This morning Hon Andrew Bayly gave his inaugural address as the new Minister of Commerce and Consumer Affairs to the Financial Services Council in Auckland outlining his priorities in his new role.
Key takeaways from the Minister's speech include:
-
Regulatory model to be simplified: The Reserve Bank of New Zealand (RBNZ) is to be the prudential regulator and the Financial Markets Authority (FMA) is to become the single conduct regulator. The Minister has proposed that the Commerce Commission will transfer its oversight of the Credit Contracts and Consumer Finance Act (CCCFA) to the FMA.
-
Simplified licensing process: Financial institutions will only require one prudential licence from the RBNZ and one conduct licence from the FMA.
-
Conduct of Financial Institutions (CoFI) to be retained, but reformed: There is no intention to weaken fair conduct obligations, but the FMA will be required to publish detailed guidance on proportionate, minimum requirements for fair conduct programmes.
-
CCCFA to be reformed: There will be a two-step process to amend the CCCFA, firstly to remove prescriptive affordability assessment regulations, followed by a more substantive review of penalties and disclosure regimes.
-
Companies Act 1993 (Companies Act) to be reviewed: The Companies Act will be reviewed with a view to simplify and modernise the legislation to take into account the digitisation of companies and changing practices.
-
Future potential areas for review: The Minister signalled his interest in exploring changes to capital market settings, KiwiSaver settings, and to continue work on insurance contract law reforms.
A summary of the Minister's speech is set out below. A related speech of Samantha Barrass, the CEO of the FMA, setting out thoughts on the year ahead and the FMA's role in conduct regulation can be found here.
Regulatory model to be simplified
The Minister is proposing to consolidate the responsibility for conduct regulation in the FMA, with the Commerce Commission transferring its oversight of the CCCFA to the FMA. The Minister is concerned that the architecture that governs the financial services sector has lost it coherence and led to a lack of clarity amongst regulated entities. The Minister noted that the "twin peaks" regulatory model has become blurred, with many large entities being regulated by three regulators: the RBNZ, the FMA, and the Commerce Commission. The Minister expects that this will result in better coordination and cooperation among regulators, noting that the RBNZ has become increasingly involved in conduct issues, that both the RBNZ and the FMA currently require separate reporting on cyber resilience, and that the Commerce Commission's responsibility for the CCCFA has significant overlaps with the FMA's oversight of the CoFI regime and conduct more generally.
Simplified licensing process
The Minister proposes to consolidate and simplify existing licensing requirements so that financial institutions will only require one prudential licence from the RBNZ and one conduct licence from the FMA. The Minister noted many financial institutions currently hold multiple licences from the RBNZ and the FMA with different licence conditions. For example, a large, complex financial institution may potentially require up to five licences from the FMA (such as CoFI, financial advice providers, DIMS, management investment scheme, derivatives issuer etc). The process will involve grandfathering existing licences into a single conduct licence over time. The Minister noted this would also avoid duplication in areas, such as fit and proper person assessments.
CoFI to be retained, but reformed
The Minister has proposed a targeted review of CoFI to ensure that the obligations are proportionate and fit-for-purpose, but without seeking to weaken the requirements for appropriate conduct. The Minister is concerned that the CoFI regime is not sufficiently focused on taking a proportionate approach to developing fair conduct programmes. The reforms would aim to reinforce the principle that responsibility for determining what is appropriate for the fair conduct programme lies with directors and management and require the FMA to issue clear guidance for how smaller institutions can meet minimum requirements for conduct. The Minister noted that he is aware that many entities are already at advanced stages of preparing their fair conduct programmes, so will ensure that appropriate timelines and transitional arrangements are in place.
CCCFA to be reformed
The Minister noted that his main concern with the CCCFA is with the prescriptive regulations for debt serviceability assessments and the strong liability regime. His view being this has led to overly risk-adverse lending criteria, increased compliance costs, and reduced access to credit to otherwise creditworthy borrowers. The Minister is proposing a two-step review to firstly remove prescriptive affordability requirements for lower-risk lending and then to undertake a more substantive review of the CCCFA over time. The substantive review will include reviewing penalty and disclosure regimes and the relationship between the CCCFA and CoFI.
Companies Act to be reviewed
The Minister noted that the Companies Act is now 30 years old and several aspects of it are out-of-date and could be improved. No details were offered in the speech, but the Minister mentioned this is an important medium-term project with further details to be provided in the future.
Future potential areas for review
Finally, the Minister indicated his interest in exploring changes to capital market settings, KiwiSaver settings, and to continue work on insurance contract law. However, any reforms are not expected in the short term.