COMPLIANCE NEWS – INSURERS
NOVEMBER ISSUE | 2020
This month we look at the Reserve Bank of New Zealand’s two relaunched reviews, a Financial Markets Authority Consultation Paper on Australian adviser qualifications, and the Office of the Privacy Commissioner’s new “NotifyUs” privacy breach tool.
We also provide our general update on relevant legislation.
RESERVE BANK RELAUNCHES SUPERVISION AND SOLVENCY REVIEWS
Last month we reported that the Reserve Bank of New Zealand (Reserve Bank) will relaunch its review of the Insurance (Prudential Supervision) Act 2010 (IPSA) and the Insurance Solvency Standards (ISS). On 1 October 2020 the Reserve Bank relaunched both reviews and issued two review papers. You can view these here: IPSA Review Paper; and here: ISS Review Paper.
Both papers cite the Reserve Bank’s “regulatory stewardship responsibility” as a primary reason for review. Both papers also list, among other things, the International Monetary Fund review of New Zealand’s financial sector, the review of the Reserve Bank’s supervision of CBL Insurance Limited (in liquidation), and the thematic review of the appointed actuary regime as recent developments that will inform the Reserve Bank’s reviews.
The Reserve Bank proposes a risk-based approach to regulation and supervision that includes a range of supervisory tools. The Reserve Bank’s original objectives have not changed. These are:
- assessing the performance of IPSA in light of its purposes, to ensure that it provides a cost effective supervisory regime that promotes the soundness and efficiency of the insurance sector;
- assessing the consistency of the regime with international guidance and other legislation administered by the Reserve Bank; and considering if further alignment would be appropriate given the nature of New Zealand’s insurance sector.
The Reserve Bank considers these objectives remain suitable for the review.
The IPSA Review Paper lists 14 areas that stakeholders commented on and made suggestions about during the consultation in 2017. These areas include:
- the ambiguity of “carrying on business in New Zealand” and “contract of insurance”;
- a growing non-licensed insurance sector;
- the sufficiency of distress management powers available to the Reserve Bank;
- the apparent fragmented nature of Reserve Bank regulatory requirements;
- the replacement of the current binary approach to solvency with a ladder of intervention.
The Reserve Bank intends to release consultation papers seeking feedback on the following matters over the next 12 months.
- the scope of the legislation – which organisations and products should be captured? Do the definitions of “carrying on business” and “insurance” etc need to be modified?
- overseas insurers – how should overseas insurers operate in New Zealand? What supervision should be in place?
- statutory funds – to what extend should statutory funds feature in regulation? Are current forms appropriate and effective?
- solvency – are the enabling provisions for solvency standards and requirements supportive of good regulation and supervision? Do definitions in IPSA need amendment?
The IPSA Review Paper also includes an indicative timetable for the review. The legislative process is expected to commence in the second half 2023 at the earliest.
Comments on the review should be directed to firstname.lastname@example.org.
Section 55 of IPSA authorises the Reserve Bank to issue solvency standards that prescribe any of the matters listed in section 56 of IPSA. Those matters include minimum capital requirements, methods for determining and calculating that amount of capital, methods for determining or calculating a solvency margin, and methods to determine whether a solvency margin is maintained.
There are several current solvency standards. The two main standards are the Solvency Standard for Life Insurance Business and the Solvency Standard for Non-life Insurance Business. The Reserve Bank anticipates revisions to occur in two waves, the first being structural changes and the second being changes to individual components of the standards.
The Reserve Bank has set up a Reference Group comprising senior staff from other insurance regulators. The Council of Financial Regulators is also setting up an Insurance Forum for industry bodies to regularly participate in.
Eight review principles have been adapted from the Reserve Bank’s Bank Capital Review for use with the Solvency Standard Review. These include (paraphrased)
- international comparability;
- substance over form;
- capital must readily absorb losses before losses are imposed on policyholders;
- single method for determining capital requirements and judgement limited;
- transparency that enables effective market discipline.
The ISS Review Paper also includes an indicative timetable. The timetable has two phases. Phase one will involve consultation on review principles and then on structural changes, a draft standard, comments on the standard, and a calibration exercise. An interim standard will then be issued near the end of next year. Phase two involves the same approach but in respect of the details of capital changes and other individual components of the standard. The final standard is expected to be issued in 2023.
