Conduct of Financial Institutions Bill
By Bruce Cameron
Every year Alexander Forbes publishes a Hot Topics Insight, which is aimed mainly at trustees and administrators of funds, who also attend seminars on the publication at which skilled professionals of Alexander Forbes deliver presentations.
Many of the topics should in fact extend further and reach an audience beyond trustees and administrators of funds. It is important that everyone gets a chance to see what their trustees and administrators are doing on their behalf.
Bruce Cameron will write about the latest Hot Topics on Legal and Regulatory Insights to show what you should also be considering.
In this column we deal with parts of the new Conduct of Financial Institutions Bill (commonly known as the “COFI Bill”).
A Bill is draft law (or legislation), that has not yet officially been made into law, but it is worthwhile knowing about, as it is in the process of becoming law. A Bill is opened to public comment and objection, which means that you as the reader can object to different parts if you wish to, or make comments on the proposed law.
The COFI Bill is extremely important as it will set down what financial institutions need to do to protect you as a customer.
It means that financial institutions will now have to treat all their customers fairly in every aspect of day to day business, focusing on a fair outcome in every scenario. It is what is called an outcomes-based solution rather than one in which details are set down in rigorous rules – and one can then be exploited.
When the Bill becomes law, every financial institution providing any of your financial products, must prove it treated you fairly throughout the process as well as after the sale of the product/s– this does not mean that every institution has to now simply agree with a complaint received, but rather, that every customer must be treated fairly from start to end, and if a complaint is received, then fairness must be evident in coming to a decision regarding any such complaint.
If you have not been treated fairly, endured obstacles or are unhappy with the outcome or service received, you can report this to the Financial Sector Conduct Authority or one of the dispute resolution organisations representing the financial sector for assistance.
In its publication Alexander Forbes says the COFI Bill will in time replace or amend most other Acts of Parliament that govern the financial sector, products and services it renders, and which in the past governed market conduct.
The new Bill will:
Provide details on how you should be treated fairly;
Streamline existing laws applicable to the financial sector;
Promote innovation, competition, financial inclusion and transformation;
Support fair and efficient financial markets; and
Improve effective dispute resolution solutions.
Together with this Bill, the Financial Sector Conduct Sector will issue Conduct standards, which will be binding, and treated as subordinate legislation. These Standards will provide more information around what is required from each party in order to comply with this new legislation.
Alexander Forbes says one of the current problems with the Bill is that various Conduct Standards have to be applied and the Conduct Standards will only be published as and when the various parts of the new legislation comes into effect.
It is important that all financial institutions ranging from your bank to your retirement fund introduce a governance policy, which will require them to conduct their business “with integrity, skill, care and due diligence, avoid or manage conflicts of interest and act in the best interests of their customers”.
Importantly financial institutions:
Cannot get you to waive your rights in terms of the new legislation;
Must provide you with accurate information about a product or service before, during and after the sale.
Will have to meet standards about inducements to you or your advisers to buy their products from lures from financial advisers through to bait marketing, where other inducements are used, and negative marketing, such as getting you to say “No” to something you don’t want.
The has been much comment on the first draft of the Bill and is now out the second parliamentary draft for comment, which is expected in 2020.
The authors of the book will keep you informed on future developments.