This month we look at the announcement of a new conduct regime for financial services, the Financial Market’s Authority and Reserve Bank’s update on life insurer conduct, and the new Insurance Fraud Bureau.

We also provide our general update on relevant legislation.


On 25 September the Minister of Commerce and Consumer Affairs Hon Kris Faafoi announced a new regime that will require banks, insurers, and other financial service providers to implement systems to ensure they treat customers fairly.

This follows the Reserve Bank and Financial Markets Authority’s recent expression of disappointment about the response to the conduct and culture review into life insurance discussed below.

The new financial conduct regime will involve:

  • conduct licencing for banks, insurers, and non-bank deposit takers (NBDT) in respect of retail customers, under Part 6 of the Financial Markets Conduct Act 2013;

  • a “fair treatment” standard for licenced institutions (e.g.  due regard to the needs and interests of customers);
  • licenced institutions implementing policies, processes, systems, and controls enabling them to meet the fair treatment standard;
  • remuneration and sales incentives obligations for financial institutions, including risk management;
  • prohibition of volume and value-based sales incentives (soft commissions) applying to banks, insurers, NBDTs and their intermediaries;
  • licenced institution accountability to customers for sales by contracted intermediaries that are not financial advice providers. 

Strong enforcement tools will accompany the regime, particularly the FMA’s ability to direct licenced institutions to change behaviour or improve systems.

“Material contravention” of policies, processes, systems, and controls obligations may give rise to penalties up to the greater of:

  • the consideration for any relevant transaction;
  • three times the gain made or loss avoided; and
  • $1,000,000 for an individual and $5,000,000 for bodies corporate.

Contravention of prohibitions on volume and value-based sales incentives may give rise to penalties:

  • for licenced banks, insurers, and NBDTs, up to $1,000,000 for an individual and $5,000,000 for bodies corporate; and
  • for all other entities, up to $200,000 for an individual and $600,000 for bodies corporate.

The government’s intention appears to be to introduce legislation before the end of the year. 

Please contact us if you have any questions about the new regime.


On a related matter, the Reserve Bank of New Zealand and Financial Markets Authority have commented on life insurers’ handling of the conduct and culture review recommendations.  The regulators expressed their disappointment with the responses, explaining that significant work is required to address weak governance and ineffective conduct risk management.

The regulators had requested life insurers provide plans detailing steps to be taken to improve processes and address the findings in the review.  The plans provided varied in “comprehensiveness and maturity”.  Reserve Bank Governor Adrian Orr said the industry “failed to demonstrate the necessary urgency and prioritisation” and described the responses as “underwhelming”.

Insurers that completed a review of policyholders and products identified issues such as:

  • overcharged premiums and out-of-date benefits owing to systems and human errors and under-reporting of deaths;
  • customer discussions overlooking eligibility criteria and poor post-sale communications leading to declined claims and underpaid benefits; and
  • premiums not reflecting the fair value of cover provided.

The release provided by the regulators explains that deficiencies in plans received and lack of commitment to implementing recommendations demonstrates a need for additional obligations in life insurer conduct regulations.

Please contact us if you have any questions about the Life Insurance Conduct and Culture 2019 review.


The Insurance Council of New Zealand has launched a new initiated called the Insurance Fraud Bureau (IFB).  Announced at the beginning of September, the IFB will target insurance fraud through both detection and education.

All members of the ICNZ are members of the IFB.  This represents general insurers working together to combat insurance fraud and reduce its effects on customers.  The IFB is concerned to lessen the financial impact of fraud, having the additional benefit of preventing costs of fraud being passed on to policyholders.  It is a not-for-profit branch of the ICNZ, developed similarly to the UK and Australian insurance fraud organisations. 

While the Insurance Claims Register (ICR) already exists, the ICNZ believes it is insufficient, particularly because of the difficulties in identifying and proving fraud.  The IFB is expected to reduce insurance fraud by, among other things:

  • educating New Zealanders about insurance fraud;
  • being a central point of contact for general insurance fraud matters;
  • developing an anti-fraud initiative excellence centre;
  • researching national and international patterns and trends;
  • developing multi-agency relationships; and
  • using data to help find and reduce insurance fraud.

Only general insurers are participating at this stage.  It is unclear whether there is scope for expansion into other types of insurance in the future.  However, the Health Funds Association of New Zealand currently operates an Integrity Registry.

Please contact us if you have any questions about the IFB or its role.


Review of the Insurance (Prudential Supervision) Act 2010

The RBNZ has resumed work on the review of the Insurance (Prudential Supervision) Act 2010.  There is no timeline yet.

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 now expects the new Fair Insurance Code to be introduced in 2020.

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 Hon Kris Faafoi has explained he considers the review a priority.  A timeline is yet to be provided. 

Privacy Bill

The Privacy Bill (Bill) completed its second reading on 7 August 2019 and now awaits a committee of the whole house.  Minister of Justice Hon Andrew Little highlighted the key changes the Justice Committee (Committee) made in response to submissions. 

Maritime Transport (Offshore Installations) Amendment Bill

The Maritime Transport (Offshore Installations) Amendment Bill (Bill), seeking to amend the Maritime Transport Act 1994 (Act), remains at Select Committee stage. 

The Bill intends to strengthen the requirements of owners of offshore oil and gas installations to hold insurance for liabilities to the Crown and other third parties affected by oil spills.  Claimants under sections 385B–D of the Act will be able to recover the insured amount from any person providing insurance or other financial security for such liabilities. 

General insurers providing cover to owners of offshore oil and gas installations should be aware that in the future claimants might be able to come directly to them. 

Disclaimer:  The information contained in this newsletter is provided for general purposes only, and should not be construed as legal advice on any matter.

Elspeth Horner/Principal
E: elspeth.horner@mhlaw.co.nz
P: 04 974 4702

Laura Tidey/ Associate 
E: laura.tidey@mhlaw.co.nz
P: 04 974 4701

Andrew Goble/Solicitor
E: andrew.goble@mhlaw.co.nz
P: 04 974 4704

Mitchell Souness/Law Clerk
E: mitchell.souness@mhlaw.co.nz
P: 04 974 4707