Comments on the review should be directed to email@example.com.
Please contact us if you have any questions about the Reserve Bank’s review of IPSA or ISS.
FMA RELEASES CONSULTATION PAPER ON AUSTRALIAN ADVISER QUALIFICATIONS
On 22 October 2020 the Financial Markets Authority (FMA) released a consultation paper on the recognition of Australian financial adviser qualifications. The new financial advice regime commences on 15 March 2021.
The new regime includes a new Code of Professional Conduct for Financial Advice Services (Code). All financial advisers in New Zealand will have to comply with the Code and its requirements and standards for competence, knowledge, and skill. The FMA proposes to recognise individual Australian advisers that have Australian adviser qualifications that meet or exceed the requirements in the Code.
The FMA considers recognising Australian qualifications is desirable to avoid unnecessary compliance costs faced by individual Australian advisers that would otherwise be required to retrain in New Zealand. Recognition should also increase the pool of advisers and therefore the availability of quality advice.
The competence, knowledge, and skill requirements in the Code define competency as the qualification outcomes for aspects of Level 5 of the New Zealand Certificate in Financial Services. However, the Code provides for other ways a person can demonstrate the required standard and a person may demonstrate their competence, knowledge, and skill in a way not set out in the Code. However, they must do so in an objective, measurable, and independent verifiable manner.
Reforms to Australia’s financial adviser standards require qualifications that cover complex products. The new requirements are equivalent to NZQA level 7 or higher and apply to new advisers who want to give personal advice on complex products in Australia. There are also transitional provisions that allow existing advisers to rely on qualifications that meet the minimum standard in a regulatory guide. The FMA proposes to recognise both types of Australian qualifications.
The FMA also proposes that Australian advisers will need to have at least 12 month’s work experience in Australia and will be subject to the same continuing professional development requirements under standard 9 of the Code. Of course, Australian advisers will also need to comply with all other requirements for advisers, including licensing.
Please contact us if you have any questions about the FMA’s proposal or recognise Australian financial adviser qualifications or the new financial advice regime generally.
OFFICE OF PRIVACY COMMISSIONER LAUCHES NOTIFYUS TOOL
On 19 October the Office of the Privacy Commissioner (OPC) launched its new privacy breach reporting tool, NotifyUs. The new tool assists users to determine whether a privacy breach is notifiable or not.
The new Privacy Act 2020 commences on 1 December 2020. Under the new Act, privacy breaches that it is reasonable to believe have caused, or are likely to cause, serious harm must be notified to the Privacy Commissioner.
What constitutes “serious harm” is open to interpretation, but an agency must at least consider the matters in section 113 of the new Act when assessing whether a breach is likely to cause serious harm.
The new NotifyUs tool asks the user a series of pre-determined questions that are designed to gauge the sensitivity of the information, the nature of the breach, the characteristics of the recipients, the nature and extent of actual or potential harm, the likelihood of harm, any actions taken to reduce the risk of harm, and any security measures in place. The tool uses the answers to those questions to determine whether a breach has or is likely to cause serious harm.
The OPC has also issued Reporting Requirements for the NotifyUs Report Form to explain what users can expect to be asked about and what information they need to use the tool effectively.
The OPC does stress that the NotifyUs tool is only a tool. Its outputs cannot be relied on unquestionably. If in doubt, the privacy breach should be reported.
Please contact us if you have any questions about the NotifyUs tool, what constitutes “serious harm”, or privacy legislation generally. It is important to ensure that your organisation’s Privacy Statement and any Privacy Act authorisations for the collection or sharing of personal information are updated to reflect the Privacy Act 2020.
New Zealand’s held its general election on 17 October 2020. There has been no legislative progress since 11 August 2020.
Financial Markets (Conduct of Institutions) Amendment Bill
The Finance and Expenditure Select Committee reported on the Financial Markets (Conduct of Institutions) Amendment Bill on 7 August. The Bill now awaits its second reading.
Insurance (Prompt Settlement of Claims for Uninhabitable Residential Property) Bill
The Insurance (Prompt Settlement of Claims for Uninhabitable Residential Property) Bill had its first reading on 21 July 2020. It will be considered by the Governance and Administration Select Committee. There has been no activity in respect of the Bill since 22 July 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. There has been no activity in respect of the Bill since 13 February 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.
There has been no visible activity in respect of the review since April 2019.
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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