FMA on what’s "not the intention of conduct regulation"

She noted: “We know, for example, that there’s been a drop in over-the-counter sales of insurance at banks, perhaps in part because staff are worried about the consequences of getting the conversation wrong.

“So, there is the risk that consumers don’t have good access to quality advice, or good conversations, about products that may be suitable for them at the right time. To which I’d say this: that’s not the intention of conduct regulation at all; quite the opposite.”

Bolingford asserted that the focus should be on outcomes and not on mere compliance.

“[The essence of CoFI] is the prioritisation of a fair conduct principle ahead of a more prescriptive approach,” stressed the FMA director. “It’s a move away from box-ticking compliance, towards a focus on outcomes including proactive analysis of how products are performing for consumers, not just the business.

“It puts the onus on institutions to consider what fairness looks like, and then to formalise that in what’s known as a ‘fair conduct programme’ specific to each entity. These programmes will need to be approved by the firm’s board before they apply for a financial institutions licence, which they’ll be able to do from next year.”

According to Bolingford, the goal is to inform the whole business as to the meaning of “fairness,” from product design all the way to claims handling. “Once the regime is in-force, we will be holding insurers to account,” she declared. “So, staff will know what fairness looks like, and consumers will know what fairness looks like.”

In Bolingford’s view, customer fairness has to be brought into every aspect of decision-making, and there remains a need for a more fundamental shift in order to achieve this.

“Life and health insurance are long-term products, which many people keep on buying for decades – often with the same provider – unquestioningly and faithfully,” she pointed out. “But, sadly, some customers only find out there are issues with their cover at claim time, which is too late.

“That’s why it’s so important features and exclusions are properly understood, as well as how premiums are set – simply because, if mistakes are made, or information is omitted or hard to find, that loyal customer might not find out about it until they or their family are told they weren’t covered after all. That’s too late, and it’s not fair treatment.”

Bolingford continued: “So, greater transparency, better communication, and more customer understanding to support those big financial decisions are what I’m hoping to see more of once CoFI kicks in.”

As to what fair treatment looks like in practice, Bolingford highlighted what consumers should be able to do when treated fairly.

“One key part is not subjecting them to unfair pressure or tactics, so they don’t feel rushed into making those important decisions,” she said. “It means helping them understand how financial products work; ensuring they know about exclusions, or what could happen if they don’t disclose all relevant information.

“It also means giving them the confidence that financial institutions and their intermediaries have the same principles and guidelines in mind, and are actively supporting their financial wellbeing.”

Bolingford went on to say: “Put simply, ‘treating consumers fairly’ means equipping staff and advisers with the right information to enable good conversations, but also ensuring it’s done with the consumer’s interests at heart.

“That’s one reason we’re working so hard to get our intermediated distribution guidance right – to ensure providers and their intermediaries are all behaving in a way that’s consistent with the fair conduct principle. And we will continue to engage with industry to focus on how to most effectively embed the regime over the next 18 months.”

CoFI, which amended the Financial Markets Conduct Act 2013, was passed in Parliament in late June.