Financial Crime World

Financial Institutions in New Zealand Must Prioritize Consumer Fairness under New Regulations

The Financial Markets Conduct Act 2013 is set to undergo significant changes with the introduction of the Financial Markets (Conduct of Institutions) Amendment Act 2022. The new regulations, which come into effect on March 31, 2025, will require financial institutions in New Zealand to prioritize consumer fairness and adhere to a strict code of conduct.

The Conduct of Financial Institutions Regime (CoFI)

The Conduct of Financial Institutions regime (CoFI) aims to protect consumers by putting their interests at the forefront of institutions’ decisions and actions. The fair conduct principle is the overarching principle that guides the new regulations, ensuring that financial institutions treat customers with integrity and transparency.

Key Components of CoFI

  • Fair Conduct Principle: The guiding principle behind CoFI, ensuring that financial institutions treat customers with integrity and transparency.
  • Fair Conduct Programme (FCP): A critical component of CoFI, designed to protect consumers from unfair or deceptive practices. The FCP should include measures such as training for staff, complaint handling procedures, and regular reviews.

Regulations for Intermediaries

Intermediaries, who advise small and medium-sized enterprises (SMEs) on financial services, will also be subject to the new regulations. While incentives payments received by intermediaries from financial institutions in relation to non-consumers are exempt from the prohibitions, those related to consumers are not.

Examples of Intermediary Regulations

  • General Insurance Contracts: SMEs entering into general insurance contracts for business purposes are not treated as consumers.
  • Life or Health Insurance Contracts: Corporate policyholders of group insurance schemes are considered consumers when dealing with life or health insurance contracts.

Consequences of Non-Compliance

Financial institutions that fail to comply with the new regulations risk facing severe consequences, including fines and reputational damage. As a result, it is essential that they prioritize consumer fairness and adhere to the strict code of conduct set out by CoFI.

Conclusion

The introduction of the Conduct of Financial Institutions regime (CoFI) marks a significant shift in the way financial institutions in New Zealand operate. The fair conduct principle will be at the forefront of all decisions and actions, prioritizing consumer fairness above all else. Financial institutions must ensure that their policies, processes, systems, and controls are designed to protect consumers from unfair or deceptive practices. By adhering to these new regulations, financial institutions can not only avoid severe consequences but also maintain a positive reputation in the market.