New Zealand life insurers to provide overview of programme of work to the FMA
Yesterday the Financial Markets Authority (FMA) published a letter, which was sent to each of New Zealand’s licensed life insurers earlier this week. The letter is similar to the one sent to New Zealand’s registered banks and the New Zealand Bankers Association on 3 May 2018.
In its letter, the FMA and the Reserve Bank of New Zealand (RBNZ) require life insurers to provide information to the FMA explaining how they have ensured that the misconduct alleged in Australia is not taking place in New Zealand. The letter is, in part, a response to issues raised in relation to Australia’s life insurance providers at the Australian Royal Commission into Misconduct in Banking, Superannuation and Financial Services Industry (Royal Commission).
The full text of the letter is available here.
Who needs to read it? Why?
All licensed life insurers in New Zealand will need to read and respond to this letter. It will also be of great interest, as was the letter to registered banks, to all other financial service providers including financial advisers, issuers of financial products, and others because, as well as setting out specific information to be provided by life insurers, the letter highlights the regulators’ expectations in relation to conduct more generally and their priorities for the future.
What does it cover?
The letter includes:
- the FMA and RBNZ’s expectations: the FMA and RBNZ wish to understand what steps life insurers have taken to review their operations to identify and address conduct and culture issues. The FMA and RBNZ say life insurers are expected to be familiar with the FMA’s conduct guide published in February 2017 (Conduct Guide). The FMA and RBNZ anticipate that life insurers will reflect on the issues raised at the Royal Commission when considering the expectations set out in the Conduct Guide;
- the information requested: all life insurance providers are requested to provide a response to the letter outlining how they have obtained assurance that the issues highlighted in Australia are not taking place here including:
- the actions the life insurer, its board and senior teams have taken to identify and address conduct risk arising from the firm’s actions. This includes product design, distribution, incentives setting, claims performance and any “gap analysis” work undertaken against the expectations set out in the Conduct Guide;
- any specific plans and actions the life insurer has taken or has underway to respond to the issues and themes arising from the Royal Commission;
- any other work the life insurer has underway, or that is planned, to proactively identify and address potential conduct and culture risk; and
- any remediation work the life insurer has underway in relation to identified issues where conduct by the life insurer has resulted in detrimental outcomes for customers;
- additional requirements: the response should provide an overview of the life insurer’s programme of work including:
- the key objectives of the life insurer’s work;
- the structure, approach and level of resourcing in respect of the work;
- the level of board and senior management oversight and reporting;
- the key personnel involved;
- a summary of any early findings or insights to date;
- details of any remediation programmes the life insurer has underway; and
- any other summary information that will help the FMA and RBNZ understand the level and depth of the life insurer’s inquiries and its focus areas; and
- the due date and process thereafter: the requested information must be provided to the FMA by Friday 22 June 2018. After the FMA has had the opportunity to assess the summary information, it will meet with the life insurer’s core team to discuss its response, agree next steps, further information requests and ongoing reporting. All responses will be shared with the Commerce Commission and the RBNZ.
We expect life insurers will embrace the opportunity to consult with the FMA, especially in light of recent reports issued by the FMA about insurance and insurance advice including its soft commissions report published earlier this month. Like the banks, life insurers will likely appreciate the opportunity to explain why a Royal Commission is not required in New Zealand.
We believe both letters have wide implications for all financial institutions as:
- it is clear the FMA expects all financial institutions to comply with the Conduct Guide on the basis that it reflects good business practice. The Conduct Guide states that it gives guidance on what the FMA would focus on when examining how “licensed financial services providers” demonstrate good conduct and meet governance and management responsibilities. Strictly speaking, the Conduct Guide is not explicitly addressed to licensed life insurers and registered banks as they are not necessarily “providers licensed or authorised by [the FMA] under the FMC Act or any other financial markets legislation (including the Financial Advisers Act).” Rather, they are licensed by the RBNZ, which is primarily focussed on prudential supervision rather than conduct regulation. However, it is clear that the FMA expects to apply the same principles to all life insurance and banking activities; and
- it is also likely that the FMA and RBNZ expect all financial institutions (not just life insurers and banks) to carefully consider the issues raised at the Royal Commission and for their boards and senior managers to consider how they can be certain that misconduct of the type highlighted in Australia is not taking place here in New Zealand. In that regard, the Governor of the RBNZ has this morning published an article on his view on conduct, which we will comment on in a later Financial Services Update.
