Introduction

A new regime requires financial institutions to comply with regulations relating to sales incentives

1. The Financial Markets (Conduct of Institutions) Amendment Act 2022 (CoFI Act) received royal assent on 29 June 2022. This legislation represents a fundamental evolution of conduct regulation of the retail banking and insurance sectors in New Zealand. It introduces a conduct licensing regime for banks, insurers, and non-bank deposit takers (collectively, financial institutions) and aims to ensure that financial institutions treat consumers fairly.

2. Under the new CoFI regime, financial institutions will be required to comply with a principle to treat consumers fairly (the fair conduct principle), and must establish, implement, and maintain an effective fair conduct programme to ensure that they comply with the principle. Financial institutions will need to operate under a licence issued by the Financial Markets Authority (FMA) in order to provide core banking and insurance products and services to consumers in New Zealand. The FMA anticipates licensing applications will open from mid-2023. The Government expects the CoFI regime to fully come into force in early 2025.

3. Once the CoFI regime comes into force, financial institutions and intermediaries involved in the chain of distribution to consumers will be required to comply with regulations that regulate incentives. This is a core duty in the CoFI Act. It was introduced following the FMA and Reserve Bank reviews of banks and life insurers (as well as previous thematic reviews and the Australian Royal Commission into banking and financial services). These reviews found that sales incentives were driving conflicts of interest and risking the sale of unsuitable financial products to consumers.

Consultation has already taken place on the approach to take to regulating sales incentives

4. In September 2019, Cabinet decided to regulate sales incentives based on volume or value targets, following public consultation on an options paper about the design of the new conduct regime. In May 2021, MBIE released a discussion document seeking feedback on potential options and approaches to regulations under the CoFI Act. One matter on which feedback was sought was the approach to take with sales incentives based on volume or value targets. View the discussion document: 

5. The majority of submitters preferred a specific prohibition of sales incentives based on volume or value targets instead of an alternative principles-based prohibition, which would prohibit any incentives reasonably expected to influence choices offered to consumers or financial advice.

6. In February 2022, taking into account feedback received through consultation, Cabinet agreed to prohibit financial institutions and intermediaries from offering sales incentives based on volume or value targets to their employees (except senior managers and executives), agents and intermediaries. View the minute recording Cabinet’s decision:

This document seeks feedback on an exposure draft of regulations to prohibit certain kinds of sales incentives

7. This document seeks your feedback on the exposure draft regulations to prohibit sales incentives in accordance with Cabinet’s policy decisions above by 5pm on Wednesday 9 November 2022.

8. We are seeking your feedback to ensure we have not overlooked any technical points in how the policy decisions have been drafted, to ensure that the drafting achieves the policy intent and to ensure that the drafting does not give rise to any unintended consequences.

9. After the consultation period closes, MBIE will analyse the feedback received and consider any changes that may be required to the regulations. The draft regulations are expected to be made in Q1 2023 and come into force in early 2025 at the same time as the rest of the new conduct regime.

Not legal advice

10. The information in this document is general information provided to help with reading the draft regulations and is not legal advice. Please refer to the text of the regulations and seek legal advice if you wish to understand how the regulations would apply to specific circumstances. 

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