Page last updated: 14 August 2023

Conduct of Financial Institutions (CoFI) legislation

The FMA and Reserve Bank of New Zealand undertook joint reviews into the conduct and culture of banks and life insurers in New Zealand, in 2018 and 2019, respectively. More recently, the FMA also reviewed the conduct and culture of fire and general insurers. Those reviews found banks and insurers were not putting in place systems and processes to ensure consumers were treated fairly.

The reviews led to the introduction of the Financial Markets (Conduct of Institutions) Amendment Act 2022 (the CoFI Act). The CoFI Act amends the Financial Markets Conduct Act 2013 to ensure financial institutions treat consumers fairly. The CoFI regime, which commences on 31 March 2025, is designed to protect consumers by putting the consumer at the forefront of institutions’ decisions and actions.

Also known as the Conduct of Financial Institutions regime (CoFI), 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. The fair conduct principle is the overarching principle of CoFI that a financial institution must treat consumers fairly. It is important that consumers get the financial products and services they need throughout their life, when they need them, and have trust and confidence these will do what they should.

CoFI also significantly expands the FMA’s mandate as a conduct regulator to include financial institutions, and confers new responsibilities in terms of licensing, monitoring and enforcement.

Read more about financial institutions

Find out how to apply for a financial institution licence

Insurance advice

The CoFI regime requires registered banks, licensed insurers and licensed non-bank deposit takers to: 

  • be licensed by the FMA in respect of their conduct towards consumers; and 
  • comply with a “fair conduct principle” to treat consumers fairly, through the requirement for financial institutions to establish, maintain and implement a “fair conduct programme” (FCP) and take all reasonable steps to comply with the programme; and 
  • comply with regulations that ban target-based sales incentives, and regulate other types of incentives. 

The “fair conduct principle” will apply whenever a financial institution: 

  • designs services and products for consumers 
  • offers to provide those services and products 
  • provides those services and products 
  • has any dealings or interactions with a consumer in relation to its services or products, eg responding to a complaint or handling a claim 

The fair conduct principle is the overarching principle of CoFI that a financial institution must treat consumers fairly. The requirement to treat consumers fairly includes:  

  • paying due regard to their interests 
  • acting ethically, transparently and in good faith 
  • assisting consumers to make informed decisions 
  • ensuring the services and products that the financial institution provides are likely to meet the requirements and objectives of likely consumers 
  • not subjecting consumers to unfair pressure or tactics or undue influence. 

From the start of the CoFI regime (31 March 2025), any registered bank, licensed insurer, or licensed non-bank deposit taker in the business of providing one or more relevant services will need to hold a financial institution licence to continue operating, if that service is received by a consumer in New Zealand.

This means a financial institution that is in New Zealand but only provides relevant services or associated products to consumers outside New Zealand will not need to hold or operate under a financial institution licence. 

The following diagram is a useful tool you can use to determine whether you require a financial institution licence 

Please refer to the useful links below for resources to assist with applying for a financial institution licence.   

This image is a flowchart that helps users know whether they need a financial institution licence.  It asks: Are you a registered bank, licensed insurer, or licensed non-bank deposit taker?  If not, you won’t need to hold, or operate under, a financial institution licence.  If you are, and you’re also in the business of providing one or more relevant services, you will need to hold, or operate under, a financial institution licence.

 

From the start of the CoFI regime (on 31 March 2025), any registered bank, licensed insurer or licensed non-bank deposit taker in the business of providing one or more relevant services will need to hold a financial institution licence to continue operating, if that service is received by a consumer in New Zealand.  

This means a financial institution that is in New Zealand but only provides relevant services or associated products to consumers outside New Zealand will not need to hold or operate under a financial institution licence. 

Read more about licensing in the CoFI regime

A Fair Conduct Programme (FCP) means effective policies, processes, systems and controls that are designed to ensure the financial institution’s compliance with the fair conduct principle. 

Read more about the FCP

I am an intermediary advising SMEs (small and medium businesses) on financial services. Do incentives payments to me by a financial institution in relation to SMEs fall within the scope of the incentives prohibitions?

The incentives prohibitions do not apply to incentives payments received by an intermediary from a financial institution in relation to non-consumers. We set out more information below about how this relates to intermediaries providing advice on different products and services.

Insurance contracts other than life and health: When an insurer provides ‘general’ insurance contracts, the ‘consumer’ test that CoFI applies is whether the policyholder is entering into the contract for personal, domestic, or household purposes. Because SMEs enter into general insurance contracts for business purposes, they are not treated as consumers. This means that incentives payments received by an intermediary from a financial institution for the intermediary’s involvement in providing general insurance contracts to SMEs do not fall within the scope of the incentives prohibitions.

Life and health insurance contracts: The position is different for insurers providing life or health insurance contracts. A ‘consumer’ is defined as any policyholder under a life or health insurance contract. This would include SMEs and larger corporates because a corporate policyholder of a group insurance scheme is treated as a ‘consumer’. This means that any incentives payments received by an intermediary from an insurer for the intermediary’s involvement in providing life or health insurance contracts to SMEs do fall within the scope of the incentives prohibitions.

Other financial services: CoFI applies a different ‘consumer’ test for the provision of financial services other than insurance or lending. This includes the provision of financial adviser services. The ‘consumer’ test that CoFI applies is whether the person receives the services as a ‘retail client’ – and this includes SMEs with net assets/turnover less than $5 million. However, this consumer test is only applied when a financial institution provides financial adviser services. Put another way, the ‘consumer’ test that CoFI applies is based on the services that the financial institution provides, rather than the services that the intermediary provides.

 

Do the incentives prohibitions apply to payments that relate to persons who are not consumers?

The incentives prohibitions do not apply to incentives payments by a financial institution or an intermediary that relate to services or products provided solely to persons who are not consumers. See Key Terms under the CoFI regime which sets out the definition of ‘consumer’.

The CoFI Act has introduced some key terms to describe the framework for regulating the conduct of financial institutions in New Zealand. Read through the list of most common terms and their explanation.

Read the key terms under the CoFI Act 

Useful links and resources

The Financial Market (Conduct of Institutions) Amendment Act has introduced some technical terms to describe how the CoFI regime operates. Read through the list of most common terms and their explanation.

Prepare for your Financial Institution licence application by reading the following:

We are interested to hear about other aspects of the CoFI regime where further guidance may be useful for financial institutions. If you have any feedback, please let us know.

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