E ngā iwi, e ngā karangatanga, te iti me te rahi, tēna koutou, tēna tatou.
Thank you, David, it’s a pleasure to be here to provide an update on our regulatory outlook and priorities.
Well, it’s been a pretty eventful year as I’m sure all of you are well aware. There is no shortage of topics to cover. I am going to try to cover as much as I can, and we can always mop up anything else in the Q and A.
I do want to start by speaking a little bit about myself. This is the first formal speech I’ve given since I joined the FMA as Head of Insurance. My background, like many of you in this room, is in the law. I started my career in-house at a very small local government insurer, which is actually how I met David, who did some work for the superannuation side of the business. I was then General Counsel at Te Kahui Inihua o Aotearoa/ The Insurance Council of New Zealand for six years, before I joined the FMA in October last year.
It has been a pleasure, and an exciting challenge, to help establish and set up the FMA’s Insurance team, as we prepare to implement CoFI.
When I first accepted the FMA role, there were many jokes about me “turning to the dark side”. While I was never fully convinced about which was “dark” and which “light”, I can confirm that working for the regulator is definitely not a dull experience. I have been heartened to meet so many passionate and clever people in my new role, people that have a genuine focus on supporting a financial system which consumers have trust and confidence in.
I never fail to be impressed by my team in particular, and their depth of knowledge about regulation and supervision, and I’m proud to be able to supplement their knowledge and experience with some of the things I have learnt from my time in the insurance industry. One of the learnings I have from that time, is that the regulator and regulated at their most basic level, have remarkably similar goals – trust and confidence from the consumers that access their products and services. Without that, we cannot have an effective financial sector.
Changes proposed by Government bring conduct regulation across the life-cycle of consumers’ experience of financial services
There have been a series of changes announced by the Government in recent months. The most significant being the decision to proceed with the Conduct of Financial Institutions regime, and also to transfer regulation of Credit from the Commerce Commission to the FMA.
The inclusion of core banking and insurance as well as credit, combined with our establishment mandate for financial advice and investments means that all the financial products that touch most people’s lives will soon be supervised by the FMA.
- Getting loans to help you through, for that big purchase like your car
- Buying your first home
- Insuring your home, yourself, your livelihood, your family, your pets
- Saving for your own, or for your kids’ education
- Getting quality financial advice to help you make the best decisions for your own circumstances
- Investing for your retirement through KiwiSaver, or your future goals through other investments.
All of these significant moments in the lives of New Zealanders will be covered by a conduct regulator whose vision is to foster the fairest financial system in the world. It’s a big responsibility and a big goal, and we take it very seriously. It’s why I was so energised to join the culture at the FMA, that shares my own determination to make a difference.
Conduct of Financial Institutions
When we think about COFI, we don’t immediately see a list of new compliance obligations for firms. We see a varied, diverse, and wide range of different businesses across the motu. All of these businesses have relationships with customers, shareholders and communities that make a meaningful difference to people’s lives. We understand that each of these businesses have their own strategies, target markets, product offerings and customers. They will also range from multinational enterprises to local, regional businesses. They have different capital footprints and revenue streams, different risk and governance models.
COFI is designed to accommodate all of the above, and the way FMA implements new legislative regimes is accommodating. We do not, and never have, taken a one-size fits all approach.
We are currently engaging closely with a wide variety of firms who will need a CoFI licence. We have proactively engaged with smaller firms in particular, such as non-bank deposit takers and Credit Unions.
Because of this, we know which firms are on track, and which may need more support in the weeks and months ahead. We will be working with those firms who need our help in the lead up to March next year.
Working with my frontline colleagues in the Advice function at the FMA, we have learnt and adopted some major lessons from the introduction, transition and bedding in of the new financial advice regime in the last few years.
Just as we have acknowledged the efforts of the advice sector – in their thousands – to work with us in implementing FSLAA, we also recognise the efforts and resource that firms are putting into their preparation and applications for COFI. This is not only an investment into their future license to operate, we also strongly believe that demonstrating your ability to meet the standards in COFI and ensure the fair treatment of customers, will also contribute to greater trust and confidence in financial services.
I’d like to close this section on CoFI by making some observations based on where we are in the licensing process:
We know there are some firms who have told us that they are likely to seek an exemption to requiring a fair conduct programme. We also know of some firms who have indicated to us that they are likely to seek an exemption from the regime as a whole. I would really encourage those firms to have a Plan B in terms of getting a CoFI licence. The law is very clear about what is expected.
I also want to remind people that the date for firms to have a CoFI licence is fixed for March 2025. If you are a firm who needs a CoFI licence, and do not have this by April 2025, you will not be able to offer financial services to your retail customers.
It’s good to see that we have already processed and approved three complete license applications for COFI. These are from smaller firms which demonstrates that our process is designed to meet the needs of all participants. We will ensure that everyone that gets their application to us, in time, will be dealt with individually and in time. But please do not leave this until the last minute.
Credit
Earlier this year, Minister Andrew Bayly announced his intention to transfer the regulation of Consumer Credit to the FMA.
I’m in a room full of financial markets lawyers. I’m sure all of you will be more than well aware of the amount of work that is now going on behind the scenes in order to make this happen. We are not getting ahead of ourselves, as there are many details and a legislative process to go through. We are well engaged with policy makers and the Commerce Commission. We don’t underestimate the task in hand. We want to acknowledge the significant work the Commerce Commission has achieved in this space over many years, and will accept the role of Kaitiaki, guardianship, they will be handing over to us with respect.
