COMPLIANCE NEWS – INSURERS
JULY ISSUE | 2020
This month we look at disclosure requirements under the new financial advice regime, a Financial Markets Authority (FMA) consultation paper about licensing under the new financial advice regime, FMA proceedings against ANZ, progress with new privacy legislation, and the Reserve Bank of New Zealand’s (RBNZ) appointed actuary thematic review.
We also provide our general update on relevant legislation.
DISCLOSURE REQUIREMENTS AND COMMENCEMENT DATE FOR NEW FINANCIAL ADVICE REGIME
On 25 June 2020 MBIE announced the disclosure requirements that will apply under the new financial advice regime and set 15 March 2021 as the new commencement date for the regime.
The Financial Markets Conduct (Regulated Financial Advice Disclosure) Amendment Regulations 2020 (Regulations) will amend the Financial Markets Conduct Regulations 2014 to set out what and when information must be disclosed to clients. MBIE has also published an overview of the disclosure regulations that identifies the changes made in response to feedback received during consultation in October last year.
At a high level, the Regulations require relevant information to be:
- made available on a website or on request;
- provided when the nature and scope of advice becomes known;
- provided when advice is given; and
- provided when a complaint is received.
Relevant information includes licence status and conditions, the nature and scope of the financial advice service, fees and expenses, and conflicts of interest.
The new financial advice regime was originally to commence on 29 June 2020. The commencement date was pushed out to allow the financial advice sector to focus on helping clients through the impacts of COVID-19.
The new Regulations also commence on 15 March 2021.
Please contact us if you have any questions about the disclosure requirements.
FMA RELEASES CONSULTATION PAPER ON STANDARD CONDITIONS FOR FINANCIAL ADVICE PROVIDER FULL LICENCES
On 17 June the FMA released a consultation paper on eight proposed standard conditions for financial advice provider (FAP) full licences and three classes of financial advice service.
The FMA is proposing standard conditions that will apply to all FAPs operating under a full licence (not a transitional licence). The classes of financial advice service are how the FMA proposes to categorise different types of FAP to streamline the licensing process.
The three classes of financial advice service segregate FAPs by how they provide financial advice. The three classes are:
- Class A – providing regulated financial advice to retail clients on own account and/or through a sole adviser structure;
- Class B – providing regulated financial advice to retail clients on own account and/or through one or more financial advisers; and
- Class C – providing regulated financial advice to retail clients on own account, through one or more financial advisers, through one or more nominated representatives, or through another entity.
The licence classes increase in scope incrementally, with each increment incorporating and permitting the methods of providing regulated financial advice of the class below it. Applicants will need to select the licence class that applies to them when applying for a full licence.
The standard conditions address several areas of operating a financial advice business. The proposed standard conditions are:
- record keeping – You must create in a timely manner and maintain adequate records in relation to your financial advice service;
- internal complaints process – You must have an internal process for resolving complaints relating to your financial advice service;
- regulatory returns – You must provide the FMA with the information it needs to monitor your ongoing capability to effectively perform the financial advice services in accordance with the applicable eligibility criteria;
- outsourcing – If you outsource a system or process that is material to the provision of your financial advice service you must ensure that your arrangements enable you to meet your market service licensee obligations at all times;
- professional indemnity insurance – You must have and maintain a level and scope of professional indemnity insurance that is adequate and appropriate for the provision of your financial advice service to retail clients in New Zealand;
- business continuity and technology systems – You must have and maintain a business continuity plan that is appropriate for the scale and scope of your financial advice service;
- ongoing eligibility – You must at all times meet the eligibility and other requirements set out in section 396 and, if applicable, section 400 of the Financial Markets Conduct Act 2013; and
- notification of material changes – You must notify the FMA in writing within 10 working days of commencing to implement any material change to the nature of, or manner in which you provide, your financial advice service.
The standard conditions are more prescriptive than this and we encourage readers to consider the consultation paper and in particular the FMA’s commentary on the proposed standard conditions.
The consultation paper also serves as a timely reminder about transitional licensing. We recommend that all businesses that intend to provide financial advice under the new regime look to arrange their transitional licence as soon as possible, despite COVID-19 delays.
Submissions on the proposed standard conditions and classes of financial advice service close at 5:00pm on 7 August 2020.
Please contact us if you have any questions about the proposed standard conditions, classes of financial advice service, or making.
FMA FILES PROCEEDINGS AGAINST ANZ
The FMA has commenced proceedings against ANZ Bank New Zealand Limited (ANZ) in the High Court. The FMA alleges ANZ charged customers for credit card repayment insurance (CCRI) policies that provided no cover.
The FMA has pleaded two causes of action against ANZ:
- ANZ issued duplicate CCRI policies to some customers that provided no additional benefits or cover and charged premiums on those policies between April 2014 and November 2019; and
- ANZ issued and failed to cancel CCRI policies for ineligible customers and charged premiums on those policies between April 2014 and May 2018.
The FMA claims ANZ breached section 22 of the Financial Markets Conduct Act 2013 (FMCA) by making false and misleading representations about cover under the policies. Despite both issues dating back to at least 2001, the FMA claim reflects the commencement of the FMCA in April 2014.
