March deadline fast approaching
With just over six months to go until CoFi licensing will commence, the Financial Markets Authority (FMA) has shared a case study about SBS Bank’s journey towards delivering its Fair Conduct Programme.
By March 31, 2025, Any registered bank, licensed insurer, or licensed non-bank deposit taker in the business of providing one or more relevant services will need to hold a financial institution licence to continue operating, if that service is received by a consumer in New Zealand.
Rowena Thompson (pictured above left), group chief risk officer at SBS Bank, talked to FMA’s Anita Frazer (pictured above right) about the bank’s experience becoming one of the first organisations to be granted their Financial Institution licence.
As a member-owned bank, Thompson said the fair conduct principle of treating consumers fairly aligns closely with SBS Bank’s core purpose and values.
“We are extremely proud to have been granted our Financial Institution Licence well before the CoFI regime goes live,” she said.
“Having our Financial Institution License and an effective Fair Conduct Programme helps us further demonstrate our commitment to our members.”
A short history of CoFi licensing
In 2018 and 2019, the Financial Markets Authority (FMA) and the Reserve Bank of New Zealand conducted joint reviews into the conduct and culture of banks and life insurers in New Zealand.
More recently, the FMA extended these reviews to include insurers. These investigations revealed that banks and insurers were not implementing adequate systems and processes to ensure fair treatment of consumers.
As a result of these findings, the Financial Markets (Conduct of Institutions) Amendment Act 2022, known as the CoFI Act, was introduced.
This legislation amends the Financial Markets Conduct Act 2013, requiring financial institutions to prioritize fair treatment of consumers in their decisions and actions.
According to the FMA, the CoFI Act aims to protect consumers by ensuring they are at the center of financial institutions’ operations.
The CoFI Act also significantly expands the FMA's role as a conduct regulator, giving it new responsibilities for licensing, monitoring, and enforcement across financial institutions.
SBS Bank’s CoFi roadmap
As a smaller bank, Thompson said it was important for SBS bank to “front-foot the licensing process” to ensure the company could focus on implementing its Fair Conduct Programme (FCP) – policies, processes, systems and controls that are designed to ensure the company’s compliance with the CoFi Act.
“We were aware of discussions that signalled there might be some changes, but we didn’t want to go off course and we kept going,” Thompson said. “SBS saw it as an important priority.”
Thompson said the bank’s Financial Institution licence was submitted in March 2024, a year ahead of schedule.
“To deliver our fair conduct programme by March 31, 2025, we wanted to have confidence that it would be ingrained in all that we do,” she said.
“We did around 18 months of work before we felt ready to apply for our licence.”
This included:
- General Conduct Risk management uplift – continued momentum from the Bank Conduct Review of 2018.
- A full gap analysis with various business units across the bank that are impacted by or help the bank meet the incoming CoFI obligations. Internal stakeholder engagement and buy-in was crucial for this process, according to Thompson.
- Preparing an initial Fair Conduct Programme.
- Education and regular engagement with the bank’s board.
- Documenting the actions and improvements needed to implement across the business to deliver an effective FCP by the due date, so it became business as usual.
What problems did SBS Bank encounter?
Like any major policy reform, businesses affected by the CoFi changes are likely to encounter some teething issues.
Frazer questioned whether SBS Bank experienced any hurdles along the way and if Thompson had any recommendations for other firms getting ready to apply.
Thompson responded, “Our CoFI project team was a small team, but it became apparent early on that we would not be able to implement an effective FCP and meet the CoFI obligations (including for vulnerable customers and intermediated distribution) without the support of additional team members across the bank.”
Internal stakeholder engagement and buy-in was also “crucial” for the gap analysis process, according to Thompson.
“This included establishing the benefits each business area would get from implementing improvements across the business,” she said.
“Our team members have been amazing at embracing the incoming changes and actively participating to deliver improvements in their business areas.”
Thompson said that management and the board were involved throughout the licensing process, so the programme was “proportionate and tailored for SBS Bank”.
“Throughout the process we asked ourselves how we knew our approach was the right one, but we grew in confidence and pulled together as a team,” Thompson said.
“We realised that our systems and processes were already [in] place, and CoFI is simply integrating with what we already have. We agreed that this just ties the existing threads together.”
How did the FMA help SBS Bank?
Of course, implementing processes and policies requires more than just internal planning.
SBS had received the support from the FMA, which provided resources, dedicated staff, and webinars on the transition.
Thompson said the FMA guidance relating to the FCP and Intermediated Distribution was useful to confirm that what the bank had prepared and were working towards implementing was on the right track.
“We had engagement meetings with the FMA throughout the licensing process,” she said. “We attended online sessions, read the online material and engaged with the FMA team throughout the licensing process. This helped us to define our parameters and in particular the rightsizing language really resonated with us.”
Final tips: What’s it like using the new forms?
Thompson said it was similar to the FAP licence process.
“We found the application form easy to follow and when we had questions, we were able to check those to make sure our interpretation was correct,” she said. “Pre-registering was a very simple process.”
In terms of final advice., Thompson said it’s “really important” for other firms to get the support of their board to have the priority set from the top-down.
“You have to get the business engaged early to help build the improvements – that is how we got buy-in and momentum. It became a business-led initiative.”
Thompson said the focus now is to successfully embed its FCP by the due date.
“We see it as a living document. It is about our social licence as much as a regulatory licence to operate,” Thompson said.
“We will enhance it, will test the controls that we have, and it will become best business practice.”
