FMA information sheet for smaller CoFI firms

  • Legal update

    14 June 2024

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The Financial Markets Authority (FMA), has today published an information sheet targeted at smaller firms to help them develop and maintain a Fair Conduct Programme (FCP) and apply for a Financial Institution (CoFI) licence.

A link to the sheet is available here.

Who should read this? Why?

Many larger financial institutions are well advanced in their preparations to comply with the Financial Markets (Conduct of Institutions) Amendment Act 2022 (CoFI). This guidance is aimed at smaller financial institutions captured by the regimes, including finance companies (non-bank deposit takers) and insurers.

What does it cover?

The sheet provides information and examples to help smaller firms establish, implement and maintain their FCP. Financial institutions are required to have an FCP that is designed to ensure their compliance with the fair conduct principle, as set out in the CoFI legislation.

What is an FCP?

Under CoFI, the fair conduct principle is the requirement to treat consumers fairly. An FCP is made up of effective policies, processes, systems and controls designed to help the financial institution comply with the fair conduct principle. As the FMA describes it in the sheet, “an FCP puts structure around how fair treatment of consumers is achieved”.

The sheet usefully sets out a summary and links for existing resources to help develop your FCP and then apply for your licence.

The FMA stresses that a financial institution must have regard to its nature, size and complexity when establishing its FCP. As the sheet sets out:

Think about the risk factors that relate to your specific business. This will likely include risks that other FIs face, but there may also be risks that relate to the unique operations and characteristics of your firm. For example, you may be a smaller FI but if you offer higher-risk products or have complex distribution arrangements, this will need to be reflected in your FCP. This doesn’t necessarily mean you need a longer FCP, but you will need to explain how your policies, processes, systems and controls account for those risk factors.

It also includes useful guidance as to what your FCP should look like and how it should be structured, while noting that there isn’t a prescribed template.

Finally, the sheet addresses the ongoing requirement to maintain (and operationalise) the FCP, including governance and oversight, and effectiveness testing.

Our view

The sheet is a helpful resource for all financial institutions looking to develop their FCP and get their licence under CoFI.

What next?

If you have any questions in relation to CoFI, the sheet or need help in developing your response, please contact one of our experts.