Jane Brown (pictured), head of insurance at the Financial Markets Authority (FMA), delivered a keynote address at the New Zealand Insurance Law Association (NZILA) 2024 Conference, focusing on regulatory oversight and the upcoming Conduct of Financial Institutions (CoFI) regime.
Brown’s remarks emphasised lessons learned from recent enforcement actions and previewed the FMA’s supervisory approach as CoFI comes into effect in 2025.
During her speech, Brown outlined key enforcement cases the FMA has addressed in recent years, highlighting significant breaches within the insurance industry. Several cases involved insurers failing to apply multi-policy discounts, leading to customer overcharges.
Brown pointed out that these issues persisted for many years before being addressed, some even stretching back decades.
“In eight cases, the FMA’s Enforcement team took civil proceedings under the Fair Dealing provisions within the Financial Markets Conduct Act,” she said, noting that these breaches were primarily related to misleading marketing materials and failures to honour promised discounts.
The FMA was concerned by the length of time these issues went undetected, resulting in considerable financial harm to customers.
“Some cases stretched back decades, resulting in significant breaches, customer harm, and millions of overcharged premiums,” Brown said.
Brown stressed the importance of understanding court rulings from these cases, as they provide guidance on what constitutes poor conduct.
“If you haven’t already, I encourage all of you to read the judgments that have come out of the proceedings we have taken, something I’m also working my way through,” she said.
Brown also focused on the FMA’s evolving role as a regulator, explaining that the upcoming CoFI regime will shift the FMA from a reactive stance – focused on enforcement after issues arise – to a more proactive, supervision-led approach.
CoFI will introduce a licensing regime for insurers, banks, and other financial institutions, requiring them to meet new conduct obligations aimed at ensuring fair treatment of consumers.
Brown said the upcoming CoFI regime will provide the FMA with a range of tools to address conduct risk before problems occur, including the ability to issue direction orders, stop orders, and other regulatory measures that allow for earlier intervention.
She said that under CoFI, the FMA will focus on ensuring financial institutions achieve positive customer outcomes rather than merely following compliance rules.
“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 that those products and services will perform as expected and meet customers’ needs,” she said.
The CoFI regime, set to come into force in March 2025, marks a significant regulatory shift for the FMA.
Brown explained that the new tools available under CoFI will allow the FMA to monitor firms more closely and assess their conduct in real time.
“We will be focusing more on the outcomes resulting from treatment of consumers rather than just on the methods financial institutions have chosen to comply with CoFI obligations,” she said.
In her speech, Brown also addressed the issue of self-reporting, which has been a key area of focus for the FMA in recent years.
Self-reporting, according to Brown, is an important aspect of managing conduct risk, and firms are expected to proactively notify the FMA when potential breaches are identified.
While self-reporting does not exempt firms from enforcement action, Brown emphasised that it plays a significant role in shaping the FMA’s response.
She encouraged firms to engage with the FMA early when issues arise, rather than waiting for problems to fully unfold.
With CoFI’s implementation just months away, Brown urged financial institutions to ensure they submit their licence applications before the end of 2024.
Firms that fail to obtain a CoFI licence by the March 31, 2025, deadline will be unable to provide services to retail customers.
Brown said that while the FMA has already received some applications, the overall number is lower than expected given the looming deadline.
Additionally, some firms have indicated plans to seek exemptions from certain CoFI requirements, such as the need for a fair conduct programme.
Brown advised firms to have contingency plans in place, as exemptions may not be granted in all cases.
FMA chief executive Samantha Barrass also spoke at the conference, focusing on the broader regulatory landscape and the FMA’s role in ensuring consumer resilience and fairness in the financial sector.
Barrass addressed the theme of “consumer resilience and prosperity” and underscored the importance of regulatory changes that support long-term consumer protection and market stability.
She highlighted the FMA’s responsibility to oversee financial products that impact most New Zealanders, including loans, insurance, and retirement savings. She also emphasised the importance of fostering trust and confidence in the financial sector, particularly as the FMA prepares to take on additional regulatory responsibilities under the Credit Contracts and Consumer Finance Act (CCCFA).
Barrass emphasised that the FMA is committed to ensuring that its regulatory approach does not impose unnecessary burdens on businesses.
She highlighted ongoing efforts to streamline regulations where possible, including the potential class exemption for green and sustainability-linked bonds. This exemption could help reduce compliance costs and incentivize market growth, while still maintaining investor protection.
Barrass also discussed the FMA’s focus on providing guidance to the sector to help firms meet regulatory expectations.
She stressed that the FMA’s guidance is intended to be a resource for senior leaders within organizations, not just compliance teams.
