New conduct regime: What it means for you

The government recently announced it will fast track new legislation to create a licensing regime for governing the conduct of financial institutions, and in particular banks and insurers. This new regime will ‘lift the bar’, taking the recommendations contained within the various reports and guidance published by FMA and RBNZ over the past 12 months and making it mandatory for all those affected to meet good conduct obligations. We will see the introduction of a high-level fair treatment standard plus obligations around remuneration and sales incentives. Licensed entities will be required to have and implement effective policies, processes, systems and controls to meet the fairness standard. Penalties for non-compliance will be significant.

Financial institutions (e.g. insurers and banks) are likely to require intermediaries (that’s FAPs) to comply with any relevant obligations that the licensed entity is subject to - e.g. the systems and controls that it has in place to comply with the high-level fair treatment standard, and any requirements relating to information provision and sales processes.

Gone are the days of saying “This or that legislation does not directly apply to me so I will ignore it.” We now have a new environment where we need to be aware of all new and current relevant legislation, to look at the spirit behind what it is intended to do and then assess how we will apply that to the business to provide enhanced client outcomes.

How will this new conduct regime impact on you?

Product providers

Product providers will likely need to:

  • Develop systems and processes to monitor internal sales staff plus those of financial intermediaries;
  • Review their agreements with intermediaries;
  • Obtain confirmation from financial intermediaries that they are meeting their compliance and conduct obligations. (Strategi is working with several of product providers to develop appropriate compliance reviews.)

FAPs

FAPs will likely need to:

  • Sign new agency/broker/distribution agreements with product providers which will contain heightened obligations;
  • Ensure product accreditation is undertaken by all financial advisers and nominated representatives;
  • Have improved compliance processes;
  • More detailed record keeping and advice documentation;
  • Build product provider obligations into their business obligations register and have in place a plan to check this is being achieved.

Contact Strategi for more information.