The much-anticipated Conduct of Financial Institutions (CoFI) regime has officially come into full effect, marking a significant step towards ensuring that financial institutions in New Zealand operate with the best interests of consumers at the forefront of their decisions and actions.
The Financial Markets Authority (FMA) – Te Mana Tātai Hokohoko, which oversees the regime, expects banks, insurers, and non-bank deposit takers to adhere to the new standards and focus on providing fair treatment to their customers.
Michael Hewes, FMA’s Director of Deposit Taking, Insurance and Advice, emphasized the core principle of CoFI.
"CoFI is fundamentally about treating customers and potential customers fairly - this is the fair conduct principle,” he said.
“We expect financial institutions to be analysing how their products are performing, communicating effectively with consumers and acting quickly if something is not working as it should be."
This vision represents the regulator’s commitment to ensuring financial services meet consumers’ needs and expectations.
As part of the licensing requirements under CoFI, financial institutions are now mandated to establish, implement, and maintain a fair conduct programme. This programme is designed to ensure compliance with the fair conduct principle, which underpins the new regime. Furthermore, financial institutions are required to display a summary of their fair conduct programme on their websites, providing consumers with clear information on how they should expect to be treated by their chosen provider.
The FMA has also made it clear that it will use a range of supervision tools to enforce the CoFI regime, including engagement meetings, monitoring reviews, and thematic reviews that examine broader issues across the sector. The regulator’s approach is focused on outcomes, ensuring that consumers are treated fairly, while also providing financial institutions the flexibility to determine how best to meet these expectations.
The implementation of the CoFI regime has been a multi-year effort, and as of March 31, 77 financial institutions have been successfully licensed under the new framework. This includes 17 banks, 46 insurers, and 14 non-bank deposit takers, such as credit unions, building societies, and certain finance companies.
The FMA has worked closely with these institutions throughout the licensing process and will continue to engage with them, offering guidance and ensuring compliance with the new requirements.
"We want to thank the financial institutions for their efforts in getting licensed by 31 March. In total, 77 have been licensed by the FMA. We have been working closely with them throughout the process and will continue to listen, provide guidance, and communicate our expectations," said Hewes.
The FMA’s oversight will be a critical component of ensuring that New Zealanders have access to the financial products and services they need, with the confidence that these offerings will perform as expected and meet their needs. Hewes expressed his belief in the positive impact CoFI will have: "We expect CoFI to achieve that."
The path to reform
The introduction of CoFI follows extensive reviews into the conduct and culture of New Zealand's financial sector, specifically banks and life insurers. These reviews, conducted by the FMA and the Reserve Bank of New Zealand in 2018 and 2019, highlighted several systemic issues in the sector and laid the groundwork for reform.
Additionally, the FMA undertook a separate review of fire and general insurers. The findings from these reviews led to the Financial Markets (Conduct of Institutions) Amendment Act 2022, which introduced CoFI.
Since these reviews began, significant progress has been made. Over $215 million has been returned to more than 1.5 million customers who had either been overcharged or not applied appropriate discounts. This underscores the importance of the CoFI regime in addressing past issues and improving the financial services landscape for New Zealand consumers.
The introduction of CoFI also marks an expansion of the FMA's role as a conduct regulator. Under the new regime, the FMA has gained new responsibilities for licensing, monitoring, and enforcement, giving it the tools it needs to ensure that financial institutions adhere to the highest standards of fairness and consumer protection.
