Page last updated: 25 November 2024

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 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.

About the CoFI regime

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.

Licensing

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.

Fair Conduct Programme

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.

Sales incentives FAQs

Find out more about frequently asked questions about sales incentives.

Visit the Sales incentives FAQ page in the Financial Institution section

Key terms under the CoFI Act

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.

Need help?

Featured

Financial institutions licensing guide

This guide explains how to make an application for a licence, and the criteria you will need to meet to obtain a licence.

Standard conditions for financial institutions licences

All financial institutions and their authorised bodies need to comply with standard conditions to obtain and maintain their licence.

Fair Conduct Programme

This document provides useful information to assist financial institutions in their preparation of a Fair Conduct Programme (FCP).