ANZ identified the issues in September 2017 and May 2018. ANZ self-reported the issues in June 2019 after failing to report them in the conduct and culture review conducted in May and June 2018. While the FMA takes self-reporting into account when determining the appropriate regulatory outcome, it considered court action appropriate in this case.
FMA SETS EXPECTATIONS REGARDING VULNERABLE CUSTOMERS
Following a letter to the CEOs of financial services firms in April this year, the FMA has released a note outlining its conduct expectations for those providing financial services to vulnerable customers in light of COVID-19. The note explains the FMA’s expectations for understanding vulnerability, staff capability, customer services, and communications.
The note identifies the United Kingdom Financial Conduct Authority’s circumstances-based definition of vulnerability and encourages firms to take a proactive approach to understanding their customers’ vulnerabilities. That definition of vulnerability is:
“A vulnerable customer is someone who, due to their personal circumstances, is especially susceptible to detriment, particularly when a firm is not acting with appropriate levels of care.”
The FMA considers it important that firms have a “consistent, comprehensive, and evolving understanding” of potential vulnerabilities and how they are addressed.
Customer-facing staff, intermediaries, senior management, and product designers and developers should have the necessary skills and confidence to “identify, assess and address” customer vulnerability. Policies and procedures should be clearly communicated and understood by all staff and intermediaries.
The effectiveness of any customer services changes made in light of COVID-19 should be reviewed. Processes should help staff record and share information to customers do not have to repeat themselves and staff are prepared. The FMA says firms should consider arranging internal or external specialist support for vulnerable customers.
The FMA considers clear communication is vital to minimising distress and specifically identifies increased digital communication as both a benefit and a barrier for vulnerable customers. Indirect contact can make it harder to see indicators of vulnerability. That risk need to be mitigated.
The FMA and other members of the Council of Financial Regulators will consider further guidance on vulnerable customers in the coming months. The FMA expects processes and practices to be embedded as part of each firm’s review of its vulnerability practices.
Please contact us if you have any questions about the FMA’s expectations regarding customer vulnerabilities.
PRIVACY BILL PASSES THIRD READING
The Privacy Bill (Bill) passed its third reading on 24 June 2020. The latest version of the Bill incorporates changes made by a Committee of the Whole House on 3 June. Changes made to the Bill include:
- simplification of clause 3A regarding the application of the legislation to overseas information and foreign agencies;
- a new clause 14A listing several additional functions of the Privacy Commissioner;
- a change to how the interests of children and young persons are reflected in information privacy principle 4;
- provision for representatives to enforce rights and take action on behalf of persons:
- an ability for the Privacy Commissioner to decide not to investigate a complaint;
- a “believes on reasonable grounds” proviso added to notifications of privacy breaches that contain identifying information; and
- updates to the vicarious liability and knowledge attribution provisions.
The commencement date of the Bill has also changed. The new legislation will come into force on 1 December 2020.
Please contact us if you have any questions about the new privacy legislation and how it affects your business.
RESERVE BANK RELEASES REPORT ON APPOINTED ACTUARY THEMATIC REVIEW
The RBNZ undertook a thematic review of the statuary role of appointed actuaries between March 2019 and March 2020. On 11 June the RBNZ released its report on the thematic review.
The review was launched to help better understand how the role works for insurers, actuaries, and the RBNZ and to identify areas for improvement. The RBNZ engaged with fifteen insurers and their appointed actuaries covering a range of insurance business and types of appointed actuary.
Under the Insurance (Prudential Supervision) Act 2010 (IPSA), the main functions of an appointed actuary are to:
- review actuarial information contained or used in the preparation of financial statements;
- prepare an appointed actuary report;
- prepare a financial condition report (and review solvency margin calculations where appropriate); and
- report anticipated or actual breaches of a solvency margin, serious financial difficulties, fraud, recklessness, or other information relevant or helpful to the RBNZ.
The report makes several findings and recommendations in respect of the appointed actuary role. The report is broken down into focus areas including the perception and scope of the appointed actuary role, appointments, and conflicts of interests. Key findings of the report include:
a need for clarity and guidance about the RBNZ’s expectations for the appointed actuary role;
- a risk that appointed actuary impartiality could be adversely impacted by senior management influence and reporting lines;
- a lack of formal processes for appointment, replacement, and absences of appointed actuaries;
- wide variation of appointed actuary interaction with governance; and
- lacking understanding of the purpose of the appointed actuaries report (section 78 of the IPSA). In additional to the findings and recommendations, the report also identifies and explains good practice for insurers and appointed actuaries in relevant areas.
Please contact us if you have any questions about the appointed actuary thematic review.
The Privacy Bill (Bill) was debated by the House on 3 June and completed its third reading on 24 June. As explained above, the new legislation will come into force on 1 December 2020.
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 is considering the Bill. Submissions closed on 30 April 2020.
Fair Trading Amendment Bill
The Fair Trading Amendment Bill passed its first reading on 12 February 2020. The Economic Development, Science, and Innovation Committee is considering the Bill. Submissions closed on 26 April 2020.
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 December 2019. The Bill is awaiting its first reading.
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 paused work on the review of the Insurance (Prudential Supervision) Act 2010 in light of COVID-19.
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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