This month saw three important milestones for consumer protection under the Financial Markets (Conduct of Institutions) Amendment Act 2022 (CoFI Act): notification of the official start date for the CoFI Act, the release of key regulations that will shape how financial institutions can operate under the CoFI Act, and publication of final guidance on intermediated distribution.

These developments were expected. Financial institutions and intermediaries will appreciate the move to formalise them though, so that decisions can be made that will underpin the development of fair conduct programmes and how institutions and intermediaries collaborate to deliver fair treatment to consumers of insurance and certain credit and savings products.

CoFI Act and licensing

The CoFI Act will come into force on 31 March 2025, with some transitional provisions starting on 25 July 2023 to enable relevant financial institutions to get their market services licences in place by 31 March 2025.

Under the CoFI regime, all registered banks, licensed insurers, and licensed non‑bank deposit takers (Financial Institutions) providing specified services must obtain a market services licence under the Financial Markets Conduct Act 2013 (FMCA) and maintain and comply with a fair conduct programme. The CoFI Act will require oversight of intermediaries and also prohibits certain sales incentives by Financial Institutions and their intermediaries.  

Intermediaries are persons paid by Financial Institutions for arranging for consumers to obtain insurance or credit and savings products. Payment arrangements can include commissions or other consideration and may be direct or indirect. Examples of intermediaries include insurance brokers and agents, mortgage brokers, and those arranging consumer finance and certain retail deposit accounts.


The new Financial Markets Conduct (Conduct of Institutions) Amendment Regulations 2023 (Regulations) also take effect on 31 March 2025 and provide:

  • the details of the incentive prohibitions,
  • exemptions for cases where all retail clients are fully controlled by wholesale clients,
  • details on providing information about fair conduct programmes on request,
  • fair conduct provisions for the Lloyd’s insurance market, and
  • for insurance contracts to be declared as financial products for the purposes of the FMCA’s fair dealing provisions.

Prohibited Incentives

The Regulations treat sales incentives offered or provided by Financial Institutions differently from those offered or provided by intermediary financial advice providers (FAPs). Financial Institutions and their intermediaries are prohibited from offering or giving their customer-facing employees sales incentives based on volume or value targets or thresholds (Prohibited Incentives). This also applies to employees’ immediate managers, their agents, and their intermediaries.

Intermediary FAPs can provide some adviser employees (not managers) who are on a base salary package with a linear incentive that is also payable on reaching a sales threshold. The intention is to support a remuneration practice that provides new financial advisers with a base salary and incentive that is structured to allow them to earn a living without being under undue pressure to make sales.

Incentives won’t be Prohibited Incentives if:

  • They are determined or calculated solely on a linear basis (ie on a per service or per product basis), rather than by direct reference to volume or value targets or thresholds;
  • They relate solely to services or products provided to wholesale clients.

The prohibition will apply to all incentive agreements, even those made before 31 March 2023 (ie before the Regulations come into force). However, it won’t apply to incentives to which a person becomes entitled before 31 March 2025.

Distributed intermediation guidance

The Financial Markets Authority has published its finalised guidance note on intermediated distribution. This document is mandatory reading for all Financial Institutions and intermediaries, and most of you will already be very familiar with it. The key theme is risk assessment of distribution channels, accompanied by risk management and mitigation measures, collaborative approaches, assurance, and training.

The substantive changes between the consultation and final versions are:

  • Risk assessment of FAP intermediaries: For intermediaries with a FAP licence, the document continues to record that they generally pose a lower risk, but now adds that Financial Institutions should do a risk assessment of all relevant factors, and that sometimes risk can be higher.
  • Group life/health policies are intermediated: The document now explicitly covers insurance products distributed through employer group policies (eg group life or health policies) as an example of intermediated distribution (although employers and their employees won’t be intermediaries unless they receive a commission).
  • Collaboration plays a role: There is an increased focus on the role of collaboration between a financial institution and its intermediaries, to ensure consumers are treated fairly, eg in marketing, and in remediation. There is a specific call-out for making sure that a Financial Institution has confidence that customers in vulnerable circumstances are not subject to unfair treatment.
  • Attestations alone are insufficient: The document makes it more explicit that attestations should be used less in higher risk distribution methods. When used, this should be done in conjunction with other measures (eg lead and lag indicators), supporting evidence, and further investigations.

All involved in the distribution chain appreciate that fair treatment of customers is central to doing business in this sector and the changes further align New Zealand with similar regulations in other countries. However, there can still be tension between Financial Institutions and intermediaries on how far a Financial Institution should go in overseeing what the intermediary does, and the inevitable administrative cost of that oversight. Really good dialogue is needed between Financial Institutions and intermediaries, to get mutual buy-in on what measures will be effective in delivering fair treatment outcomes for customers.

Let us know if we can help

If you would like to discuss transitioning away from Prohibited Incentives and developing fair distribution relationships, please get in touch.

Special thanks to Michael Carston for his assistance in writing this article.


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