Preparing for the CoFI regime: Fair conduct programmes

  • Publications and reports

    13 April 2023

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Retail insurers and banks are busy preparing for the incoming Financial Markets (Conduct of Institutions) Amendment Act 2022 (CoFI Act) regime.

This article outlines the principal requirement of the upcoming conduct regime – the fair conduct programme (FCP) – and what financial institutions should be doing now to prepare for the regime coming into full force in early 2025. In short, there is an enormous amount to do before then. 

In particular, financial institutions should be preparing and implementing their FCP (a requirement of the regime), in order to obtain a conduct licence after applications open on 25 July 2023.

CoFI is in fact relatively simple and boils down to this: 

Are your customers getting the financial products and services they need, when they need them, and do they do what the customer reasonably expects them to do?

Samantha Barrass, Chief Executive of the Financial Markets Authority (FMA)

The CoFI regime

The CoFI regime (now contained in new Subpart 6A of Part 6 of the Financial Markets Conduct Act 2013 (FMCA) inserted by the CoFI Act) introduces a legal framework requiring financial institutions to: 

  • be licensed by the FMA in respect of their conduct towards consumers; 
  • comply with a “fair conduct principle” to treat consumers fairly, through the requirement for financial institutions to establish, maintain and implement an FCP; 
  • take all reasonable steps to comply with the programme; and 
  • comply with regulations that ban target-based sales incentives and regulate other types of incentives. 

The CoFI regime builds on the recommendations from the FMA and RBNZ’s thematic reviews on conduct and culture in banking and insurance (which were in turn triggered by the Australian report on misconduct in the banking, superannuation and financial services industry). But it translates those expectations into specific legal obligations that can be enforced either by FMA or by customers (for example, through class action claims).

The fair conduct principle 

The CoFI regime centres around the fair conduct principle. The fair conduct principle is now defined in the FMCA and requires financial institutions to treat consumers fairly. This means: 

  • Paying due regard to consumers’ interests. 
  • Acting ethically, transparently and in good faith. 
  • Assisting consumers to make informed decisions. 
  • Ensuring that relevant services and products are likely to meet the requirements and objectives of consumers. 
  • Not subjecting consumers to unfair pressure or undue influence. 

The FMCA also specifies when the financial institution must apply the fair conduct principle. This includes when it is: 

  • designing any relevant service or associated product; 
  • offering to provide and providing a relevant service or associated product to a consumer; and 
  • has any dealings or interactions with a consumer in connection with any relevant service or associated product (for example, responding to a complaint or handling a claim under an insurance contract).
The FCP: Putting the fair conduct principle into practice 

An FCP means effective policies, processes, systems and controls are designed to ensure the financial institution’s compliance with the fair conduct principle. 

As the FMA has emphasised, this is not to be regarded as a separate compliance exercise. Because of its broad scope it must be reflected in everyday business processes and culture in order to be successful.

Key considerations of the FCP
1. It must be suitable for the business 

Some financial institutions, particularly those with large and/or complex operations, may choose to create an overarching policy or framework document that explains the structure of the FCP and outlines the different policies, processes, systems and controls that comprise the FCP. Other financial institutions may determine that a single document is sufficient to capture their FCP. 

2. It must have at least the minimum requirements of an FCP 

The minimum requirements for the content of an FCP are set out in section 446J of the CoFI Act. These are minimum requirements, and financial institutions may choose to implement additional policies, processes, systems and controls to ensure that consumers are treated fairly. 

The FMA expects financial institutions to be able to demonstrate how they have considered all of these factors. This may be achieved by including commentary about this in the FCP itself. 

3. It must be implemented and maintained 

A key component of implementing an effective FCP is ensuring it is understood by those financial institution employees whose actions and outputs may have an impact on how consumers are treated. The CoFI Act requires an FCP to include initial and regular ongoing training for the financial institution’s employees, including training on: 

  • the relevant services or associated products that are provided to consumers; and 
  • the FCP and the processes and procedures that the employee must follow to support the institution’s compliance with the fair conduct principle. 

Financial institutions will need to determine the frequency, delivery methods and content of initial and regular ongoing training for employees and ensure this is appropriate for the employees’ work in providing the relevant services or associated products to consumers. 

Financial institutions are required to maintain an effective FCP. The FMA expects financial institutions to have assurance processes to assess the effectiveness of their FCP. 

4. It must be approved and have the support of the Board

To be effective, an FCP must have the support of the financial institution’s governing body, which would generally be the board of directors. The FMA expects the governing body to have oversight and take accountability for the financial institution’s compliance with its licence obligations and the CoFI Act requirements. 

The governing body should review the FCP to consider its adequacy and effectiveness and recommend changes where appropriate. The final approval of the FCP should be provided by the governing body. 

Prepare the FCP now 

Applications for licences open in July this year. While the CoFI regime won’t come into force until early 2025, timing is still tight. Financial institutions are already on their CoFI journey because applicants need to have an established FCP before they can apply for a licence. 

The FMA doesn’t expect the FCP to be fully implemented by the time of applying for the license, they “do expect the FCP to have been approved by the applicant’s board of directors” before the application is lodged. 

And, of course, the FCP will need to be fully operational by the time the regime goes live. That means, amongst other things, any new technology solutions to support the FCP will need to be in place, and relevant staff will need to have been trained as to what the FCP requires of them, by the start date in early 2025.


This article was co-authored by Sarah Jones, a solicitor in our Financial Services team.


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