Yesterday, the Financial Markets Authority (FMA) published its final guidance (Guidance) for financial institutions distributing products and services through intermediaries under the Conduct of Financial Institutions (CoFI) regime. The FMA’s media release can be found on its website. This followed consultation on draft guidance earlier in the year.
Who needs to read it and why?
The Guidance is essential reading for:
- all CoFI Institutions, being registered banks, licensed insurers, and licensed non-bank deposit takers; and
- all Intermediaries that distribute the financial products or services of CoFI Institutions (for example, brokers, financial advisers, mortgage brokers, insurance intermediaries, or even banks acting in an intermediary role).
What does it cover?
The Guidance is aimed at outlining the FMA’s expectations when CoFI Institutions are distributing products or services through intermediated channels. It is intended to be high-level and principles-based, in order for them to be “applied across different sectors and distribution models”.
The Guidance steps through the CoFI fair conduct programme requirements for distribution methods (including intermediated distribution arrangements – i.e. those where an Intermediary is involved in the distribution of the CoFI Institution’s products or services), namely that the programmes must:
- provide for the distribution methods to operate in a manner that is consistent with the fair conduct principle;
- regularly review whether the distribution methods are operating in a manner that is consistent with the fair conduct principle; and
- ensure that any deficiencies identified in how the distribution methods are operating are remedied within a reasonable time.
While the FMA’s desire to maintain flexibility and avoid prescriptive, one-size-fits-all compliance between varied institutions is understandable, the Guidance leaves many questions unanswered. For instance, in a number of places it refers to the FMA having heard concerns, but then does not necessarily assist in how CoFI Institutions and Intermediaries may resolve those concerns.
In our view, the high-level and principles-based nature of the Guidance is likely to limit how helpful it is to CoFI Institutions in practice. They will be needing to put their compliance into operation, and principles-based guidance for a principles-based regime provides limited direction as to how to actually do so.
Some of our previous updates on CoFI are as follows:
- CoFI regulations issued
- Preparing for the CoFI regime: Fair conduct programmes
- FMA publishes various CoFI licensing materials
- Consultations on CoFI regime released
- Proposed standard conditions for licences under CoFI
- CoFI Bill passes third reading
- Release of Supplementary Order Paper to CoFI
The CoFI regime comes into force on 31 March 2025, while applications for licences will open on 25 July 2023.
If you have any questions in relation to the Guidance, or the CoFI regime more generally, please contact one of our experts.
This article was co-authored by Sam Short, a Senior Solicitor in our Banking and Financial Services team.
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