COMPLIANCE NEWS – INSURERS
APRIL ISSUE | 2019
This month we look at the progress made by the Financial Advice Code Working Group, what the Government wants disclosed by financial advisers as part of the new financial advice regime, and the review of Fire and Emergency New Zealand’s funding model. We also provide our general update on relevant legislation.
DRAFT CODE OF CONDUCT AFFECTING FINANCIAL ADVISERS SUBMITTED TO MINISTER
The Financial Advice Code Working Group has submitted the draft Code of Conduct to the Minister of Commerce and Consumer Affairs for consideration. The Minister has up to three months to consider and approve the draft Code. The draft Code will not be released to the public until it has been approved.
The draft Code has been prepared on the assumption that the Financial Services Legislation Amendment Bill (FSLAB) will be passed in its current form. This means that if there are any changes to the FSLAB, the draft Code may need to be revised before its approval.
Once the FSLAB has passed, the draft Code will be published together with an impact analysis and a summary of the submissions provided during its consultation stage.
Following the Minister’s approval of the draft Code, there will be at least nine months before the approved Code comes into force. This enables organisations to make any changes necessary to comply with the provisions of the approved Code. The Code’s transition period will provide existing financial advisers the opportunity to meet any new competency standards set by the Code.
Please contact us if you have any questions on the Code. We will update you when the draft Code has been approved.
CABINET PAPER OUTLINES WHAT THE GOVERNMENT WANTS DISCLOSED BY FINANCIAL ADVISERS
The Government has released a Cabinet Paper agreeing to new disclosure requirements for financial advisers. The new requirements will be set by regulations made under the Financial Services Legislation Amendment Bill (FSLAB) when passed into law.
The Cabinet Paper notes that financial advisers should disclose the following information:
- The license the financial adviser operates under;
- The conduct and client care duties the financial adviser is subject to;
- The type(s) of advice the financial adviser can provide;
- Any commissions, incentives, or conflicts of interest which could be perceived to impact the advice; and
- The financial adviser’s complaints handling procedure.
The Government appreciates there are different types of financial advice which will be covered by the new regime. Therefore the Cabinet Paper proposes that regulations provide flexibility in terms of how disclosure of the required information is provided. The Cabinet Paper also proposes information be provided by financial advisers to clients as it becomes relevant during the advice process. This is different from current practice where all the information is given up-front to the client.
The regulations arising from the Cabinet paper are expected to be provided for consultation in May 2019.
Please contact us if you have any questions on the proposed new financial advice regime and how it may affect your organisation.
A REVIEW OF FIRE AND EMERGENCY NEW ZEALAND’S FUNDING MODEL
The Government has recently announced it will be reviewing how Fire and Emergency New Zealand (FENZ) will be funded. The Cabinet Paper relating to the review and the terms of reference can be found here.
Currently, FENZ is funded by a levy imposed on insurance premiums paid for property cover. This funding model gives rise to particular issues including:
- Property owners that do not insure are able to ‘freeride’ (they do not pay the levy and still benefit from FENZ’s services);
- Charging on the basis of insurance premiums increases the cost of insurance and may reduce the incentive to fully insure property; and
- Insurers find levy collection complex to administer because levy income may be uncertain as the commercial insurance market evolves.
The purpose of the review is to identify whether more suitable options exist for funding FENZ. The Government expects to release a public consultation document regarding the review in mid-2019 with public feedback sought.
We will update you as new information comes to hand. In the meantime, please contact us if you have any questions on the review.
Review of the Insurance (Prudential Supervision) Act 2010
The RBNZ has suspended active work on the review of the Insurance (Prudential Supervision) Act 2010 in consideration of RBNZ’s review of resourcing and priorities. The suspension will be reviewed regularly. We will notify you when work on the review resumes.
Financial Services Legislation Amendment Bill
The Financial Services Legislation Amendment Bill (Bill) has moved on to its Third Reading. The Bill is an omnibus Bill which makes amendments to the Financial Markets Conduct Act 2013 and the Financial Service Providers (Registration and Dispute Resolution) Act 2008. A number of regulations are being prepared for consultation and in the process of being made to support the measures in the Bill.
Any individual or organisation intending to provide financial advice after the Bill is enacted must apply for a licence. To help with the transition into the new regime, there will be two phases to the licensing process (transitional and full). We will advise once you can apply for a transitional licence.
There will also be disclosure requirements set out in regulations under the Bill.
Insurance Contract Law Review
The Ministry of Business, Innovation and Employment is completing a review of New Zealand’s insurance contract law. The purpose of the review is to ensure insurance markets work well, and enable individuals and businesses to effectively protect themselves against risk. The Minister of Commerce and Consumer Affairs is currently reviewing the feedback it received following the release of an Issues Paper for consultation which closed on 13 July 2018.
Fair Insurance Code
The Insurance Council of New Zealand (ICNZ) is in the process of reviewing the Fair Insurance Code and the submissions received from the public. The ICNZ expects the new Fair Insurance Code will be introduced in 2019.
Canterbury Earthquakes Insurance Tribunal Bill
The Canterbury Earthquakes Insurance Tribunal Bill (Bill) has moved on to its Second Reading. This Bill intends to establish the Canterbury Earthquakes Insurance Tribunal (Tribunal). The Tribunal will provide speedy, flexible, and cost-effective services to help resolve insurance claims between policyholders and insurers, and insured persons and the Earthquake Commission. Claims must relate to damage to residential buildings, property, or land caused by the series of Canterbury earthquakes which occurred in 2010 and 2011.
The Select Committee released its report on the Bill with the recommendation that amendments be made before the Bill is passed. There are a number of recommendations including:
- Broadening the definition of earthquakes to include the earthquake which occurred on 23 December 2011. This will ensure another 49,000 claims are included in the jurisdiction of the Tribunal; and
- Allowing parties to use experts except where the Tribunal deems it unnecessary. This is to uphold the principle of fairness for policyholders.
We will advise you on the progress of the Bill as it progresses in Parliament.
The Privacy Bill is currently before the Select Committee. Parliament is currently reviewing the submissions received from the public. We will update you when new information comes to hand after the submissions have been reviewed.
Disclaimer: The information contained in this newsletter is provided for general purposes only, and should not be construed as legal advice on any matter.