Accordingly we recommend all other financial service providers take the step, without waiting for a letter from the FMA, of considering how they apply the principles in the Conduct Guide to their business, and what lessons can be drawn from Australia. We encourage all, not just life insurers and banks, to take up the FMA’s invitation to consult with them early in relation to any areas where remediation work is anticipated to be appropriate.
We also anticipate the Royal Commission will potentially impact the current law changes proposed under the Financial Services Legislation Amendment Bill (FSLAB). The FSLAB reforms will, amongst other things, impose stronger duties on financial advisers to prioritise clients’ interests and to prohibit inappropriate incentives. In this regard, we note the reporting back date of the Finance and Expenditure Select Committee on the FSLAB has been put back to 31 July 2018, which allows additional time for officials and Members of Parliament to consider these matters.
That said, one of the lessons we think can be taken from Australia is that having complex and detailed laws does not necessarily prevent misconduct. Generally, our more principles-based approach to regulation has been at least as effective (if not more) than the Australian black-letter approach. This aligns with behavioural economics which indicates that having more rules often correlates with more transgressions, as people cease to self-monitor and the choice of misconduct becomes a commercial, rather than an ethical, question. Instead, our view is culture is more important than rules, and the steps the FMA and RBNZ are now taking to invite institutions to consider how they are working to improve their cultures and outcomes for their customers, is the most effective approach.
The FMA’s future focus includes the following areas, previously identified by the FMA as priorities:
- the FMA’s thematic review on soft commissions in the life and health insurance sector – as mentioned, the FMA has recently published a report on soft commissions. A link to our news alert on this report is available here;
- the Financial Adviser Act reforms;
- the FMA’s work on incentives in vertically integrated institutions;
- GFE insurance provider replacement business; and
- the FMA’s stakeholder relationship management programme.
If you have any questions in relation to the FMA and RBNZ’s letter or need assistance with your response please contact one of our experts.
Who can help
Chair and Partner - Financial Services
Chair of the MinterEllisonRuddWatts partnership and ranked Band 1 for Investment Funds by Chambers Asia Pacific, Lloyd is a highly regarded opinion-leader on financial services and an expert in corporate governance.
Lloyd is acclaimed by commentators and clients in international research publications.
In recognition for his work on financial markets law reform, Lloyd was made a Fellow of the Institute of Finance Professionals New Zealand Inc. (INFINZ), the first lawyer to receive the accolade. His expertise is proven by being the co-author of Morison’s Company and Securities Law and MinterEllisonRuddWatts’ Corporate Governance White Paper. Lloyd is also a former member of the New Zealand Securities Commission.
Lloyd advises institutions and boutiques on investment funds, equity and debt offerings, and managed investment schemes of all types, specialising in public offers, M&A, and restructuring projects. He advises on securities regulation including Financial Markets Conduct Act, Financial Advisers Act, AML/CFT, and directors’ duties.
Partner - Dispute Resolution and Litigation
Andrew specialises in commercial litigation and dispute resolution and leads our insurance practice. He has particular expertise in commercial and contract disputes, corporate and regulatory issues, financial services, insurance, technology and telecoms.
Andrew has acted for major listed companies and financial institutions in New Zealand and around the world. He is experienced in managing complex, high-value disputes, including taking cases to trial and resolving disputes through mediation. He also helps clients avoid disputes by resolving issues at an early stage.
Andrew began his career as an associate lawyer in MinterEllisonRuddWatts’ dispute resolution team before spending nine years with Clifford Chance in London, the last three as a Partner, where he specialised in commercial disputes with a particular focus on corporate, financial services and technology litigation.
Since his return to MinterEllisonRuddWatts in 2009, Andrew has been recognised as a leading individual in Chambers Global and Chambers Asia-Pacific.
Partner - Dispute Resolution and Litigation
Jane is an experienced litigator with particular expertise in banking and financial services litigation, class action disputes, complex contractual disputes, professional negligence claims and disputes involving issues of companies and securities law.
