How will COFI be implemented? Regulator discusses options

How will COFI be implemented? Regulator discusses options | Insurance Business New Zealand

How will COFI be implemented? Regulator discusses options

With the passing of the COFI Bill drawing closer, insurers will be looking to engage with regulators on how the new conduct regime will run. In particular, they will be looking for guidance around the FMA’s licensing approach - for example, how the new regime is going be implemented and monitored.

Insurers have been aware of the incoming legislation for some time, and compliance departments have been busy with preparation. However, the FMA’s director of banking and insurance Clare Bolingford said there are still multiple areas where the FMA will be looking to engage with the industry, and will be seeking feedback once the legislation has passed into law - something which is expected to happen around the middle of next year.

Bolingford noted that the FMA has established a team to support the implementation of COFI, which currently consists of various work streams. Projects include developing a licensing approach and monitoring framework, and also a model for engaging with agencies such as the Reserve Bank and the Commerce Commission.

She said that the FMA “absolutely” wants to work with the industry on the changes, and will be looking to engage “as early as possible”. She said it will also be looking at the FSLAA process for financial advisers, and seeing which aspects of its implementation could also be applied to insurers for COFI.

Read more: COFI: The voice of the industry has been heard

“One of the first aspects that we’ll want to consult on next year will be the licensing approach itself,” Bolingford said. “We have heard the feedback through the financial advice licensing process that timeliness of guidance, and also a consultation is really important to the industry. So we are intending to publish the licensing guide, and consult on standard conditions as soon as we’re able to after the legislation has passed.

“We’re intending to use the best and most suitable parts of the financial advice approach in licensing as well,” she said. “Obviously, this is a somewhat different population, but nonetheless we feel that we’ve learned a lot through that process, and from getting feedback from another sector - many of whom will also be part of COFI through that financial advice regime.

“We also want to talk about other aspects of implementation including the monitoring framework, and particular areas of final policy that might require more guidance for us for the implementation to go well.”

One of the things that the FMA is considering is a “proportionality” and risk-based approach to firms, where their other licenses, as well as the size and nature of the business are all taken into account.

Read more: COFI “adds compliance costs” with no benefit

Bolingford said that the FMA wants the approach to be tailored and also educative, and so it will be sharing insights into what works, what doesn’t, and what still needs improvement on an ongoing basis.

“We’ll be thinking about recognising those entities that have existing prudential licenses with the Reserve Bank, and we’ll be working closely with them to consider how that then applies through into conduct licensing,” Bolingford said. “We’ll also potentially look at entities that have other licenses with the FMA, look at what information we already have, so that we don’t need to repeat anything or ask for things again.

“It will be a tailored approach depending on entity type, and it will also mean that we’ll scrutinise business models and firms differently in terms of the risk posed to consumers. That’s all likely to flow through into our monitoring approach, which is intended to be proportionate and risk-based, and will particularly take into account the size and the nature of individual businesses.”

“It’s very much our intention to identify and promote good practice as we go through the implementation period, in particular during those initial years from next year onwards,” Bolingford added. “We do want to be educative, and we will share our insights into what we think is being done well. We’ll also continue to point out where things haven’t gone well, particularly if we’re seeing trends across more than one firm.

“We’re not expecting to see firms just putting in a compliance checklist - we don’t think that’s going to cut it under COFI. We’re hoping to influence a change in mindset and culture, and we’ll be focusing on the core principle around fair conduct rather than rules.”