[The Wrap] CoFI starts as the regulator faces pressure

It's a big week ahead with at start of CoFI Monday and of course the Financial Advice NZ conference in Christchurch.

Sunday, March 30th 2025, 2:19PM

I'm not sure there are too many people will be pleased that CoFI kicks off this week. One happy person may be former Financial Markets Authority chief executive Rob Everett; after all conduct was a key issue for him starting from the first public speech he gave as CEO.

It's hard not to argue against good conduct - here I think you'd struggle to find a voice opposing good conduct.

Rather the issue is the way it has been done. It always feels a little like the Discretionary Investment Management (DIMs) rules which were imposted following the David Ross Ponzi scheme scandal. There is a widely held view that the DIMs regime went too far.

Not that that has led to any changes.

The core issue with CoFI is it's not particularly elegant and cuts across other legislation.

Deeper down it's been a tug of war between having principles for good conduct and expectations of good internal process versus and the industry’s demand for certainty.

Don't be surprised to see manufacturers, particularly banks followed by life and health insurance companies, demanding more control over how financial adviser providers operate. We are already hearing that banks are being difficult already.

On the other side, and this has been argued by the likes of David Whyte, that things should be reciprocal and advisers can put more pressure on product providers to demonstrate they have good conduct towards clients.

Just to make things even more interesting is the current state of the watch dog, the Financial Markets Authority.

The feedback is things are not particularly well inside the organisation and (relatively) new chairman Craig Stobo has been brought in to help steady the ship.

Adding weight to this is a story last week on BusinessDesk reporting that the FMA has started on a staff restructure, following cost blowouts in the second half of calendar 2024.

Reporting from RNZ suggests more than 20 jobs are on the line. There have already been some resignations recently including the regulator's economist earlier this year and its communications team is looking remarkably light currently.

In a statement to BusinessDesk the FMA says the restructure will "have little impact on our frontline supervision and monitoring teams".

"The proposed changes will enable us to continue to further develop our aim of being a data and intelligence-led organisation, while ensuring fiscal sustainability."

It's approach to monitoring advisers is a subject for another piece later. The more we have talked to advisers about the FMA monitoring visits the clearer it becomes that they are unlikely to find the dodgy advisers (if there are any!)

Currently the FMA employs more than 360 staff and was allocated $71.23 million in last year’s budget, excluding its roughly $5 million litigation fund.

Its first-half financial report, for the six months to December 31, 2024, reveals it had blown its half-year budget out by $1.5 million to a deficit of $3.72 million from a projected $2.2 million deficit. In the comparable first half of its financial year for 2023 it had a surplus of $1.39 million.

The market regulator’s half-year report said the variance primarily reflected higher personnel costs, write-downs of its CRM system as it moves to the cloud, and elevated litigation costs.

The start of CoFI comes at a difficult time for the regulator and adds another burden on the financial services sector. How it unfolds is going to be interesting.

Tags: CoFI FMA Opinion