New legislation which is set to bring fair treatment of consumers who are purchasing financial products and services passed its final reading.
The law introduces a requirement for certain financial institutions such as banks, insurers, and non-bank deposit takers to gain a licence from the Financial Markets Authority (FMA) in respect of their conduct towards consumers.
The Financial Markets (Conduct of Institutions) Amendment Bill passed its third reading in the House on 28 June 2022 and received Royal assent on 29 June 2022 to become law.
Under the new licensing regime, those financial institutions will be required to be licensed in respect of their general conduct towards consumers, create and comply with self-established fair conduct programmes throughout their businesses, and ensure they meet the requirement to treat consumers fairly.
The Amendment Act contains a high-level fair conduct principle that applies when a financial institution is designing, offering or providing a service or product to consumers. The fair conduct principle requires financial institutions to treat consumers fairly, including:
- paying due regard to consumers’ interests;
- acting ethically, transparently, and in good faith;
- assisting consumers to make informed decisions; and
- ensuring that the relevant services and associated products that the financial institution provides are likely to meet the requirements and objectives of likely consumers (when viewed as a group); and
- not subjecting consumers to unfair pressure or tactics or undue influence.
The Amendment Act also requires the financial institutions and intermediaries (such as financial advisors and investment brokers) involved in the chain of distribution to comply with regulations that regulate common incentive schemes.
These regulations, which are still to be developed, will be able to prohibit sales incentives based on volume, bonuses for selling a certain number of financial products, or other rewards such as overseas trips.
The FMA will engage and consult with the industry to help financial institutions prepare for the new licencing applications, which are expected to open mid-2023 in advance of the regime beginning early-2025.
Disclaimer: The content of this article is general in nature and not intended as a substitute for specific professional advice on any matter and should not be relied upon for that purpose.