SiFA: CoFI needs complete rewrite
The deadline for submissions on the bill was extended to April 30 because of the Covid-19 outbreak.
SiFA made a submission that the bill should be sent back to officials for rework.
“We continue to be amazed that financial institutions have not pushed back very strongly against this legislation. Basically, financial institutions stand accused of doing bad things generally to their consumers, and having consistently failed to design products that benefit their consumers.
“This is arrant nonsense, and should not have passed even a first level reviewer.”
SiFA said that legislation needed to have a clear, substantiated target.
The bill was based on supposition, without strong evidence, that financial institutions had not been fair to clients, remuneration structures did not lead to good customer outcomes, and led to financial institutions and financial advisers implicitly mis-selling to their customers, it said.
The submission said advisers were already going through a period of significant change with FSLAA and this added another layer.
It would also mean financial product providers, who were already regulated through other Acts, had to obtain a second “conduct” licence.
“This will be a costly change with the businesses required to set up new departments to set out policies, procedures and controls to govern their conduct, and internal and external audit processes to ensure that they are complied with. This cost will clearly be loaded on to their consumers either as specific fees or by making their products more expensive than they would have been in the absence of such additional burden.”
The wording of the bill was too vague about what would constitute good conduct, SiFA said, and allowed for ministers and Government employees to increase the regulatory burden on the financial services sector with regulation and licensing conditions that would now have to be created by Parliament.
But what SiFA was most worried about was the section about “incentives”.
Product providers would have a requirement to design incentives and remuneration structures in ways that did not encourage poor customer outcomes.
“It seems that it would be possible under regulations to at one extreme abolish all commissions or at the other to put a cap on the allowable commission rate without any discussion with the industry. Before you say this couldn’t happen in NZ, let us ask you to take a look over the Tasman to the Trowbridge reforms of commission in the Australian life insurance industry.
“Of course, Government is making the soothing noises that this legislation is not designed to put a cap on or abolish commissions. That may be true but the bill contains a very simple mechanism to be used if tomorrow the Government just happened to change its mind. Who would bet against that possibility?
“We do not think that such extensive powers to regulate should be removed from the normal Parliamentary process … With a simple stroke of the pen, business arrangements which have served the test of time could be completely overturned.”
The bill requires that product providers have oversight of the conduct of all those involved in their chain of product development, distribution and client care.
SiFA said it understood the intention was to exempt financial advice because it was covered by FSLAA but the bill had not done that. Instead, it added more compliance on advisers.
“We think that the requirement for financial advice providers and financial advisers to comply with the good conduct programmes of every provider whose product they advise on will have the perfectly foreseeable result that many advisers will choose to limit the number of providers whose products they will use, and in the extreme will return to being effectively a tied agent to one company – not necessarily in the old way but rather forced into voluntarily adopting that position because of the regulatory impost of this bill.
“Whatever happened to the notion that before the Government regulates, it has a responsibility to show what the problem is, and identify the harm that is being suffered by the consumer?”