[The Wrap] FSC should take a position on CoFI
It was curious to see the Financial Services Council is turning itself into a lobby group – last time it did that things didn’t go too well.
Saturday, September 23rd 2023, 6:00AM 
3 Comments
In a rather impassioned update speech at the recent Financial Services Council conference, chief executive Richard Klipin announced the organisation was turning itself into a lobby group.
He noted FSC had “not been a policy shop” in recent years, but the time had come for change.
The FSC, he said, “needs to lead.”
And in more grandiose terms he described the change as “a nation building project.”
“People need to come with us.”
It’s probably fair to say the financial services sector has lacked a bit of leadership over the years.
The sector has been through massive regulatory changes at many levels and lobbying looks like it was reasonably fragmented.
The FSC – well its predecessor organisations - had engaged in lobbying before. During these times the organisations had been headed by a couple of people who had been involved in Parliament and politics. That seemed to suggest that lobbying could be effective.
The trouble turned out that all the members of these groups were not always on the same page.
A classic example is when the organisation lobbied ministers over some fund issues, then one of its key members went off to the Minster of Finance and put up a counter-argument.
Financial services is a competitive business and fund managers and life insurers are not always on the same page.
If the FSC really wants to be lobby group it could well start by expressing a view on the National Party’s plans to repeal the CoFI legislation.
When we asked the FSC they kicked for touch (a reasonable analogy with the Rugby World Cup in full swing). Klipin said the body was being neutral and not commenting.
This is a ludicrous position following the FSC proclamations a few week earlier.
Good Returns understands one of the FSC’s many committees met last week to discuss CoFI. Surely there was something more substantial than what boils down to a no comment.
The FSC response is also at odds with previous statements. When National announced its silly splitting KiwiSaver policy FSC put out a media release in response.
Coming back to CoFI the financial sector deserves to know whether manufacturers (banks and life insurance companies) support the legislation or want to see it go.
They have already spent tens of millions of dollars getting ready for.
My view is clearly expressed here.
Most FSC members are likely to be National supporters. They shouldn’t be afraid to criticise a policy from a party they support.
For the good of the industry the FSC should articulate its position on CoFI.
| « Kloogh investors told they will only get 2c in the $1 back | Industry should ignore Nat pledge to scrap CoFi: KPMG » |
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Comments from our readers
The old-fashioned approach to regulation is to first define what the problem is. Does anyone really think instos designed products that they did not think would be in their customers' interests? Or that instos systemically act unfairly to their clients?
Second step once you've defined the problem, look at all the possible options for fixing the problem.
Third look at the costs of each option, and the benefits of fixing the problem.
Fourth for each option do a proper economic cost benefit analysis. Immediately chuck out any options when the discounted costs are greater than the discounted benefits. Choose the option that has a positive return and gives the greatest bang for the buck.
I really question whether any of those steps have been done with CoFI. Like a lot of policy over the last 6 years, the criterion that has held most sway is that the policy "feels good"
50 years ago there was a big debate on what the appropriate public sector discount rate was. This is the net return Govt should expect - from memory the answer was something like 8%p.a. in real terms.
My gut feel is the real return on CoFI will be negative ie it should not be done!
I wonder whether FSC members would be game to do a confidential survey (i.e. conducted by a suitable independent entity) where each insto was asked how much each insto expected to spend
(a) as the upfront cost of implementing CoFI and
(b) the annual costs of implementing it. The aggregate would give us all an estimate of how much consumers were going to have to pay.
Second I would like to challenge the consumers' organisations (and/or anyone like JPH who thinks CoFI is needed) to provide an auditable estimate of what they think the benefits are.
Maybe I am wrong and MBIE/FMA could inform the debate by proactively producing their economic cost benefit analysis.
And please do not direct me to the regulatory impact statement - that is not, repeat not, a proper cost benefit analysis.
Where my wheelhouse sits is squarely in risk and delivery to consumers.
While we do not have any effective tools to ensure insurance providers deliver to consumer needs, including security of contracts, we need CoFI.
Will this increase the burden on providers, I very much expect so. The delivery of benefits to policy holders is a cost they should have priced for, but haven't paid.
However, qualifying denial of claims and lack of response from removal of benefits is difficult when the very providers doing it are not capturing this data and consumers have no idea of their rights or avenues for reporting the issues, makes your sort of justification hard to provide numbers on.
I know after 23 years in my area there is a significant level of harm, withdrawn support, and lack of performance that providers have caused to clients.
Some are justified by their own rules (Southern Cross) others break laws and rules that have no one watching, pursuing, or challenging.
The latest one I raised with AIA restructuring contracts justified on unreasonable contract terms creating more unreasonable contract terms being the latest example.
I don't much care how it's done, but we need CoFI or a form of it.
Just because you haven't seen the impacts or had the experience doesn't mean it's not there either.
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We clearly need CoFI, and a revision of a couple of things is needed, but scrapping it rather than moving forward isn't the answer either.
Let's stick to the client-focused approach, but temper it with the commercial reality providers need to operate, otherwise we won't have providers.
Review and adjust like we do with everything else.
Points like fairness and good customer outcomes are aspirational but difficult to quantify and measure.
Things like contract security and delivering on promises made are far more specific and measurable.
Most have seen and heard SMART goals. Specific, measurable, attainable, realistic, and time-bound
We need to apply this test to what's being legislated, otherwise, we risk losing the providers we have and that's not because there are others lining up, it's because the playing field is too tough.