No way CoFi can stay – National
CoFi has to go, says National’s Commerce and Consumer Affairs spokesman Andrew Bayly.
Tuesday, August 22nd 2023, 6:55AM 
4 Comments
by Sally Lindsay
“What is the point of Conduct of Financial Institutions (CoFi) rules when there is already a raft of legislation around conduct?”, he says.
The Financial Markets Conducts Act, the Commerce Commission, FMA, codes within the banking and insurance sectors and the Reserve Bank all have conduct requirements covering financial institutions.
“We don’t need another overlay of legislation.”
The CoFI regime is due to start on 31 March 2025. It introduces a new regulatory regime to ensure registered banks, licensed insurers and licensed non-bank deposit takers comply with the fair conduct principle when providing relevant services to consumers.
“What we need is one piece of legislation for the financial and insurance markets industry or sub parts of the industry, with the inclusion of the fair conduct principle,” Bayly says.
“The industry needs to move from a compliance-based model to a risk-based model, which has proper conduct protocols.
“It should be a standardised set of principles laying out specifically what financial institutions need to do. It would then be up to these institutions to work out what's best for them. The focus can then be on the bad actors. I'd rather take a lot of the resourcing out of the existing system and put it into bad actors-chasing.”
CoFi requires financial institutions to document every process in their system annually and get it signed off by somebody in the FMA, who's probably never worked in a financial institution, Bayly says.
He knows of a mid-sized insurer, which has had five people working full-time on the legislation requirements for two years with another 18 months to go. “The company says it is lucky because it has examples it can adopt from Australia. A new insurer, who didn’t have another person or organisation to lean on would find it difficult to comply.”
CoFi is creating a mountain of paperwork that has to be signed off every year, Bayly says. “Imagine an institution finding it didn't follow, for example, procedure number 27:9B because an employee was meant to have rung a client rather than emailing them. Hey presto, the institution is in the gun.”
Most of the institutions CoFi is aimed at have conduct procedures in place because they need to be licensed to conduct business.
Bayley says National wants to get the financial market working efficiently, quickly and appropriately. That is not what is being achieved with CoFi, he says. “A big issue is that the licensing regime is too complicated.”
Bayly will look at one licence with a couple of parts to it – the Reserve Bank and FMA requirements.
“It will take a while to unwind problems with the financial markets. We have to get the financial architecture right – what is the responsibility of the Reserve Bank, FMA, Commerce Commission, MBIE and Treasury?
The country has a lack of clarity around the financial and insurance markets and overlapping pieces of legislation, which is confusing, Bayly says.
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Comments from our readers
Both the RBNZ and FMA previously advised the Government that CoFi was not needed, stating that consumers already had adequate protection in place. In evidence given to a parliamentary select committee both the RBNZ and FMA were clear that there was no evidence of systemic wrongdoing in New Zealand. The Government chose to ignore this advice from the central bank and the chief regulator of the industry. This is legislation then that has been orchestrated by a bunch of politicians whose ideology makes them have an instant distrust of industry. CoFi is just the latest example of overregulation adding unnecessary complexity to an industry which doesn’t need it. Inevitably the costs associated with these changes will get passed on to consumers. The only people who are benefiting from CoFi are the Wellington bureaucrats charged with administering it.
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Only one major impediment though - National have to become Governemnt to implement.
I have always thought COFI is a very expesnsive example of "feelz good" policy.
I have never seen any cost benefit analysis (ie a measurement of the benefits of it vs the costs) but strong suspicion it would be very negative.
I mean a proper cost-benefit analysis - not the tick/minus stuff done as Regulatory impact statement which to me seems to be only a justification of why officials/governemnt chose one way of implementing the policy without discussing the cost at all. These analyses assume the policy is going to adopted, and then pick the preferred means of implementation.
I alawys thought the institutions did not put up enough of a fight against COFI at the time it was considered. Maybe they were scared of retribution from the authorities.
But if it is revoked, I would expect more than a few bottles of champagne will be opened to celebrate.
I don't think there will be many woke financial institutions publicly arguing Bayly is wrong.