Conduct of Institutions Bill Passed

The Financial Markets (Conduct of Institutions) Amendment Act (“the Act”) came into force on 29 June 2022. The Act introduces a new regime which regulates the conduct of financial markets with a focus on ensuring that institutions treat consumers fairly. This major shake-up will require all institutions working within the financial industry to take considerable steps to comply with the new regime.

The Act requires banks, insurers, and deposit takers to be licensed in respect of their general conduct towards consumers. The licensing regime will be monitored and enforced by the Financial Markets Authority.

The Act also introduces a “fair conduct principle” requiring financial institutions to treat consumers fairly. It requires institutions to:

• Pay due regard to consumers’ interests,
• Act ethically, transparently and in good faith,
• Assist consumers to make informed decisions,
• Ensure services and products being offered are likely to meet consumers’ requirements and objectives; and
• Not subject consumers to unfair pressure, tactics, or undue influence.

To comply with the fair conduct principle, financial institutions will be required to establish, implement, and maintain effective fair conduct programmes throughout their business. The minimum standards for fair conduct programmes include:

• Ensuring the fair conduct programme enables the institution to meet all its legal obligations,
• Ensuring all of the institution’s distribution methods operate consistently with the fair conduct principle (including through regular reviews),
• Ensuring that the institution’s agents and employees follow all procedures or processes necessary or desirable for compliance with the fair conduct principle,
• Communicating with consumers about the institution’s relevant services or associated products in a timely, clear, concise, and effective manner; and
• Ensuring that any enhancements or improvements to the institution’s services or products are made available within a reasonable time.

The Act also requires that financial institutions and intermediaries involved in the chain of distribution comply with the regulations around incentives. These regulations will be able to prohibit sales incentives based on volume or value targets e.g., soft commissions such as overseas trips, bonuses for selling a certain number of financial products, or leader boards.

However, due to a late change made by Supplementary Order Paper, intermediaries will not be bound by an institution’s procedures and processes for compliance with its own fair conduct programme. An institution will have no management or supervisory obligations in respect of intermediaries. In addition, intermediaries or agents will not have to undergo training in an institution’s conduct programme.

The aim is for the licensing regime to be open by mid-2023, and for the regime to come fully into force in early 2025. If you require any assistance in getting ready, please get in touch.