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Page last updated: 07 April 2025

FMA letter sent to entities licensed under the Conduct of Financial Institutions regime (CoFI)

This letter was sent to the chief executives of New Zealand’s financial institutions from Clare Bollingford, Executive Director, Regulatory Delivery and Michael Hewes, Director, Deposit Taking, Insurance and Advice following the start of the Conduct of Financial Institution (CoFI) Act. 

Dear [CEO Name] 

Commencement of Financial Markets (Conduct of Institutions) Amendment Act 2022 (‘CoFI’) 

Late last year I wrote to you setting out the background to CoFI and reiterating the FMA’s expectations towards readiness for the new regime.  

I would first like to acknowledge the significant work undertaken across registered banks, licensed insurers and licensed non-bank deposit takers in preparation for CoFI. The FMA is pleased with the collaborative and committed approach taken by industry and the efforts put into developing fair conduct programmes (FCP’s).   

Reiterating our expectations of financial institutions 

CoFI significantly expands the FMA’s mandate as a conduct regulator to include financial institutions, and assigns new responsibilities in terms of licensing, monitoring and enforcement. At the heart of CoFI is the overarching fair conduct principle designed to ensure financial institutions treat consumers fairly. We believe the financial system in New Zealand is working well when consumers have the financial products and services they need during their life, when they need them, and have trust and confidence these will deliver as expected. 

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.  

With the commencement of CoFI, new regulations also come into force, in particular incentives regulations. These new regulations define what is a prohibited incentive and what is not a prohibited incentive, and our FMA FAQ provides some additional examples.  

The FMA has, for many years, highlighted how volume and value-based incentives can be detrimental to fair consumer outcomes. The Conduct and Culture reviews undertaken in 2018 and 2019, along with the 2018 Bank Incentives Structures review, set out our position clearly. Financial institutions must now completely remove any prohibited incentives from the commencement of the CoFI regime, including those offered or given to intermediaries and agents involved in the provision of your services and products. 

FMA areas of focus upon commencement of CoFI  

Our immediate focus from April is addressing risks identified during the licensing period. We will also prioritise engagement with financial institutions who have not self-reported issues regarding fair treatment of their customers. Absence of self-reporting by financial institutions can be seen as a heightened indicator of conduct risk. This follows other firms proactively self-reporting and remediating issues that are indicative of a wider, more systemic fair treatment risk to consumers, which warrants our close attention. We encourage and expect that financial institutions undertake proactive reviews of on-sale and legacy products and services that enable them to detect and respond to issues of this nature, and to provide assurance to us that they have done so.  

Over the next year we intend to have a broader focus on consumer awareness of complaints processes and handling of complaints by financial institutions; both a key foundation of fair treatment for consumers, who should have knowledge and confidence to raise their concerns and be able to access efficient, effective and fair resolution when things go wrong. We continue to encourage financial institutions to be thinking about how they can learn from complaints data to help identify product and service risk areas and to improve their future product and service design and delivery.  

We also intend to focus on clear communication with consumers on product and service offerings, including product exclusion disclosures, fees, and premiums. This additionally aligns with planned insurance law reform (for the insurance sector) and our expectation that providers are ready to meet new requirements. 

We will also be interested in the regularity and comprehensiveness of reporting on conduct risks being made available to your board or governing authority.  

The FMA will utilise existing sector intelligence, information gained during the licencing process and consumer complaints to help target our monitoring of financial institutions. Our response and enforcement work will continue to prioritise those material failures by financial institutions to deliver products or services as promised to consumers, due to systemic failures in systems, processes and controls.  

You will also see us continue to engage at a board, executive and operational level as we seek to understand from you how you have implemented your fair conduct programme to achieve the outcome of treating your consumers fairly.  

We appreciate the engagement of your team as we finalised the CoFI regulatory returns question set.  Regulatory returns enable the FMA to gain a better understanding of the deposit taking and insurance sectors, providing data that supports the targeting of our supervisory activity. We expect to release themes from CoFI regulatory returns late 2026. 

As the regime matures, we will broaden our engagement to include the full range of supervisory activities, including desk-based, thematic and on-site monitoring. For those with multiple licences we will adopt a group supervision approach for efficiency and in line with our work towards a single licence for conduct.  

The FMA remains committed to supporting registered banks, licensed insurers and licensed non-bank deposit takers during the implementation phase and beyond. The FCP insights report released today is another resource designed to support you. The FCP insights report provides a summary review of FCPs submitted to the FMA – highlighting policy and process exemplars, and areas where further development is required.   

As always, the FMA is available to engage with you directly, or more broadly at a board or operational level. My, and Michael’s contact details are listed below. 

Yours sincerely  

 

Clare Bolingford  

Executive Director, Regulatory Delivery  

 

Michael Hewes 

Director, Deposit Taking, Insurance and Advice