Key terms under the CoFI regime

A product is an “associated product” in relation to a relevant service if it is a financial advice product that a consumer acquires under the service provided by the financial institution.

A financial advice product includes the following: 

• a financial product – which includes the following products, as defined in section 7 and section 8 of the FMC Act.
  • debt securities, e.g. term deposits, savings accounts, transactional accounts, foreign currency accounts
  • equity securities, e.g. shares in companies and building societies
  • managed investment products, e.g. KiwiSaver, other managed funds
  • derivatives, e.g. options, swap agreements, futures contracts or forwards, contracts for difference, caps, collars, floors or spreads
• a discretionary investment management (DIMS) facility – an agreement for the provision of a DIMS service 
• a contract of insurance – which includes:
  • a consumer insurance contract, e.g. house and contents insurance, vehicle insurance, travel insurance, pet insurance, mortgage insurance, consumer debt repayment insurance
  • a contract of insurance that provides for life insurance, e.g. term life insurance, whole of life/endowment insurance, trauma insurance, total and permanent disablement insurance, accidental death insurance, income protection insurance, funeral insurance
  • a contract of insurance that provides for health insurance, e.g. insurance covering medical expenses like surgery, diagnostic procedures, doctor’s visits
• a consumer credit contract, e.g. home loans, credit cards, overdrafts, personal loans, reverse equity home loans
• any other product declared by the regulations to be a financial advice product
• a renewal or variation of the terms or conditions of an existing financial advice product.

We refer to the Financial Markets (Conduct of Institutions) Amendment Act 2022 as the ‘CoFI Act’. When the CoFI Act comes into force on 31 March 2025, it will amend the Financial Markets Conduct Act 2013 to provide a new framework for regulating the conduct of financial institutions in New Zealand.

(a) In relation to the relevant service of acting as an insurer, or an associated product, “consumer” means any of the following:

(i) a policyholder under a consumer insurance contract or a contract of insurance that provides for life insurance or health insurance (or both)

(ii) any other person who is specified or referred to in the kind of contract referred to in point (i) above, whether by name or otherwise, as someone who will benefit from the insurance cover provided by that contract 

(iii) a person who is offered insurance under a contract of a kind referred to in point (i) above

(b) In relation to the relevant service of acting as a creditor under a consumer credit contract or an associated product, “consumer” means either of the following:

(i) a debtor under a consumer credit contract

(ii) a person who is offered credit under a consumer credit contract

(c) In relation to a relevant service referred to in section 446F(1)(a)(iii) of the CoFI Act, or an associated product, “consumer” means either:

(i) a person who receives the service as a retail client; or

(ii) a person who is offered the service and would be a retail client if they received the service

(d) In relation to a relevant service of acting as an intermediary for a service referred to in paragraphs (a), (b) or (c) above, “consumer” means the same as in those paragraphs

“Consumer insurance contract” means a contract of insurance entered into by a New Zealand policyholder wholly or predominantly for personal, domestic or household purposes.

The following are not considered consumer insurance contracts:

• life insurance or health insurance contracts (which are included in the CoFI Act but defined separately); and
• contracts that are wholly or predominantly for non-personal, domestic or household purposes, including contracts to insure risks that are wholly or predominantly related to business or investment activities (e.g. cover for business premises or manufacturing facilities).
• Contracts of reinsurance as defined in the Insurance (Prudential Supervision) Act 2010.

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 consumers’ interests; and
• acting ethically, transparently, and in good faith; and
• 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.

Every financial institution must establish, implement and maintain an effective “fair conduct programme”. A fair conduct programme means policies, processes, systems and controls that are designed to ensure the financial institution’s compliance with the fair conduct principle. A financial institution’s fair conduct programme must be in writing and meet minimum requirements set out in the CoFI Act.

The CoFI Act defines a person as a “financial institution" if it:

(a) is a registered bank, licensed insurer, or licensed non-bank deposit taker (NBDT); and

(b) is in the business of providing one or more relevant services.

