The newly established Ministry of Regulation, aimed at reducing red tape and bureaucracy, has begun its work with a modest team. While its creation is promising, the true measure of its success lies in its ability to deliver tangible benefits to the business community, particularly the financial services industry, which has faced intense regulatory scrutiny for over a decade.
While New Zealand's regulatory environment is considered more collaborative than those in Australia and the UK, the evolving landscape inevitably leads to some dissatisfaction. This is understandable, but it's crucial to ensure that regulations are effective without being overly burdensome.
One area ripe for review by the Ministry and the Financial Markets Authority (FMA) is the Conduct of Financial Institutions (CoFI) legislation, specifically the practice of financial institutions requiring Financial Advice Providers (FAPs) to attest to their compliance with institutional obligations. This practice creates unnecessary duplication and workload, especially for FAPs dealing with numerous institutions, each with its own interpretation of CoFI and its Fair Conduct Programme (FCP).
To address this, I propose two solutions:
1. Exempt Class 1 and Class 2 FAPs: The Ministry of Regulation should explicitly exempt these FAPs from complying with financial institutions' CoFI requirements. Existing legislation and regulatory frameworks, such as the Financial Services Legislation Amendment Act (FSLAA) and the Code of Professional Conduct, already ensure fair treatment of consumers by financial advisers.
2. FMA Confirmation of Compliance: The FMA could provide assurance to financial institutions that Class 1 and Class 2 FAPs are meeting their obligations. This could be based on the annual regulatory returns submitted to the FMA.
Essentially, a FAP's adherence to FSLAA and the Code of Professional Conduct, as mandated by the FMA, should suffice as confirmation of their commitment to fair conduct. CoFI should primarily focus on the conduct of financial institutions, not duplicate existing regulations for financial advisers.
The Ministry of Regulation has a prime opportunity to demonstrate its commitment to reducing regulatory burden by addressing this issue. Failure to do so would render it another layer of bureaucracy, undermining its intended purpose.
Yours aye,
The Laird
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