The Financial Markets Authority (FMA) has opened consultations on draft guidance for arrangements where financial institutions distribute products and services through intermediaries. The feedback will be used to prepare for the Conduct of Financial Institutions’ new conduct regime which will ensure that financial institutions like banks, insurers, and non-bank deposit takers comply with a fair conduct principle to treat consumers fairly, as well as establish, implement, and maintain a ‘fair conduct program.’
These programs, according to the FMA, must account for intermediated distribution arrangements where there are intermediaries or agents involved, such as insurance or mortgages, as well as car dealers selling vehicle insurance.
Last week, the governing body also released questionnaire info for financial advice providers in their regulatory returns.
A consultation paper on the proposed CoFI guidance was published this week, and in it the FMA outlined its general expectations for intermediated distribution arrangements which can be applied across different sectors and distribution models.
“Our approach throughout the implementation of CoFI and the new advice regime has been to consult and collaborate with industry,” FMA executive director for regulatory delivery Clare Bolingford said. “The draft guidance is the result of a series of workshops with financial institutions and intermediaries. The overall purpose of the guidance is to ensure intermediary arrangements are designed to promote fair outcomes for consumers. These arrangements need to clearly assign roles and responsibilities, and include processes for monitoring their effectiveness.”
The draft guidance covers any situation where an agent or intermediary is involved in the distribution of a financial institution’s products or services. Intermediaries that provide financial advice are now required to be licensed by the FMA as a financial advice provider (FAP) or operate under a FAP license. They are also subject to their own set of conduct duties under the financial advice regime in Part 6 of the Financial Markets Conduct Act, as well as needing to comply with the Code of Professional Conduct.
Consumer interests must be considered in relation to the distribution of products and services by both the CoFI and the financial advice regime. As the two bodies have overarching policy objectives, the FMA considers the CoFI and financial advice regimes are complementary. The new policy intends that the two regimes create a shared responsibility between financial institutions and FAP-licensed intermediaries for fair treatment and outcomes for all consumers.
Designing products and distribution methods that are consistent with the fair conduct principle is one of the overarching principles in focus, in addition to reviewing policies regularly to ensure that they remain fit for purpose and ensuring deficiencies are remedied within a reasonable timeline.
The proposed guidance is also noted to be non-prescriptive and flexible to allow institutions to design their own approach to aligning with fair conduct principle.
“Once CoFI is embedded across the industry, the FMA’s monitoring will focus on whether entities are delivering fair outcomes for consumers,” Bolingford said. “Therefore, we encourage financial institutions to work with their intermediaries now, to ensure their fair conduct programme is more than just a checklist for compliance; it needs to be a useful and practical blueprint for implementing and maintaining systems that prioritise fair treatment of all customers.”
Interested parties can hand over feedback on the proposed guidance until April 14, 2023.
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