FMA letter sent to entities licensed under the Conduct of Financial Institutions regime (CoFI)

In this letter sent to the chief executives of New Zealand’s financial institutions, FMA executive Director of Regulatory Delivery Clare Bolingford has outlined the genesis of the CoFI regime and the FMA's expectations and supervisory approach when it begins on 31 March 2025.

This letter also reminds those financial institutions yet to apply for their licence that the FMA is available to answer questions about the process.

Kia ora 

FMA expectations of entities licenced under the Conduct of Financial Institutions regime (CoFI)

It is now several years since the FMA and RBNZ’s joint reviews into the conduct and culture of banks and life insurers in New Zealand, and the FMA’s review of the conduct and culture of fire and general insurers. Those reviews found banks and insurers did not have the systems and processes in place to ensure consumers were consistently treated fairly.

Conduct of Financial Institutions 

The reviews led to the introduction of the Financial Markets (Conduct of Institutions) Amendment Act 2022. It amends the Financial Markets Conduct Act 2013 to ensure registered banks, licensed insurers and licensed non-bank deposit takers (collectively ‘financial institutions’ for the purposes of this regime) treat consumers fairly. The CoFI regime, which commences on 31 March 2025, is designed to protect consumers by putting them at the forefront of institutions’ decisions and actions.

CoFI introduces a new regulatory regime to ensure these institutions comply with the fair conduct principle when providing relevant services to consumers. Institutions are required to have a fair conduct programme (FCP) that is designed to ensure their compliance with the fair conduct principle. It is important that consumers get the financial products and services they need throughout their life, when they need them, and have trust and confidence these will deliver what they promised.

CoFI also significantly expands the FMA’s mandate as a conduct regulator to include banks, insurers and non-bank deposit takers, and confers new responsibilities in terms of licensing, monitoring and enforcement.

Our expectations

Over the past 18 months the FMA has supported these institutions in their progression towards licence application and readiness for the new regime. The focus has been on guidance and market engagements, and this will continue. The FMA is currently assessing CoFI licence applications, allowing up to 60 business days for the assessment process[1].

For those institutions yet to apply, we strongly encourage you to do so as soon as possible to allow sufficient time for assessment, including providing any additional information that we may request during the assessment process. Institutions must be licensed by 31 March 2025 to continue providing relevant services to consumers.

While we do not expect the FCP to be fully implemented at the time of applying for a licence, we do expect the FCP to have been approved by the institution’s board of directors before the application is lodged. Fair treatment of customers must be at the forefront of all institutions’ activities. This will require you to keep your FCP under regular review and to continue, as a priority, any current or future remediation activities.

Post licence activities (April 2025 onward)

The FMA will begin supervising these institutions when the CoFI regime commences on 31 March 2025. Our proactive supervision activities will focus on identifying and addressing risks posed by institutions to the fair treatment of consumers. This will include understanding how they have implemented their FCPs to achieve the outcome of treating their consumers fairly. Prior to the commencement of the CoFI regime, at the request of numerous institutions, we plan to release an observational report of FCPs.

We will continue to engage after the regime commences to listen, provide guidance, and communicate our expectations as the regime matures. In the event we identify misconduct, we will respond in a manner that is proportionate to the harm or risk of harm. We are developing our approach for regulatory returns and the draft return proposal is currently open for consultation. As always, we welcome your feedback.

Finally, the FMA acknowledges institutions that have already submitted their application or are about to do so. If you need additional assistance, please contact me or one of my team, their details are below.

Yours sincerely

Clare Bolingford

[1] Financial Institutions considering applying for an Exemption to CoFI must also make application within the same timeframe.