The introduction of the Financial Markets (Conduct of Institutions) Amendment bill should be suspended for the foreseeable future. That’s the view of Katrina Shanks, CEO of Financial Advice NZ, in her submission to a Government select committee which is to review the proposed legislation.
The purpose of the bill – drawn up by MBIE with the backing of Kris Faafoi, the Minister of Commerce and Consumer Affairs – is to amend the Financial Markets Conduct Act to “…ensure that certain financial institutions and their intermediaries comply with a principle of fair conduct and associated duties and regulations”.
MBIE maintains there are regulatory gaps in current legislation that “…exacerbate conduct and culture risks”.
However, Shanks believes parts of the bill, which will give regulators wider powers, are confusing and require further clarification.
For example, the main thrust of the proposed law change is that consumers are treated fairly – but in her submission Shanks points out the bill does not define what ‘fair’ means.
“The bill has no definition of ‘fair’,” she says. Adding that it should be included to “…ensure consumers have a clear understanding of its intent”.
She also says the draft legislation has “…areas which provide unnecessary powers which could have a devastating impact on the [financial advice] sector” and New Zealanders’ access to quality financial advice.
Her concluding recommendation to members of the select committee is that the bill be “…suspended for the foreseeable future”.
…unnecessary powers which could have a devastating impact on the sector…
The bill has yet to make its way through Parliament, but once it becomes law, Shanks says there should be a two-year delay between the start of the licenced regime under the FSLA Act (31 March 2021) and implementation of the proposed law change.
“All participants in the financial services eco system should be focused on supporting consumers during these incredibly stressful times and not focused on new legislative and regulative requirements,” writes Shanks.
In all, 53 submissions have been made by individuals, companies and industry bodies, to the select committee, and the common thread is that the draft legislation is poorly written, open to interpretation, confusing, and overlaps existing law.
Fidelity Life
Former Fidelity Life CEO Nadine Tereora writes in the firm’s submission that “…in light of the current economic downturn, we ask that this bill is postponed to enable further stakeholder consultation and time to amend the bill…”
The company says the current draft is “…not well considered regulation”.
“It lacks sufficient detail to provide long-term sustainability and ensure fair, efficient and transparent outcomes for both consumers and the financial services industry,” she writes.
“Instead it relies heavily on regulation-making power, creating uncertainty for the industry and its consumers.”
…negatively impact the same consumers the bill is aiming to protect…
Fidelity Life is concerned the bill may have unintended consequences which “…negatively impact the same consumers the bill is aiming to protect”.
Tereora writes: “Hon Kris Faafoi noted at the bill’s first reading that ‘…by introducing this bill to improve conduct in the financial sector, we’re putting the consumer at the centre and helping banks and insurers to ensure trust and confidence in their industry’.
“While we support this good intent, we’re concerned that, without extending these regulations to all financial services providers, consumers will not get the same protection across the financial sector.”
Partners Life
Rebecca Sellers, Chief Conduct Officer at Partners Life, writes in her firm’s submission that the definition of “incentives” is too wide.
“Partners Life notes that Cabinet decided not to ban commission, but to regulate sales incentives based on volume or value targets,” she says.
“The wording of the bill needs to be amended to clarify that the intention is not to ban incentives.
“As currently worded, [it] could be interpreted as providing a power to make regulations “…that prohibit…the offer or giving of incentives. Further consultation is required on the definition of ‘incentive’.”
AIA
Over at AIA, its CEO Nicholas Stanhope, also says the scope of the bill is too wide and, in some cases, overlaps existing licensing regimes.
His submission says: “As introduced, the bill goes well beyond measures to address the regulatory gaps identified in the reviews of Bank and Life Insurer conduct and culture…
“That wider scope creates commercial uncertainty for market participants and creates an additional layer of complexity and cost upon the financial services industry.
“This commercial uncertainty and added red tape may result in increased costs and negative outcomes for New Zealand consumers whose interests we strive to serve.”
Financial Services Council
Richard Klipin, CEO of the Financial Services Council (FSC), also points to overlapping regulations saying “…there are many existing licencing regimes in the industry and creating yet another one is disruptive and costly”.
In addition, he says there is widespread concern among the FSC’s members that the bill is being “…rushed through Parliament”.
We recommend that the bill is postponed, and a new timetable developed…
Like many other submitters, Klipin says the bill has not been well thought through and sufficiently consulted on, and that a number of important aspects of the bill lack detail and clarity.
Klipin concludes his submission saying: “We recommend that the bill is postponed, and a new timetable developed when Covid-19 is controlled, allowing businesses a respite to focus on customer delivery.”
Download and read all submissions to the bill here.
The select committee meets Wednesday 10 June – details here.