CoFI Bill passes third reading

  • Legal update

    22 June 2022

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The Conduct of Financial Institutions Amendment Bill (CoFI) has been passed in Parliament.  This means banks, insurers and non-bank deposit takers will be subject to a new legislative regime by early 2025.  By not having conduct regulations on banking and insurance services to date, New Zealand has been an outlier internationally, which this legislation will remedy.

Links to the Bill and the Government announcement are available here and here.

Who needs to read it? Why?

All financial institutions (defined in the CoFI Bill as registered banks, licensed insurers and licensed non-bank deposit takers) should note the passing of this Bill.  It creates significant new obligations and will require a revised compliance regime within financial institutions.

What does it cover?
The key changes
  • Financial Institutions will be required to be licensed by the FMA in relation to their general conduct.  This will be through the addition of a new Part 6A to the Financial Markets Conduct Act 2013, which will introduce, for the first time in New Zealand, conduct licensing by the Financial Markets Authority (FMA) for retail banking and insurance.
  • Due to the obligation to treat consumers fairly, financial institutions will be required to establish, implement and maintain an effective fair conduct programme.
  • Regulations may be made under the new law, prohibiting or regulating incentives based on volume or value targets.  There will be new obligations on how financial institutions design and manage other types of incentives.

The path ahead

  • The FMA will work with financial institutions to prepare them for the new regime.
  • The Ministry of Business, Innovation and Employment will develop supporting regulations to the new regime.
  • Licensing applications are anticipated to open in mid-2023, and are to be made to the FMA.
  • It is anticipated that the CoFI regime will come into force in early 2025.
Our view

Since the 2008 global financial crisis, there has been a trend globally of governments and regulators transitioning from regulating products and taking a buyer-beware approach to focussing on the conduct and culture of financial institutions.  The joint reviews of the FMA and Reserve Bank on Conduct and Culture in 2018 (in respect of banks) and 2019 (in respect of life insurers) also found that banks and insurers lacked the necessary systems and controls to monitor poor conduct.  The passing of this Bill signals a new era in the regulation of financial institutions in response to these concerns.

What next?

If you have any questions about the CoFI Bill or are considering how these changes affect your business, please contact one of our experts.

This article was co-authored by Elise Plunket, a Law Clerk in our Financial Services team.