Jane has acted on large scale commercial disputes in New Zealand and internationally. She is experienced in managing complex, high-value disputes involving court proceedings, mediation and arbitration. She also offers commercially astute advice in order to avoid disputes and to resolve matters at an early stage.
Jane joined MinterEllisonRuddWatts in January 2017 from another major New Zealand law firm. Prior to that, Jane worked in the commercial litigation team at Allen & Overy, London. She also completed a Master of Laws at New York University on a Fulbright Scholarship and Hauser Global Scholarship. In the early part of her career, Jane was a Judge’s Clerk at the New Zealand Court of Appeal and worked as a junior barrister for David Goddard QC. She was the top graduating law student at Victoria University of Wellington. Jane is also a member of the New Zealand Law Society Law Reform Committee.
Partner - Financial Services
Jeremy is a specialist financial services and investment lawyer. He works with retail and wholesale fund managers (including KiwiSaver and superannuation), trustee companies, derivatives issuers, FinTech (including crowdfunding and peer-to-peer lending platforms), insurers and start-ups. He is also one of New Zealand’s leading lawyers advising on cryptocurrencies, initial coin offerings (ICOs) and digital tokens – working closely with the Financial Markets Authority and other regulators in relation to the treatment of coins, tokens, schemes and exchanges under New Zealand law.
Jeremy advises on all aspects of the Financial Markets Conduct Act 2013 (FMCA), in particular managed investment schemes and all required licences. He also advises on all other financial services legislation (including financial service provider registration, non-bank deposit takers (NBDTs), insurance prudential supervision, financial advice and broking).
Jeremy enjoys working with alternative assets and structures across private equity, venture capital, hedge funds, property investment vehicles, marinas and innovative platforms and products. He is a limited partnerships expert, having established numerous private equity and venture capital funds, including negotiating with significant cornerstone investors such as the New Zealand Venture Investment Fund (NZVIF), New Zealand Super Fund, ACC and Maori investors.
Jeremy also spent several years working in offshore funds for a major offshore law firm, and is admitted to the bar in both Guernsey and the Cayman Islands.
Partner - Dispute Resolution and Litigation
Stacey has over 20 years of experience successfully representing financial institutions, other corporate clients, public sector entities and directors and officers in significant litigation and regulatory matters. She has advised in complex disputes and investigations involving contractual breaches, the exercise of statutory powers, misleading statements and omissions, insurance cover, fraud, accounting improprieties, bid-rigging, money laundering, tax abnormalities, health and safety violations, fair trading concerns, construction issues, food safety and medical matters.
Stacey has substantial trial and appellate experience. She returned to the firm in 2010 after spending 11 years working for top litigation firm Paul Weiss Rifkind Wharton & Garrison LLP in New York (selected as the best litigation firm in the United States by The American Lawyer in 2006).
Stacey has been recognised by international legal research directories as a leading lawyer and was named in the Legal Media Group Rising Stars 2015 guide (an international publication that identifies “the brightest young talent”). She also was named in the NZ Lawyer 2015 Hot List.
Stacey co-authored the 2016 Thomson Reuters book Health and Safety at Work in New Zealand: Know the Law, which covers all the essential elements of the new health and safety Act, the legal framework and policy background, while also discussing relevant cases from New Zealand and Australia.
Under the “WHO DID YOU HELP TODAY” social movement she founded, Stacey has also developed Homework HELP Clubs around New Zealand (a weekly programme that partners businesses or organisations with low decile primary schools), the Mothers Project (a prison programme to help jailed mothers maintain meaningful connections with their children) and HelpTank (a skilled volunteering digital platform).
Partner - Dispute Resolution and Litigation
Zane is an experienced advocate and trial lawyer who regularly argues cases against Queens Counsel.
He has particular expertise in contract, financial services, intellectual property and insurance litigation.
Zane is also experienced in alternative dispute resolution processes including mediation and arbitration.
He has been recognised as a leading litigator in The Legal 500 every year from 2010 and in Chambers Asia-Pacific and Chambers Global every year from 2011.
