From 25 July 2023, the Financial Markets Authority (FMA) began accepting applications for financial institution licences under the Conduct of Financial Institutions (CoFI) regime. This licensing regime is monitored and enforced by the FMA. Financial institution licenses must be obtained by 31 March 2025 (the commencement date of the regime).
For further information on the background of the CoFI regime (including the legislative process, consultation papers, and relevant guidance), please see our previous Conduct of financial institutions regime article.
Who does this affect?
CoFI requires registered banks, licensed insurers, and licensed non-bank deposit takers (together, Financial Institutions) who are in the business of providing one or more 'relevant services' to consumers in New Zealand, to be licensed in respect of their conduct towards consumers. The FMA recommends that Financial Institutions apply early in order to ensure that their licence is processed before the CoFI regime commences on 31 March 2025, as the FMA's estimated processing time of 60 days may fluctuate depending on various factors.
What do I need to consider?
The relevant documents in relation to licensing include the FMA's guide to the requirements that a Financial Institution has to meet to apply for a licence (Licensing Guide) and the standard conditions, which holders of a Financial Institution licence must comply with. For more information on the Licensing Guide and the standard licence conditions, please see our previous article.
Prior to licensing, Financial Institutions must also establish and implement a fair conduct programme (FCP). To date, the FMA has published an information sheet on fair conduct programmes which sets out helpful guidance on the content requirements for FCPs. For more information on the requirement to establish, implement and maintain a FCP and the FCP information sheet, please see our previous article.
Since our previous article, the FMA has released its final guidance for Financial Institutions that distribute products and services through intermediaries as part of CoFI. The final guidance has not been significantly amended from the draft guidance published for consultation on 20 February 2023. For more information on the draft guidance for intermediated distribution, please see our previous article. One change from the draft guidance clarifies that the "shared responsibility" of Financial Institutions and intermediaries in ensuring consumers are being treated fairly means that the Financial Institution and intermediaries must collaborate "where it is appropriate and necessary". This depends on the arrangement between the Financial Institution and their respective intermediaries, so the type or level of collaboration required may differ on a case by case basis, including responsibility for remediating any harm or unfair treatment. Other changes include (but are not limited to) confirming that group insurance schemes held by employers are an example of intermediated distribution, that the roles and responsibilities of a Financial Institution and intermediary should be agreed upon in writing (even if not in contract form) and that attestations (requesting intermediaries to periodically declare that certain statements relating to their compliance are correct) should generally be used with other review processes regardless of the level of risk. Attestations will likely be less suitable for higher-risk distribution methods, but when they are used, supporting evidence or further investigations should be provided where appropriate.
The FMA intends to continue consulting with Financial Institutions on the CoFI regime, including licensing. Relevant Financial Institutions will be contacted.
Please contact our financial services regulation team if you have any questions, or require assistance with applying for a Financial Institution licence or implementing a FCP.