COMPLIANCE NEWS – INSURERS
JUNE ISSUE | 2019
This month we look at the recently released Code of Professional Conduct for Financial Advice Services, a decision to censure an authorised financial adviser by the Financial Advisers Disciplinary Committee, consider a financial service provider found guilty for holding out registered status despite knowing it was unregistered, and the thematic review into appointed actuaries. We also canvas the Financial Services Amendment Act together with the Care and Conduct Review and ARC gap analysis required by the regulators and provide our general update on relevant legislation.
CODE OF PROFESSIONAL CONDUCT FOR FINANCIAL ADVICE SERVICES
The Minister of Commerce and Consumer Affairs has approved the new Code of Professional Conduct for Financial Advice Services (Code). The Code makes changes to the draft code. The Code is expected to come into force in mid-2020. The Financial Markets Conduct Act 2013 will require all persons providing regulated financial advice to retail clients comply with the Code.
The Code contains nine high-level standards, split into two parts:
- ethical behaviour, conduct, and client care; and
- competence, knowledge, and skill.
- The standards in the first part require:
- clients to be treated fairly.
- financial advice providers to act with integrity.
- that financial advice given must be suitable.
- financial advice providers to ensure clients understand the advice.
- client information to be protected.
- The standards in the second part require:
- that a person giving financial advice meet a standard of general competence, knowledge, and skill.
- that a person designing an investment plan meet a particular competence, knowledge, and skill.
- that a person giving financial advice on a product meet a particular competence, knowledge, and skill.
- that continuing professional development be undertaken at least annually to maintain general or the particular competence, knowledge, and skill.
Please contact us if you have any queries on the Code and how it may affect your business.
RESERVE BANK BEGINS APPOINTED ACTUARY THEMATIC REVIEW
The Reserve Bank of New Zealand (Bank) has commenced its thematic review of the appointed actuary regime. The Bank seeks to:
- better understand how the appointed actuary role works in practice for insurers, actuaries, and supervisors; and
- identify potential areas for improvement to make the role and regime more effective for insurers, actuaries, and the Bank.
15 insurers and their appointed actuaries have been selected to participate in the review. These insurers and actuaries are required to complete short fact-based surveys and provide relevant documents. Desk-based reviews will be carried out between June and July 2019. On-site visits will be carried out between August and October 2019.
A report is expected to be released by the end of Q1 2020. If you have any questions on the thematic review or would like assistance with providing information to the Bank on a voluntary basis, please contact us.
IMPLEMENTATION OF FINANCIAL SERVICES LEGISLATION AMENDMENT ACT PROVISIONS
All insurers should currently be taking steps to choose their delivery model for financial advice under the new Financial Services Legislation Amendment Act provisions, materially how and if Nominated Representatives and Financial Advisers as defined by the Act will be used by each insurer.
As part of the transitional work required to ensure compliance with the new provisions, which will also involve applying for a transitional licence for each insurer, we suggest it is an opportune time for insurers to review the agreements held with external advisers with a view to ensuring its advisers will meet the requirements of the new Code of Professional Conduct for Financial Advice Services – it is also opportune to consider advisers agreements in light of the Care and Conduct review, as commented on further below.
If you would like any assistance reviewing your advisor agreements or advice regarding the implementation and transition for the Financial Services Legislation Amendment Act provisions, please contact us.
CARE AND CONDUCT REVIEW – AUSTRALIAN ROYAL COMMISSION GAP ANALYSIS
All insurers have been contacted by the Financial Markets Authority and Reserve Bank of New Zealand and tasked to carry out a systematic review of products and policy – holder portfolios, that review being required in response to the FMA/RBNZ Life Insurer Conduct and Culture Review published in January 2019.
The review requires insurers to proactively identify any conduct and culture risks and issues within their business.
Insurers have also been required to complete a gap analysis for their business against the Australian Royal Commission (ARC) final report, again in response to the FMA/RBNZ Life Insurer Conduct and Culture Review.
In May the Regulators issued guidance for insurers on both these requirements. Insurers are required to carry out the reviews and analysis and provide their Board with a high level summary covering at least the matters referred to in the FMA/RBNZ guidelines.
If you would like any assistance regarding the Care and Conduct or ARC Gap review analysis please let us know.
FINANCIAL ADVISERS DISCIPLINARY COMMITTEE CENSURES ADVISER
The Financial Advisers Disciplinary Committee (Committee) has censured an authorised financial adviser for a breach of Code Standard 9. The adviser had provided insurance advice to two clients. The Committee found the adviser failed to directly ask about, or to emphasise the importance of, disclosure of medical information to the first client. Despite knowing of a lumbar exclusion with a prior insurer, the adviser chose to adhere to the client’s wishes of not disclosing the back injury. The insisted non-disclosure (when the adviser was aware of the prior lumbar exclusion) gave rise to a requirement on the adviser. To advise the client that the adviser’s service was limited because of the client’s insisted non-disclosure. The Committee considered two breaches to be made out:
- failure to make reasonable inquiries as to the medical circumstances of clients; and
- failure to inform that services were limited upon insistence of a non-disclosure.
The Committee chose to censure the adviser without any monetary penalty. While acknowledging that the breaches were at the lower end of the scale, they had to be shown as unacceptable in terms of the standards of the profession. Accordingly, the adviser must disclose his breaches to all prospective clients for the next five years.
This case shows the difficulties advisers may face when advising obstructive clients. However, the decision confirms that regardless of the client’s nature, a financial adviser is required to comply with the Code’s standards or risk being prosecuted by the Committee.
FINANCIAL SERVICE PROVIDER GUILTY OF HOLDING OUT AS BEING REGISTERED UNDER THE REGISTER
Morgan DeVere Corporate Finance Limited (MDV) has been found guilty by the District Court of two charges for holding out that it was registered under the Financial Service Providers (Registration and Dispute Resolution) Act 2008 despite MDV knowing it was not registered. A date for sentencing is to be arranged when penalties will be set.
MDV was first registered in 2014. MDV was then deregistered on 7 March 2017. MDV failed to remove references on its website that it was registered until August 2017 when the website was shown as “under maintenance”. The website became accessible again on 7 December 2017 and continued to represent that MDV was a registered until 12 March 2018 when the website was taken down.
When initially registered, the Financial Markets Authority (FMA) understood that MDV intended to carry on business from a physical office in New Zealand within three months of the date of registration. MDV was not active until almost three years later. MDV did not appear to have a physical presence in New Zealand and so the FMA deregistered MDV.
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.
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 later in 2019.
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. Currently consultations are open on the Insurance Contract Law Options Paper and submissions are due by 28 June 2019.
Canterbury Earthquakes Insurance Tribunal Bill
The Canterbury Earthquakes Insurance Tribunal Bill (Bill) has passed. The Bill will be signed and become an Act. The Act will come into force on 10 June 2019. The Act establishes the Canterbury Earthquakes Insurance Tribunal in order to provide fast, flexible, and cost-effective dispute resolution services to those affected by the Canterbury earthquakes.
Before reaching Royal Assent, the Bill was amended by the Minister of Justice on 7 May 2019 to, among other things:
- allow support persons to attend case management conferences with the Tribunal’s consent; and
- empower the Tribunal to direct inspections be made (with property owner consent).
The Justice Committee provided its final report on the Privacy Bill (Bill) on 13 March 2019. The Bill is awaiting its second reading. 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.