Industry unites in message to select committee
The Finance and Expenditure select committee has heard a “concerted message” from the financial services sector, its chair Deborah Russell says.
Thursday, June 11th 2020, 6:50AM
David Whyte
Oral submissions were made on the Conduct of Financial Institutions Bill on Wednesday.
Key themes were repeated by many submitters, who said the bill was rushed, left too much power over incentives to regulators, which could deal a potentially fatal blow to advice businesses, and there was too much crossover with other rules and regulations the sector was working under.
Insurers Cigna, AIA and Partners Life all argued that the recent Covid-19 outbreak had shown their good conduct in action – they had offered hardship provisions to consumers who struggled financially and contacted those who might need extra help.
Michael Burrowes, head of legal at Cigna, said the bill was a good idea but there had been a lack of consultation with the industry for what would be a substantial and important regime. The result was rushed, complex and lacked the appropriate clarity and detail.
He and AIA general counsel Kristy Redfern called for the bill to be delayed until FSLAA had bedded in.
Other submitters argued there was no evidence of the sort of harm occurring that would justify such rapid and sweeping intervention.
Katrina Shanks, chief executive of Financial Advice New Zealand, said it was hard to understand the implications of the bill because a lot of detail was left to regulations.
The power to prohibit forms of incentives was very strong, she said. She said it was hard to think of any other sector that had such oversight on its remuneration.
Shanks said Financial Advice NZ had six main concerns: the bill’s power to regulate sales incentives, no definition of “fair”, confusion over whether financial advisers are included in fair conduct programmes, the definition of intermediary, the claims process, and the timing of the bill’s enactment.
Partners Life chief legal, risk and conduct officer Rebecca Sellers said incentives played an important part in the livelihoods of many businesses and were a matter of substantive policy that should not be delegated to regulation – though committee member and Labour MP Duncan Webb asked AIA how the rules could be kept up-to-date with a changing industry if they were not in the regulations.
David Whyte, speaking on behalf of a group of sector participants including Financial Advice New Zealand, the TripleA Advisers Association and Wealthpoint, said the drafting was confusing because it was not clear whether financial advisers were caught by providers’ fair conduct programmes.
“I understand the intention is not to include financial advisers in the fair conduct programmes but the words don’t quite say that.”
He said there was a risk that intermediaries might cut down the number of providers they dealt with to simplify their obligations.
It would be particularly important that an adviser assisting a client with a claim was not captured by insurer processes he said. They needed to be able to act completely free of any influence from or obligation to the insurer.
Anna Black, chief risk officer at Fidelity Life, said the outcome of the bill needed to increase customer trust and ensure sustainability of the industry over the long term. “Pausing is appropriate.”
The bill could significantly increase compliance costs, she said. It was critical that those be kept to a minimum so that New Zealanders had access to affordable insurance options.
“The bill poses a real risk of reduced availability of independent financial advice for consumers.”
Redfern said changes to commission rules in Australia had affected the availability of advice and given that New Zealand was underinsured already, that outcome should be avoided. She said the threat of significant reform was affecting advisers’ mental wellbeing. “It’s more important than ever that any additional regulation is fit for purpose and doesn’t create unintended consequences and anxiety.”
She said, because there was no evidence of widespread misbehaviour New Zealand had time to get the bill right.
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