Opportunity for advisers to provide feedback
The Financial Markets Authority has released guidance on its expectations of financial institutions when it comes to the distribution of intermediated products and services.
The proposed guidance outlines expectations of financial firms (banks, insurers and non-deposit takers), on which the FMA is seeking feedback.
The consultation paper, released by the FMA on Monday, forms part of the Conduct of Financial Institutions (CoFI) regime.
Under the Conduct of Institutions Amendment Act 2022, a new regime will ensure financial institutions comply with a fair conduct principle to treat consumers fairly, to establish, implement and maintain fair conduct programmes and comply with regulations around incentives.
The programmes must account for intermediated distribution where an intermediary or agent is involved in the distribution of a financial institution’s products or services, such as insurance or mortgages, or car dealers selling vehicle insurance, the FMA said.
While the guidance does not impact mortgage advisers directly, it is important that advisers are aware of fair conduct programmes from a distribution perspective, and are given the opportunity to provide feedback, the FMA said.
The draft guidance is non-prescriptive and is designed to allow institutions flexibility to design their own approach to adhering to the fair conduct principle, said the FMA.
In relation to the distribution of products and services, the FMA said consumer interests are to be considered under both CoFI and the financial advice regime. The consumer watchdog said it therefore considered the two regimes to be “complementary”, noting that the overarching policy objectives were “broadly consistent”.
FMA executive director regulatory delivery Clare Bolingford (pictured above) said that the FMA had consulted and collaborated with the industry throughout the implementation of the CoFI regime.
The draft guidance is the result of a series of workshops with financial institutions and intermediaries, she said.
“The overall purpose of the guidance is to ensure intermediary arrangements are designed to promote fair outcomes for consumers,” Bolingford said. “These arrangements need to clearly assign roles and responsibilities and include processes for monitoring their effectiveness.”
Bolingford said the draft guidance covered any situation where an intermediary was involved in the distribution of a financial institution’s products or services.
She clarified that intermediaries that provide financial advice were required to be licensed by the FMA as a financial advice provider (FAP) or operate under a FAP licence.
“These intermediaries are subject to their own set of conduct duties under the financial advice regime in Part six of the Financial Markets Conduct Act, and must comply with the Code of Professional Conduct,” Bolingford said.
The overarching principles of the legislation focus on designing products and distribution methods that are consistent with the fair conduct principle, she said. They are required to be reviewed regularly to ensure they remain fit for purpose, and that deficiencies are remedied within a reasonable time.
Once CoFI is embedded across the industry, the FMA’s monitoring would focus on whether entities are delivering fair outcomes for consumers, Bolingford said.
“Therefore, we encourage financial institutions to work with their intermediaries now, to ensure their fair conduct programme is more than just a checklist for compliance; it needs to be a useful and practical blueprint for implementing and maintaining systems that prioritise fair treatment of all customers,” Bolingford said.
One the new regime comes into force (expected to be in early 2025), registered banks, licensed insurers and licensed non-bank deposit-takers providing services to consumers will need to operate under a financial institution licence issued by the FMA. Acceptance of licensing applications would start from July 25, 2023, the FMA said.
Feedback on the FMA’s proposed guidance can be provided until April 14.
