice and the United States Federal Trade Commission.

https://comcom.govt.nz/news-and-media/media-releases/2020/commerce-commission-signs-multilateral-framework-enhancing-international-cooperation-on-competition-enforcement

3 Sept 2020 – FMA update released which included the following new material:

  • The release of three short videos for consumers about getting financial advice featuring Investor Capability Manager Gillian Boyes together with a related Spinoff article. Related weblinks at
  • World Investor Week 2020, starting Monday, 5 October.

Related weblinks at https://www.fma.govt.nz/investors/getting-financial-advice/ and https://thespinoff.co.nz/money/12-08-2020/everything-youve-always-wanted-to-know-about-financial-advisers/


Legal and regulatory update for the life and health insurance sector

31 Aug 2020 – Government released its response to the EQC inquiry. https://www.beehive.govt.nz/release/government-response-eqc-inquiry-released

31 Aug 2020 – MBIE advised that the Fair Trading Amendment Bill was discharged from the Economic Development, Science and Innovation Committee (the Committee) on 12 August without a report from the Committee. This means that the Bill as introduced will move onto the second reading stage. MBIE expect the second reading to take place after the election. Submissions and MBIE’s advice to the Committee are available at https://www.parliament.nz/en/pb/bills-and-laws/bills-proposed-laws/document/BILL_93552/tab/submissionsandadvice


Should you dollar disclose commissions?

One of the most commonly asked questions about the disclosure regulations was whether or not dollar disclosure of commission would be required. There was some obvious concern on the part of some advisers. On the other hand, a small number have been disclosing dollar commissions for a while, and for them the changes are procedural and technical, rather than fundamental.

There are several dimensions to this decision. The first focus should, as always, be the customer. Principles in the current Code of Conduct under standards one, two, and four, all lean heavily on commission disclosure. Clearly, this was an area considered to be of such importance that detailed regulation is required. Let’s look at the regulations next:

In the regulations, disclosure of commissions is required when the commission is such that “a reasonable client would expect (the commission) to, or to be likely to, materially influence the advice given by A (the adviser).”

Words in brackets above are my additions to the actual regulation extract in quotes, to improve clarity.

Then, detailed disclosure in relation to commissions must be given in two circumstances:

  • when nature and scope of advice known
  • when advice is given, to the extent that the disclosure has not already been completed under the previous step

The specific commission disclosure required in the regulation is stated to be

  • “its amount or value (or how that would be determined)”

This implies that disclosure of the amount or value of commissions are not necessarily required to be completed, provided a clear explanation can be provided as to how the commission will be determined.

Some examples follow:

Example 1:

  • When nature and scope of advice is known, disclosure is completed that commission will be payable on completion of the contract at the rate of x% of the first year’s premium (i.e. how it is determined), or a commission amount of $xxx (i.e. the amount or value of the commission)
  • When advice is given, no further disclosure is required in the event that the disclosure already given remains unchanged

Example 2:

  • When nature and scope of advice is known, disclosure is completed that commission will be payable on completion of the contract at the rate of x% of the first year’s premium (i.e. how it is determined)
  • When advice is given, no further disclosure is required in the event that the disclosure already given remains unchanged, albeit the choice remains to additionally disclose the actual commission amount payable of $xxx, even while noting that the regulations do not explicitly require $ disclosure, unless “a reasonable client would expect (the $ commission, as opposed to information as to how it is determined) to, or to be likely to, materially influence the advice given by A.”

A share-broker can reasonably say they do not know the price (and therefore the fee or commission) in dollar terms until the trade is done – as prices can fluctuate a lot, and very frequently. It is common share-broking practice to disclose the actual fee or commission on the contract note issued for the completed transaction.

An insurance adviser generally knows what commission is most likely to be. If a case comes back from underwriting with an offer of terms the question is then whether financial advice is being given around the acceptance of the terms. Should you disclose a dollar rate on application and restate that for the offer of terms? Or should you only provide dollar disclosure when terms are known? Arguments could be deployed in support of either. I know that it is possible that every case could be issued at different terms to those quoted, but for most advisers, a solid majority of cases are issued at ordinary rates. 


Legal and regulatory news update for the insurance sector

12 Aug 2020 – Banking Ombudsman announced that banks will begin sharing information about customer complaints via an industry-wide dashboard that is available from today.

12 Aug 2020 – The FMA released updated guidelines for Financial Services businesses under Covid-19 Alert Level 2 & 3 lockdown conditions.