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21 July 20224 minute read

FMA Releases Consultation Paper on CoFI Standard Licence Conditions

The Financial Markets Authority (FMA) has released a consultation paper on proposed standard conditions for licences (Financial Institution Licences) granted under the new Financial Markets (Conduct of Institutions) Amendment Act 2022 (CoFI). 

Under CoFI, registered banks, licensed insurers and licensed non-bank deposit takers providing relevant services to consumers (Financial Institutions) will need a Financial Institution Licence to continue providing relevant services. Relevant services include acting as an insurer in relation to consumer, life or health insurance contracts, being a creditor under a consumer credit contract, certain retail services under the Financial Service Providers (Registration and Dispute Resolution) Act 2008 and acting as an intermediary for any of those services.

You can find out more information about CoFI's obligations in our previous update.

FMA Director of Banking and Insurance, Clare Bolingford, said: "We strongly encourage industry and stakeholder feedback on our consultations to ensure our regulatory proposals are fair and appropriate. The standard conditions for financial institutions are especially important given these businesses play such an important role in New Zealanders’ everyday lives."

What are the standard conditions?

The consultation paper proposes six standard conditions on Financial Institution Licences:
  1. Ongoing requirements — A Financial Institution must at all times continue to satisfy the various requirements for licences, such as directors and senior managers meeting fit and proper criteria. This will include ensuring that the Financial Institution's fair conduct programme is up to date and complied with.

  2. Notification of material changes — A Financial Institution must notify the FMA in writing within 10 working days of implementing any material change to the nature of its Financial Institution service. Any changes to the Financial Institution's business will need to be reflected in its fair conduct programme. 

  3. Regulatory returns — A Financial Institution must provide the FMA with the information the regulator needs to monitor the Financial Institution’s ongoing capability to effectively perform its service. The FMA has indicated that it will consult with the industry before issuing any regulatory return requirements. Such requirements may include providing information regarding the implementation and maintenance of, and compliance with, the Financial Institution's fair conduct programme. 

  4. Outsourcing — If a Financial Institution outsources a system or process necessary to the provision of its service, it must be satisfied that the provider is capable of performing the service to the standard required to enable it to meet its market services licensee obligations. This implies a need to do due diligence and continually monitor each outsource provider. When outsourcing, Financial Institutions should consider matters such as the outsource provider's previous experience and any reported complaints about them. 

  5. Business continuity and technology systems — A Financial Institution must have and maintain a business continuity plan that is appropriate for the scale and scope of its Financial Institution service, and must notify the FMA of any event that materially impacts the operational resilience of its critical technology systems. The Financial Institution's continuity plan must support compliance with its fair conduct programme. 

  6. Record keeping — A Financial Institution must create in a timely manner and maintain adequate records in relation to its service. Adequate records include demonstrating how the Financial Institution has established, implemented and maintained an effective fair conduct programme. 


Fair conduct programmes

Under CoFI, Financial Institutions will be required to put in place programmes, tailored to their businesses, products offered and customers (including vulnerable customers) to deliver fair conduct outcomes. A summary of the programme must be on the Financial Institution’s website and provided on request. CoFI sets out minimum standards for fair conduct programmes.

What's next?

Licensing applications are expected to open in mid-2023 and be open for approximately 18 months. The regime is expected to come fully into force in early 2025. The FMA has indicated that it will provide further information regarding fair conduct programmes when it publishes a Financial Institution Licence Application Guide. 

Consultation closes at 5pm Wednesday 7 September 2022

Please get in contact with us if you would like any assistance submitting on the consultation.


Rachel Taylor, Alasdair McBeth, Michael Thompson, Rachel Brown, Tom Barnes and Boston Flanagan-Connors.