Do Principles Ever Die?

In a recent blog post, Mark Jephson, a Partner at Mosaic, discusses the consequences of a potential repeal of New Zealand's Conduct of Financial Institutions (CoFI) bill pending the results of a general election this fall. "[T]his begs the question, do principles ever really die even after repealing principle-based regulatory constructs such as CoFI?" he asks.

In June 2022, New Zealand's Parliament passed the Financial Markets (Conduct of Institutions) Amendment Bill. The legislation, also called the "CoFI" bill, introduced a new regime requiring financial institutions to comply with a "fair conduct principle." A firm's license to do business will depend on how New Zealand's Financial Markets Authority (FMA) assesses its conduct toward consumers. As it stands, the regime will come into full effect in March 2025.

At the Financial Service Council conference in August, New Zealand's National Party announced plans to repeal CoFI if elected. However, with the National Party not currently in government, CoFI is not yet dead, Jephson stresses.

CoFI's purpose is to help ensure that the societal principle of treating people fairly is not overlooked in the pursuit of shareholder profits. Preparations for CoFI have aided financial service providers, fostering positive changes like enhanced care for vulnerable customers and a focus on product suitability and lifecycle service. Even if CoFI were to be repealed, this work needn't be thrown out. "Financial institutions will need to remember that any wind back or repeal of CoFI does not mean the perfectly reasonable principle of treating your customers fairly does not apply," Jephson asserts.

Regardless of CoFI's outcome, financial institutions must continue proactive measures instead of adopting a "wait and see" stance. Society will hold firms that fail to adhere to these principles to account, and regulators will issue sanctions and fines where transgressions occur. "Surely those financial institutions genuinely guided by the principle of treating your customers fairly will be the winners," Jephson concludes.