Special Counsel - Financial Services
Kara has more than 25 years’ experience as a commercial, banking, financial services, securities and insurance lawyer. She regularly advises on legal issues surrounding financial services regulation, insurance law, information technology, business ventures, capital markets, insolvency and general commercial law.
Kara advises on a range of business ventures, business structures, transactional advice, and governance issues, and on all aspects of banking and financial services transactions and regulation.
Kara’s hands-on pragmatic approach means she is often sought by organisations to provide special counsel.
Special Counsel - Financial Services
Shane has more than 25 years’ experience in the financial services area, with particular expertise in advising corporate trustees. He regularly advises licensed trustee companies on all facets of the corporate trustee role, including retail, wholesale, listed and un-listed debt issues, establishing and administering managed investment schemes and securitisation structures covering residential mortgage receivables, asset-backed receivables and motor vehicle receivables. Shane also advises on compliance issues arising under the Financial Markets Conduct Act 2013 and recently has assisted trustee companies with analysing (and submitting on) the new Trusts Bill.
Shane is a Special Counsel in our managed funds team, having joined us in mid-2016 from Guardian Trust where he was Head of Legal – Corporate Trusts. Shane joined Guardian Trust after 23 years at another national law firm, where he was Special Counsel from 2008 to 2015.
Shane is recognised by the New Zealand market as one of the market-leading corporate trustee lawyers, with excellent and long-standing relationships with each of the licensed supervisor/trustee companies: Guardian Trust, Covenant, Public Trust and Trustees Executors.
Senior Associate - Dispute Resolution and Litigation
Alexandra has significant experience in the areas of commercial litigation, corporate advisory and insurance. She has worked in London, Hong Kong and New Zealand for top tier firms and is adept at providing solutions to her clients in both contentious and non contentious matters. he has experience in both the Court of Appeal and High Court in New Zealand and in England and has worked on several large scale commercial mediations and arbitrations. While working in New Zealand, Alex has advised insurance and gas industry clients on their commercial disputes. Overseas she obtained experience in several multi jurisdictional, large scale disputes involving reinsurance companies and general corporates.
Senior Associate - Financial Services
Andrew is a Senior Associate in the Banking and Financial Services Team. Andrew is a financial services specialist and has broad experience in all areas of New Zealand’s capital markets, with a particular expertise in financial services regulation, funds management, private capital raisings, stock exchange rules and listed financial products. Andrew has worked with many of New Zealand’s major financial institutions assisting with reviewing and drafting offer documents, trust deeds, investment management agreements and other capital markets documentation as well as advising on a range of issues related to offering securities and operating financial services or financial advisory businesses in New Zealand. Andrew has previously worked in‑house at NZX in New Zealand and the London Stock Exchange.
Senior Associate - Banking and Finance
Ian specialises in banking and financial services. Ian acts for senior and mezzanine lenders and borrowers on property acquisition and development facilities, and for both lenders and borrowers in relation to a full range of corporate debt facilities, including acquisition finance. He also acts for lenders in the film finance and structured finance space, as well as acting for issuers in relation to debt capital markets transactions.
Ian advises a number of financial institutions and large corporates on regulatory compliance, with a particular focus on anti-money laundering, financial markets conduct, consumer credit and personal property securities regulation.
Ian is admitted in New South Wales and holds a current New South Wales practising certificate.
Senior Associate - Financial Services
Maria is a Senior Associate in the Banking and Financial Services team, and is a financial services specialist. She has particular expertise in financial services regulation, assisting with reviewing and drafting offer documents, trust deeds, custody agreements and investment management agreements. She also advises on a range of issues related to offering securities and operating financial services or financial advisory businesses in New Zealand.
Maria works with retail and wholesale fund managers, trustee companies, insurers and other major financial institutions, advising on all aspects of the Financial Markets Conduct Act 2014 (particularly in relation to discretionary investment management services and managed investment schemes), the Insurance (Prudential Supervision) Act 2010, as well as financial advice and broking services regulation.
Maria started her legal career with Chapman Tripp, before working in offshore funds and banking for a Guernsey law firm. Returning to New Zealand at the end of 2016, Maria joined our firm in August of that year.