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The Conduct of Financial Institutions (CoFI) regime is now in full force. All registered banks, licensed insurers and non-bank deposit takers must take all reasonable steps to comply with their fair conduct programmes, and (along with intermediaries) not pay prohibited incentives.
Regulator expectations
The FMA’s regulatory expectations are clear – registered banks, licensed insurers and non-bank deposit takers are expected to put New Zealand consumers at the forefront of their decisions and actions. The FMA has indicated an intention to use the full spectrum of tools available under its significantly expanded mandate as a conduct regulator of New Zealand financial institutions to ensure effective licensing, monitoring and enforcement.
Core CoFI obligations for financial institutions
With effect on and from 31 March 2025, the core CoFI regime requirements and expectations for registered banks, licensed insurers and licensed non-bank deposit takers include:
- Implementation of their now-established fair conduct programmes (FCP) and their effective (and up-to-date) policies, processes, systems and controls for (abridged):
- enabling compliance with their legal obligations to consumers;
- designing, and managing their relevant services and products to consumers;
- identifying, monitoring and managing fair conduct principle compliance risks;
- identifying and taking reasonable steps to mitigate any actual or potential adverse effects of any identified failures;
- requiring employees and agents to follow procedures to support the financial institution’s compliance with the fair conduct principle (to treat consumers fairly);
- requiring relevant employee training and checking completion and understanding of that training;
- managing and supervising employees to ensure they are supporting the financial institution’s fair conduct principle compliance;
- designing and managing incentives to mitigate or avoid the adverse effects of incentives on the interests of consumers, so far as is reasonably practicable;
- communicating with consumers about the financial institution’s relevant services and products in a timely, clear, concise and effective manner; and
- ensuring regular reviews of the effectiveness of the FCP and ensuring deficiencies are promptly remedied.
- Compliance with the six standard conditions of CoFI licences issued by the FMA (and any additional conditions on a case-by-case basis):
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- Ongoing satisfaction of statutory licensing requirements under the Financial Markets Conduct Act 2013, including ensuring that directors and senior managers are fit and proper persons to hold their respective positions.
- Notification of material changes to the nature of the financial institution’s services.
- Provision of regulatory returns to the FMA for monitoring of ongoing capability.
- Outsourced functions allow the financial institution to comply with the fair conduct principle.
- Business continuity for critical technology systems that are appropriate for the scale and scope of the financial institution service.
- Record keeping of the financial institution’s implementation, maintenance and compliance with its FCP.
- Prohibition on volume or value target-based sales incentives for consumer sales of relevant services or products, noting that a ‘prohibited incentive’ is not captured by the CoFI regime merely because the target or threshold relates to market share, profit, any other similar measure of financial performance, or the incentive is subject to a limit or cap. Incentives on a linear basis (a per product or per service basis) do not fall within the prohibition.
- Publication of a summary of key matters about the FCP on an internet site maintained by, or on behalf of, the financial institution (and provided to any person on request).
If you would like more information on or assistance with complying with these requirements, please get in touch with one of our experts.
See our previous insights on CoFI and financial institution licensing