The CoFI Act creates a new market service of acting as a financial institution. We refer to this market service as the “financial institution service”. The licence for this new market service will be known as a “financial institution licence”.

We refer to the Financial Markets Conduct Act 2013 as the FMC Act.

The CoFI Act does not apply to all licensed insurers. In the CoFI Act, “insurer” means a person who carries on insurance business in New Zealand and enters into any of the following insurance contracts with one or more New Zealand policyholders:

• a consumer insurance contract
• a contract of insurance that provides for life insurance or health insurance (or both)

Carrying on insurance business is defined in section 8 of the Insurance (Prudential Supervision) Act 2010).

The CoFI Act does not apply to a person carrying on insurance business in New Zealand who enters into contracts of reinsurance only.

Under the CoFI Act, a person is an “intermediary” if:

(a) they are involved in the provision of a relevant service or an associated product to a consumer, by arranging a contract for the service or acquisition of the product, or giving financial advice in relation to the product; and

(b) they are paid or provided with a commission or other consideration in connection with that involvement; and

(c) the commission or consideration is paid or provided (directly or indirectly) by or on behalf of any of the following:

(i) The financial institution that provides the service or product:

(ii) if the person referred to in paragraphs (a) and (b) is itself a financial institution, any other financial institution or person that provides the service or product:

(iii) Any other person who is an intermediary in relation to the service or products.

Section 446Q of the CoFI Act explains the definition of intermediary further, including circumstances when a person is not considered an intermediary, and provides further examples.

For the purposes of the CoFI Act, a person is “involved" in the provision of a relevant service or an associated product to a consumer if the person:

(a) arranges (including negotiates, solicits or procures) a contract for the service or acquisition of the product; and/or

(b) gives regulated financial advice (as defined in the FMC Act) in relation to the product.

The definition of “involved” excludes the distribution of advertisements or other promotional material, and any other occupations and activities prescribed by regulations.

A “relevant service” means any of the services listed below. Providers of any of these services must be registered for those specific services on the Financial Service Providers Register.

• Acting as an insurer
• Being a creditor under a consumer credit contract
• Any of the following financial services, where that service is a retail service. These services are referred to in section 5(1) of the Financial Service Providers (Registration and Dispute Resolution) Act 2008.
• A financial advice service
• A regulated client money or property service (including a custodial service)
• Keeping, investing, administering, or managing money, securities or investment portfolios on behalf of other persons
• Operating a money or value transfer service
• Issuing or managing the means of payment (e.g. credit or debit cards, cheques, travellers’ cheques, money orders, bankers’ drafts, or electronic money):
• Giving financial guarantees
• Acting as an offeror of financial products offered under an FMC offer
• Acting in any of the following capacities in respect of regulated products or financial products offered under an FMC offer: as an issuer, as a supervisor, as an investment manager
• Any of the following market services if the service is, or is required to be, provided under a market services licence (whether as a licence holder or as an authorised body):
  • Acting as a manager of a registered scheme (other than a restricted scheme)
  • Acting as an independent trustee of a restricted scheme
  • Acting as a provider of a discretionary investment management service
  • Acting as a derivatives issuer
  • Acting as a provider of prescribed intermediary services
• Acting as a custodian in respect of a registered scheme or a discretionary investment management service provided by a DIMS licensee
• Operating a financial product market
• Changing foreign currency
• Trading financial products or foreign exchange on behalf of other persons
• Providing forward foreign exchange contracts

Acting as an intermediary for any of the above-mentioned services 

In relation to relevant services, a “retail service” is a service that is or will be received by a retail client, or a class of persons with at least one retail client in that class.

Under the CoFI Act, a “retail client” is as defined in section 49 of the Financial Service Providers (Registration and Dispute Resolution) Act 2008 but does not include a person who has given a certificate for the service under section 446T(3) of the CoFI Act certifying in writing that they are receiving the service as a wholesale client.