COMPLIANCE NEWS – INSURERS
MARCH ISSUE | 2020
This month we look at Rob Everett, Chief Executive of the FMA’s speech to the Financial Services Council, recent legislative progress for the Conduct of Institutions regulations and Fair Trading Act amendments, and a reminder about financial advice licensing.
We also provide our general update on relevant legislation.
FMA CHIEF EXECUTIVE SPEAKS AT FINANCIAL SERVICES COUNCIL EVENT
Significant progress has been made in the regulation of financial markets over the past couple of months. It was therefore timely that Rob Everett, Chief Executive of the Financial Markets Authority, should speak to industry members about the year ahead.
Mr Everett explained that the FMA’s strategic priorities are focused on its regulatory remit, the financial services regulatory landscape generally, and in particular retail banking and insurance.
One of the FMA’s key focus areas is of course financial advice licensing. Mr Everett has said that increasing access to quality advice through minimum competence and conduct standards is a “huge priority” for the FMA. The regulator is working closely with MBIE, the Code Working Group, and the Companies Office to help financial advisers transition to the new regime.
Another key focus area for the FMA is conduct regulation. Mr Everett noted that the Australian Royal Commission and New Zealand’s own Conduct and Culture reviews have put the spotlight on “good conduct” and how customers’ needs are to be met. The FMA Chief Executive has said “poor conduct and poor treatment of customers is most often about sloppiness – lack of process, lack of training, poor systems, etc. It is relatively rarely, at least in licenced and regulated financial services, about deliberate wrongdoing.” The FMA have accordingly recommended to the government that the Conduct of Institutions legislation allows the regulator to investigate providers’ processes and structures in order to force their improvement. This would include circumstances where harm to customers is not visible or provable. Mr Everett said it will be a long time between now and implementation of the conduct regulation regime, and that the FMA hopes to engage in a detailed dialogue with both industry and consumer groups to ensure the regime is fit for purpose.
In terms of the FMA’s deterrence function, Mr Everett explained that “encouraging providers to do the right thing and punishing them for not doing so is a matter of constant re-assessment and judgement.” The balance depends upon the:
- maturity of the sector’s regulatory framework;
- risk of harm to people and markets; and
- sector’s attitude or performance.
Please contact us if you have any questions about the FMA’s approach to this year or its regulatory functions generally.
Conduct of Institutions Bill Passes First Reading
Relatedly, the Financial Markets (Conduct of Institutions) Amendment Bill (Bill)passed its first reading on 12 February. Minister of Commerce and Consumer Affairs Hon Kris Faafoi has nominated the Finance and Expenditure Committee (Committee) to consider the Bill. The Committee is to report to Parliament by 23 June this year, and is accepting submissions until 26 March. More information on making a submission is available here.
As mentioned in our previous issue, the Bill uses regulations both to implement the licencing regime, and to prohibit volume and value-based sales incentives. National MP Brett Hudson expressed concern about the breadth of the regulation-making power for sales incentives, which is expressed as:
“prohibiting or regulating any practice, activity, or other conduct in connection with offering or giving any incentive to any person in connection with a relevant service or an associated product, including prescribing the manner in which an incentive may be offered or given:”
Labour MP Dr Deborah Russell acknowledged that a balance must be struck between motivating staff and good customer outcomes, stating the Bill requires institutions to determine how to remunerate sales staff reasonably. The regulations, of particular interest to stakeholders, are still being developed and will be consulted on.
Please contact us if you have any questions about the Bill, making a submission, or conduct regulation generally.
Fair Trading Amendment Bill Passes First Reading
The Fair Trading Amendment Bill (Bill) also passed its first reading on 12 February. The Economic Development, Science, and Innovation Committee (Committee) will consider the Bill. The Committee is accepting submissions until 27 March. More information on making a submission is available here.
We described the main features of the Bill in our November 2019 issue. The key change for insurers is the extension of the unfair contract term protections to business contracts worth less than $250,000, or “small trade contracts” as the Bill would call them. Despite concerns regarding the distinction between small and large businesses and the potential for overlap with the insurance contract law review, Parliament did not mention insurance during its debate of the Bill.
The new protections will not affect insurance contracts entered into before the commencement date, including as varied or renewed at any time. Neither will the protections affect a new contract that has the effect of renewing a contract.
Please contact us if you have any questions about the Bill, making a submission, or fair trading laws generally.
Financial Advice Regime Transitional Licencing and Disclosure Regulations
Transitional licencing for the new financial advice regime commencing in June this year has now been open for three months. We recommend applying as soon as possible in order to avoid the risk of processing delay. Please see the FMA’s guide to applying for a financial advice provider transitional licence for more information.
Speaking at the Financial Services Council’s Get in Shape Advice Summit 2020, Manager of Financial Markets at MBIE Sharon Corbett acknowledged concerns about disclosure regulations and said MBIE is currently working through them. Ms Corbett noted in particular the lack of clarity around record-keeping requirements and concerns that regulations would require advisers to disclose the same information to consumers repeatedly. She also recognised that transition time needs to be built in so advisers can produce new material in order to be ready for when the new disclosure requirements come into effect. MBIE hopes the disclosure regulations will be released this month.
Please contact us if you have any questions about transitional licencing or the new financial advice regime.
Financial Markets (Conduct of Institutions) Amendment Bill
The Financial Markets (Conduct of Institutions) Amendment Bill passed its first reading on 12 February 2020. The Finance and Expenditure Committee will consider the Bill.
Fair Trading Amendment Bill
The Fair Trading Amendment Bill passed its first reading on 12 February 2020. The Economic Development, Science, and Innovation Committee will consider 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 Hon Kris Faafoi has explained he considers the review a priority. There is no timeline yet.
Review of the Insurance (Prudential Supervision) Act 2010
The Reserve Bank of New Zealand 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) has set a date for the revised Fair Insurance Code (Code)to take effect. The revised Code will be released in 2020 and take effect on 1 April 2020.
Key changes include obligations to “develop, market, and sell products responsibly” and to “identify and address instances of poor conduct” within organisations. Another feature of the revised Code is strengthened commitment to privacy and clarity in the dispute resolution process.
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.
Insurance (Prompt Settlement of Claims for Uninhabitable Residential Property) Bill
The Insurance (Prompt Settlement of Claims for Uninhabitable Residential Property) Bill (Bill) was introduced to Parliament in the middle of December 2019. The Bill is designed to prioritise the processing of insurance claims for uninhabitable property. The Bill is currently awaiting its first reading.
Disclaimer: The information contained in this newsletter is provided for general purposes only, and should not be construed as legal advice on any matter.
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Mitchell Souness/Law Clerk
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