Authorities are requesting the same information from life insurers, as they have from banks, in the wake of a financial services royal commission exposing cases of grave misconduct in Australia.
The Financial Markets Authority (FMA) and Reserve Bank have released a letter they sent life insurers, essentially asking them to prove their practices are above board and they're complying with the law.
Many of the financial services firms in New Zealand are subsidaries of Australian companies.
Some of the big names in the industry include AIA, AMP, Asteron Life (owned by Suncorp), Cigna, Fidelity Life, Partners Life, Pinnacle Life, and Sovereign.
The regulators haven't contacted general insurers. Asked about general insurers, an FMA spokesman told interest.co.nz; "We’re comfortable that it is appropriate to prioritise our work on banks and life insurers, and at this point we haven’t made any decision as to whether that needs to be expanded in the future."
Here is a copy of the letter signed off by FMA CEO Rob Everett and Reserve Bank Governor Adrian Orr:
Response to the Australian Royal Commission into misconduct in Banking, superannuation and other financial services (Royal Commission)
As you will be aware we met recently with the Board of the Financial Services Council. We discussed the issues raised at the Royal Commission that pertain to life insurance providers. At the meeting we reiterated our views that the nature and extent of the issues within financial services in Australia and the obvious cross-over in terms of entities, people and practices into New Zealand demands a strong response from the industry here, and from the regulators. We acknowledge the strong support and engagement we received from the FSC Board.
We would like to set out the expectations of the FMA and the Reserve Bank as to next steps and to clarify the information and actions required from your organisation. Our objective in this exercise is to understand what work you have undertaken to review your operations to promptly identify and address any conduct and culture issues. We expect you to show us what you have done in order to be comfortable that there are no material conduct issues within your business. We anticipate that you will be familiar with our Conduct Guide (published in February 2017) and may be extending or enhancing your work in response to the guide as it intersects with issues raised at the Royal Commission. There may also be issues you are looking at more broadly as a result of that inquiry.
We consider that the window for you to demonstrate to consumers, regulators and other stakeholders that they can have full confidence in the financial services industry in New Zealand is narrow, and you will have seen we have encouraged proactive leadership from the retail Banking sector. Given the breadth of your business activities here in New Zealand we would like to ask you for the same information that we have requested from the Banking sector.
Aspects of financial services conduct and culture fall within the regulatory remit of both the Reserve Bank and the Commerce Commission. This letter has been shared with and has the support of the Commerce Commission. In addition, we advise that the responses we seek from you will be shared with both of these agencies.
The purpose of this exercise is for us to understand how you have obtained assurance that misconduct of the type highlighted in Australia is not taking place here. To clarify, we request a written response from your organisation outlining:
- The actions you, your Board and your senior teams have taken to identify and address conduct risk arising directly or indirectly from your firm’s actions, including product design and distribution, incentives setting, and claims performance. This should include any “gap analysis” work against the expectations set out in the FMA’s Conduct Guide
- Any specific plans and actions you have taken (or have underway) to respond to the issues and themes arising from the Royal Commission
- Any other work you have underway or that is planned to proactively identify and address potential conduct and culture risk
- Any work underway to remediate any identified issues where conduct by your firm has resulted in detrimental outcomes for customers.
We envisage receiving from you a summary document that provides an overview of your programme of work including:
- the key objectives of your work
- structure, approach and level of resourcing of your work
- level of Board and senior management oversight and reporting
- key personnel involved
- summary of any early findings/insights to date
- details of any remediation programmes underway
- any other summary information that will help to provide us with a view on level and depth and focus areas of your current inquiries.
Please provide this overview to the FMA no later than Friday 22 June 2018. We will then assess this summary information and schedule a follow up meeting with your core team to discuss your response, agree next steps, timetable, further information requests and ongoing reporting. We will also work with you to schedule a meeting with your Board of Directors to discuss this work as appropriate.
We intend to be fully open and transparent in our inquiries and interactions with you and we expect the same approach from you. We encourage early discussion of any areas where you anticipate that some remediation may be appropriate or where you are considering changes to product offerings, sales practices or business structures.
We will also continue to focus on areas we have previously signalled as priorities, including:
- the FMA’s thematic review on soft commission in life insurance
- the Financial Adviser Act reforms
- the FMA’s thematic work on incentives in vertically integrated institutions
- QFE Insurance provider replacement business
- Our stakeholder relationship management programme – we anticipate deepening our priority focus this year on governance and culture within financial services firms.
Please also share this letter with your Boards of Directors. We will publish this letter on our website in the interests of transparency.