Contributed by: Emmeline Rushbrook, Tom Hunt and Sarah McQueen
Published on: June 20, 2022
The Financial Markets (Conduct of Institutions) Amendment Bill (COFI Bill) is scheduled for its Committee of the whole House debate this week. In advance of that, the Minister of Commerce and Consumer Affairs has released a Supplementary Order Paper (SOP) showing further proposed amendments to the COFI Bill. A copy of the SOP can be found here.
The key changes proposed in the SOP are set out below, with some of these changes foreshadowed by Cabinet papers released in March 2022 but others were not.
Providing for an exemption for Lloyd's underwriters from the requirement to hold a market services licence as a financial institution.
Amending the definition of "intermediary" by:
Providing that a financial institution can be an "intermediary" where it receives a commission or consideration from any provider of a relevant service or an associated product (ie. not just another financial institution). The example provided is: "A bank (A) is involved in the provision of interests in a KiwiSaver scheme issued by an entity. The entity pays A a commission for that involvement. A is acting as an intermediary in relation to the KiwiSaver scheme."; and
Limiting the activities which could lead to a person becoming an intermediary. The SOP proposes that a person may be "involved in the provision of the relevant service or an associated product to a consumer" who (a) arranges a contract for the service or for the acquisition of the product; and/or (b) gives regulated financial advice in relation to the product. This removes other activities currently specified in the COFI Bill where a person "carries out other services that are preparatory" to contracts being entered into; and/or "assists in administering or performing the service or the terms or conditions of the associated product". "Arranges" is a new term and has been defined as "includes to negotiate, solicit or procure" [Emphasis added]. There is no explanation as to why this list is no longer exhaustive (as it is in the current COFI Bill).
Changing the minimum requirements for fair conduct programmes in connection with intermediaries and agents – with certain requirements now being limited to employees (rather than intermediaries and agents as well).
Adding a new focus in the minimum requirements for fair conduct programmes on "distribution methods" and on ensuring that deficiencies, enhancements and/or improvements identified by financial institutions in their regular review processes are acted upon "within a reasonable time".
Requiring financial institutions to, when considering whether its policies, processes, systems and controls are effective, to:
consider the types of consumers it deals with, specifically including consumers in vulnerable circumstances (as to which, see too here an update the UK Financial Conduct Authority (FCA) released last week which sets out the positive steps it has seen firms taken to embed its Vulnerable Customer guidance in the last year and areas the FCA is expecting improvement); and
consider the types of intermediaries that it has, specifically including the nature and extent of their involvement and the existing legal obligations that its intermediaries have (eg if they have existing finance advice provider obligations).
Amending the provisions relating to incentives such that if a person's commission, benefit or incentive is determined "by reference to a person's performance in a period in relation to the volume or value of the services or products involved compared with their own performance in another period" this may be caught by the incentive provisions in the COFI Bill and the later associated regulations.
Removing a financial institution's duty to provide a copy of the fair conduct programme to the FMA (albeit, we anticipate this obligation will still ultimately exist but through the licensing regime provisions); and
Clarifying the territorial scope of the new obligations in the COFI Bill.
Please get in touch if you would like to talk to one of our experts about the COFI Bill, and this SOP, as the Bill enters its potentially fast moving last stages.
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