Banks, non-bank lenders to face new licensing regime

by Ksenia Stepanova16 Dec 2019

Banks, non-bank lenders and insurers are facing tougher licensing requirements as the government introduces the Financial Markets (Conduct of Institutions) Amendment Bill into parliament.

The Bill will require insurers, banks and non-bank deposit takers to obtain a new license, and comply with a “fair conduct principle” to treat customers fairly – that is, to ensure that their products, services and broker remuneration structures are all designed with good customer outcomes in mind.

According to the government, the Bill is aimed at “ensuring that institutions take responsibility from the top down,” with heavy emphasis being placed on compliance with the regulation of incentives. However, Financial Advice New Zealand CEO Katrina Shanks there is a clear difference between remuneration and incentives, something which should be made very clear in the final Bill.

“The Bill talks about incentives being commission-based, but we like to talk about commission being a form of remuneration, not an incentive,” Shanks told NZ Adviser.

“We think that sends an incorrect message. The client receives a valued service from an adviser, and the commission they receive is a form of remuneration. If you start talking about commissions as ‘incentives’ then that changes the conversation, so we want to get the terminology right within that legislation.”

Shanks says Financial Advice New Zealand completely agrees that soft incentives and volume-based incentives need to go – however, care should be taken to set a line between incentives and remuneration. She is also seeking clarity regarding the position of advisers within the Bill, as it currently gives conflicting information about whether or not they are exempt from its ‘fair conduct’ principles.

“Advisers are already covered by the FSLAB legislation, which is all about treating customers fairly,” Shanks said.

“This Bill has carved out financial advisers in terms of being part of the fair conduct principle. But the language and the terminology within the Bill is confusing, so we’re seeking clarity and consistent language.”

The Bill is currently in its first reading, and the government is accepting submissions on the proposed legislation.

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