MBIE reveals the likely cost of a COFI licence
MBIE has released two long-awaited consultation papers spelling out the likely rules around incentives for financial institutions under the COFI regime and how much it will cost banks, insurers and non-bank deposit-takers to obtain a licence.
Thursday, September 29th 2022, 6:16AM 
3 Comments
by Jenni McManus
MBIE is proposing a user-pays licensing system with a flat fee of $1024.93, based on an average 5.75 hours of work by FMA staff, and an hourly rate of $178.25 for any additional work.
Most standard applications will be covered by the flat fee, MBIE says, but if a file exceeds 6.75 hours, the additional hourly rate will kick in. The aim is for the FMA to charge a fee it considers fair and enables it to fully recover the cost of assessing applications. The regulator’s baseline funding will be increased to cover the cost of developing an ICT system to process applications.
Extra baseline funding has also been provided to the FMA for developing and implementing COFI but a large portion of that is expected to be recouped from increasing FMA levies on financial institutions, and a Crown contribution.
Between 92 and 109 licence applications are expected. They will be done via an online portal and risk assessment tool which will flag any issues needing attention from FMA staff. The system is designed with binary questions to enable applicants to indicate whether they meet the licensing requirements.
On top of the flat fee, a separate fee is payable for authorised bodies and for subsequent applications to vary a licence. MBIE estimates an authorised body application will take 60% of the time needed for a standard application and is proposing a fee of $614 (3.45 hours). Subsequent applications will be charged a fee of $115 plus $178.25 an hour on top of that to do the work.
In its consultation document, MBIE outlines an alternative system where all licence applications would be charged a flat fee, regardless of complexity and the time take for processing. But it says it doesn’t support this option as it means all applicants would be charged a higher fee to ensure the FMA was fully recovering its processing costs.
A third option would see licence applications divided into different classes. But MBIE says this is not its preferred option as it isn’t clear how this division might be made.
MBIE is seeking feedback from the industry on these fee options (due by 5pm on Wednesday 26 October) and on a second discussion document about the banning of sales incentives based on value and volume targets once COFI comes into force, scheduled for mid-2025. Industry feedback on this second document is due by 5pm on Wednesday 9 November.
MBIE says it considers the regulation of incentives for financial institutions involved in the distribution chain to be the core duty under COFI.
Cabinet first flagged the value and volume prohibition in a Cabinet paper in September 2019. Two years later, the government sought industry feedback on potential options and how regulation should be approached.
According to MBIE, most submitters said they preferred a specific ban on certain sales incentives rather than a principles-based prohibition that would effectively ban any incentives.
In February 2022, Cabinet agreed on the value and volume ban for employees (apart from executives and senior managers), agents and intermediaries of financial institutions.
MBIE has clarified this, saying the ban would apply to incentives calculated by reference to a target or any other threshold.
It said these sorts of incentives created conflicts of interest between the interests of consumers and those of the person eligible to receive the incentive, which increased as the person neared their target.
However, incentives on a linear basis (ie, on a per product or per service basis) will not be caught by the regulation, so long as they are not determined by reference to a target or threshold.
Senior management is excluded because the government believes there is more potential for conflict at the mid-to-lower levels of an organisation where staff are more directly involved in the distribution chain.
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Comments from our readers
Once again, the consumers will be the ones who ultimately pay that cost.
I haven't seen any hard cost-benefit numbers - my pick is the costs will be in the advanced 10s if not hundreds of millions pa. I have no idea what the actual consumer benefits will be, but my gut feel is those will be nowhere near the increased costs the poor old consumer pays.
Both the RBNZ and FMA advised the Government that COFI was not needed, stating that consumers already had adequate protection in place. Essentially the Government chose to ignore this advice from the central bank and the chief regulator of the industry.
Many advisers are becoming increasingly disillusioned now by the direction the industry is heading. What is any of this actually achieving for the consumer? As Murray notes it’s just going to see additional costs been passed onto them.
Of course MBIE will love this as it gives them something else to administer. More public servants with lifetime employment contracts.
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