“What is the point of Conduct of Financial Institutions (CoFi) rules when there is already a raft of legislation around conduct?”, he says.

The Financial Markets Conducts Act, the Commerce Commission, FMA, codes within the banking and insurance sectors and the Reserve Bank all have conduct requirements covering financial institutions.

“We don’t need another overlay of legislation.”

The CoFI regime is due to start on 31 March 2025. It introduces a new regulatory regime to ensure registered banks, licensed insurers and licensed non-bank deposit takers comply with the fair conduct principle when providing relevant services to consumers.

“What we need is one piece of legislation for the financial and insurance markets industry or sub parts of the industry, with the inclusion of the fair conduct principle,” Bayly says.

“The industry needs to move from a compliance-based model to a risk-based model, which has proper conduct protocols. 

“It should be a standardised set of principles laying out specifically what financial institutions need to do. It would then be up to these institutions to work out what's best for them. The focus can then be on the bad actors. I'd rather take a lot of the resourcing out of the existing system and put it into bad actors-chasing.”

CoFi requires financial institutions to document every process in their system annually and get it signed off by somebody in the FMA, who's probably never worked in a financial institution, Bayly says.

He knows of a mid-sized insurer, which has had five people working full-time on the legislation requirements for two years with another 18 months to go. “The company says it is lucky because it has examples it can adopt from Australia. A new insurer, who didn’t have another person or organisation to lean on would find it difficult to comply.”

CoFi is creating a mountain of paperwork that has to be signed off every year, Bayly says. “Imagine an institution finding it didn't follow, for example, procedure number 27:9B because an employee was meant to have rung a client rather than emailing them.  Hey presto, the institution is in the gun.”

Most of the institutions CoFi is aimed at have conduct procedures in place because they need to be licensed to conduct business.

Bayley says National wants to get the financial market working efficiently, quickly and appropriately. That is not what is being achieved with CoFi, he says. “A big issue is that the licensing regime is too complicated.”

Bayly will look at one licence with a couple of parts to it – the Reserve Bank and FMA requirements.     

“It will take a while to unwind problems with the financial markets. We have to get the financial architecture right – what is the responsibility of the Reserve Bank, FMA, Commerce Commission, MBIE and Treasury? 

The country has a lack of clarity around the financial and insurance markets and overlapping pieces of legislation, which is confusing, Bayly says.