The Financial Markets (Conduct of Institutions) Amendment Act 2022 (Act) has just received Royal Assent. It sets out a fair conduct licensing regime for banks, insurers and non-bank deposit takers in New Zealand.

The fair conduct regime has been a long time coming

Finalising the Act has taken longer than expected. It was introduced into Parliament in December 2019 as a result of gaps in the regulation of financial services that became apparent in the Conduct and Culture reviews conducted by the FMA and the RBNZ. The Covid-19 pandemic response halted progress on many bills, and it has taken time to clear the backlog.

The industry is already working on meeting the requirements of the Act

Work on compliance programmes has been going on for a while, even without the Act having become law. The FMA has made clear that it expects the industry to adopt more robust “fair conduct” behaviours through its feedback to institutions in the Conduct and Culture reviews and FMA’s other workstreams. Many affected financial institutions have been working hard to meet these expectations, often in conjunction with the work involved in obtaining a full licence as financial advice providers.

The key points of the Act

• Banks, insurers and non-bank deposit takers will require a new licence issued by the FMA for their conduct towards consumers.

• Applications are expected to open mid-2023 and the regime is expected to come fully into force in early 2025.

• Licensees will need to have a comprehensive “fair conduct programme” and will be held accountable for the way they sell their products and look after customers against a “fair conduct principle”.

• The requirements in the original Bill relating to oversight of intermediaries were substantively amended in a supplementary order paper incorporated into the Act. It narrowed the definition of “intermediary” and moved from a requirement for intensive oversight of intermediaries to a more general obligation to ensure distribution methods operate in a manner that is consistent with the fair conduct principle, with regular review and remediation of deficiencies.

• Sales incentives based on volume or value targets like bonuses for selling a certain number of financial products are likely to be banned in regulations.

The new law presents both opportunities and some hard work for the industry

There is a great deal of opportunity for institutions to really hone in on the values they represent to customers and ensure that these are embedded in everything they do. There is also a lot of work needed to ensure compliance. The application of the fair conduct principle will pervade the entire lifecycle of products and how institutions deal with customers. The preparation of a fair conduct programme is outcomes focussed and there will not be a “one size fits all” approach.

Please get in touch if you would like to discuss the development of your fair conduct approach.