Page last updated: 30 November 2022

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. It 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.

Insurance advice

The CoFI regime requires registered banks, licenced insurers and licenced 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 new CoFI regime, any registered bank, licenced 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.

 

Early 2023:

  • we will publish draft intermediated distribution guidance for consultation 
  • MBIE is expected to confirm the date that the new regime will come into force and the fees that will be charged for licence applications. 

25 July 2023:

  • financial institution licence applications open for submission. 

Early-2025:

  • the new regime will come into force. All existing banks, insurers and non-bank deposit takers will be required to have a financial institution licence when the new regime come into effect 

From the start of the new CoFI regime, any registered bank, licenced 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

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

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