Culture & Conduct Update – April 2019
MBIE has released two Options Papers that address potentially significant changes to the law affecting financial institutions:
- The Options Paper on the Conduct of Financial Institutions considers in a broad way how the conduct of financial institutions may be better regulated. Submissions are due on 7 June 2019.
- The Options Paper on the Insurance Contract Law Review is a continuation of MBIE's review of insurance contract law. Submissions are due on 28 June 2019.
The Options Papers consider fundamental questions about the regulation of financial institutions and the insurance law framework. It will therefore be important for financial institutions to engage in the law reform processes at this stage to ensure any law changes are fit for purpose.
Conduct of Financial Institutions
MBIE's initial preferred package of options includes:
- a principles-based set of duties applying (in the first instance) to banks and insurers in their dealings with retail customers, with directors and senior managers personally liable if their entity does not meet those duties;
- a set of more specific duties to address concerns around conflicted remuneration (including a ban on target-based remuneration and incentives, including soft commissions), insurers' conduct in relation to claims-handling, product design, and the lack of oversight of intermediaries; and
- enforcement by the FMA, including the ability for the FMA to seek "strong pecuniary penalties".
In addition to MBIE's preferred package of options, the paper also includes other options for consideration, including:
- banning certain products that are deemed to provide poor value or poor customer outcomes.
- banning all in-house remuneration and incentives linked to sales measures.
- capping upfront and/or trail commissions to intermediaries.
- requiring insurers to settle claims within a set time (with exceptions for certain circumstances).
Insurance Contract Law Review
MBIE has identified a number of insurance law reform options, including in relation to:
- an insured's duty of disclosure and the insurer's remedies for non-disclosure or misrepresentation (which would alleviate the sometimes harsh consequences of innocent non-disclosure under the current law);
- improving consumers' protection against unfair contract terms; and
- improving consumers' ability to understand and compare policies.
Next steps
Over the coming weeks, we will be publishing more detailed updates on the issues raised by the Options Papers. In the meantime, if you would like any assistance preparing a submission on either Options Paper, please contact one of our authors below.
This article is intended only to provide a summary of the subject covered. It does not purport to be comprehensive or to provide legal advice. No person should act in reliance on any statement contained in this publication without first obtaining specific professional advice. If you require any advice or further information on the subject matter of this newsletter, please contact the partner/solicitor in the firm who normally advises you, or alternatively contact one of the partners listed below.