Changes coming highlight the importance of the Council of Financial Regulators, where we work with our partners to maintain a coordinated approach to our interactions with firms. In particular with the RBNZ, our partner in the Twin Peaks model, where we will focus on ensuring industry experiences a streamlined approach from RBNZ in its role as prudential regulator, and from the FMA in our role over conduct and disclosure.
I’ve touched on two of the big changes coming over the next year. I’d like to also speak a little to how our regulatory approach is developing.
Now I know that you are a crowd that likes to get into the detail. Even then, I’d be surprised if you were all to have read our Statement of Intent. I’d like to briefly summarise it, because it gives you a good sense of where and what we are aiming for in the years ahead.
We now have four key objectives that underline our strategic direction and approach to implementation, supervision, engagement, and enforcement.
- Evolving our outcomes approach
- Evolving our intelligence led approach
- Deterring harmful unregulated activities
- Deterring misleading and deceptive practices.
Distilling our focus areas into these four major themes is an important way to focus our resources and activities in the right areas and for the most effective impact for consumers and markets. These are both the foundational pillars and the primary lens through which we deliver our risk-based intelligence led approach.
We have been thinking very carefully about how we can supervise and engage with the entities we regulate in a more consistent way across every sector. We want to ensure supervision is forward-looking, risk-based and efficient, reduces unnecessary regulatory burden (we hear you!) and focuses on the outcomes that we believe are vital to consumers and markets.
An outcomes-focused approach also means that our primary attention is to prevent conduct that is harmful to consumers and markets. This approach is consistent with both international best practice and our legislative requirements, and we are currently looking at how we need to change the ways we work internally to reflect this new approach to supervision.
We intend to publish the next iteration of our outcomes-focused approach in the Spring. We have been carefully considering the feedback from industry and stakeholders and ensuring that we listen to points that have been raised. We will be making it particularly clear that an outcomes-focused approach is about making sure the FMA’s own work is forward-looking and risk- based, and is not a new set of requirements for the industry.
One of the other ways our regulatory approach is developing is in the ways we are thinking about the costs and benefits of our regulatory approach. Where it’s appropriate, and where we are able, we’ll look to remove unnecessary burden, and we always remain alert to how our actions can impact firms.
A good example of this was our consultation earlier this year on a class exemption for green bonds. Industry had told us they wanted a more efficient route to market for these green, social and sustainability bonds. Our consultation was looking for feedback on whether our proposal provides the right balance of allowing issuers to get to market quickly, and cost-effectively, while still ensuring that investors are given information they will find timely, accurate, and valuable in making investment decisions. We're keen to know where we can take an outcomes-focused approach to remove potential barriers, and work with industry to enable innovation and flexibility.
Demonstrating the findings and outputs from our monitoring and supervisory approach is critical to support industry and show them practices we observe working well or areas for improvement. We published insights from our monitoring of the advice sector in the first couple of years of the new regime. This was a timely summary of our monitoring in the advice sector through the transition and in the first year of the new regime. We provided a balanced report with examples of good practice to help other firms demonstrate good conduct, and meet their obligations, and also some areas that need improvement.
In line with our intelligence-led approach we have shared results from an in-depth research study into New Zealanders views and understanding of fairness in financial services.
The research centres on a consumer survey of approximately 3,000 New Zealanders who answered a range of questions about fairness. The research is intended to support evidence-based conversations with industry and stakeholders on what fair treatment means. The research is not guidance for financial service providers. There are some useful scenarios that people were asked to assess for being fair or unfair. The responses were remarkably consistent in showing a generally agreed view of what fairness means to consumers.
Another upcoming change that most of you in the room will be familiar with, is the Contracts of Insurance Bill. I won’t make the same old joke about how it’s been 20+ years getting to this point with the legislation, but I will say how pleased we are to see this important piece of work advancing. There has been a lot of movement in the law, so we know there are parts of the legislation that could do with clarification and modernisation, and consolidation of the five Acts will make the law more accessible and understandable.
There are parts of the Bill that will mean changes for insurers. The new disclosure provisions and rules relating to unfair contracts terms will require some getting used to, and as regulator for this piece of legislation, the FMA is already thinking about the guidance that could be helpful to support implementation of the Bill.
These changes will help achieve the Bill’s purpose of promoting the confident and informed participation of all stakeholders in Aotearoa’s insurance market. The Bill, once passed, will also amend the Financial Markets Conduct Act to impose duties on insurers to help consumers understand insurance policies, and provide regulation-making powers relating to the form and presentation of policy wordings and making sure information is publicly available.
I believe these are positive changes for the industry. We all know that insurance is a complex topic and despite simplification of documentation and improvements in the use of plain English, policies are not well understood. We hope these proposed changes will uplift overall consumer understanding, which, going back to my opening comments, helps build that overall trust and confidence that the industry needs in order to thrive.
Concluding paragraphs
I am aware, from my time at ICNZ, and now at the FMA, that for everyone in the financial services industry, the last few years have been a period of significant change.
That’s not just about the COVID pandemic. There has been the new financial advice regime, the conduct and culture reviews, the CoFI regime, Climate Related Disclosures, the upcoming transfer of Credit from the Commerce Commission to the FMA.
There is further change to come – for example, we are working on the Government’s plans for a single conduct licence.
I think it is worth remembering that we all want the same end result. That is for businesses to grow successfully, and support their customers by treating them fairly and putting their interests at the heart of their decision-making. For those professionals that help industry with financial services regulation, we understand and support the work you do. We know that keeping an open dialogue with all our stakeholders will be critical to our success in both the short-term, delivering the up-coming changes, but also the long-term, in order to foster the fairest financial sector in the world.
I welcome any questions you may have.
End
