Insurers won't be responsible for advisers 'at this point in time'

A new conduct regime will include "future-proofing" in case financial advice providers do not conduct themselves properly.

Wednesday, October 2nd 2019, 11:14AM

Government is taking a “wait and see” approach to whether it will require insurers to take responsibility for advisers dealing with their products.

The Government revealed its intention to introduce new conduct rules for banks, non-bank deposit takers (NBDTs) and insurers last week.

That includes a new conduct licensing system; a ban on soft commissions and sales-linked bonuses; and requirement for providers to meet a fair treatment standard, with policies and systems to make sure that happened. The Financial Markets Authority will be given greater powers to tell insurers and banks how to behave, and to levy fines.

As part of his cabinet paper seeking approval to introduce the new regime, Commerce Minister Kris Faafoi explained the reasoning for only requiring insurers and banks to be responsible for intermediaries who are outside a financial advice provider – such as car dealers promoting car finance, or insurance as an add-on.

“I consider that it is reasonable and appropriate for banks, insurers and NBDTs to take responsibility for the outcomes for their end-customers, especially where no independent intermediary is advising the customer. As the product providers, banks, insurers and NBDTs should take responsibility for the actions of the intermediaries distributing their products and manage this responsibility through some form of agency agreement."

But he said licensed entities should not be directly accountable for advice provided by intermediaries who were subject to the new financial advice regime “at this point in time”.

“The recently passed Financial Services Legislation Amendment Act 2019 (FSLAA) requires all financial advisers to be engaged by a financial advice provider, and imposes a range of conduct obligations on financial advisers. Some of these obligations are similar to what is proposed in the new conduct regime. For example, financial advisers now have a duty to adhere to a code of conduct, and have a duty to prioritise the client’s interests.

“The new FSLAA regime is untested as yet but is expected to be effective at regulating the interaction in an advised sale context. It is worth waiting to see how effective the FSLAA regime is before moving to make banks, insurers and NBDTs more directly accountable for sales through intermediaries that are already subject to some regulation.”

But he said that did not absolve the product providers of responsibility for customers’ outcomes.

“Regardless of the distribution channel, banks, insurers and NBDTs should take action to ensure the objectives and needs of their customers are met. This may include: providing financial advisers with training about their products, setting expectations of good conduct, providing information that needs to be passed on to customers and taking action where they become aware of activity that might not be in the customer’s interests.

“Taking action might include reiterating expectations of good conduct, providing further training, restructuring remuneration/incentives to avoid perverse outcomes, reporting the adviser to the FMA or ultimately ceasing to use the adviser to distribute their products.”

He said the proposed regime would also allow licence conditions to specify steps the entity had to take when dealing with intermediaries of any kind.

“I also consider that the new conduct regime should preserve the possibility of further licence conditions on financial advice providers that align with the new conduct obligations. This would future-proof the regime to address any problems that might arise if financial advice providers do not conduct themselves in a way that is consistent with the high-level conduct standard expected of banks, insurers and NBDTs.”

Tags: banks conduct Financial Services Legislation Amendment Bill FMA insurance insurers Kris Faafoi licensing NBDTs