Following the Government's consultation in May/June on options to reform certain aspects of financial services legislation (see our previous update here), the Government has today released its Cabinet paper detailing its decisions.
The reforms relate to consumer credit legislation, financial services conduct legislation, financial services dispute resolution and the Financial Markets Authority's (FMA) regulatory powers. A summary of these changes is set out below.
The Cabinet paper notes that the Government is intending to introduce a Bill to the House in December 2024 that would implement these changes.
Please contact us if you would like a more detailed conversation about these reforms or next steps.
The key decisions in the paper are to:
Consumer credit legislation
- Remove the director and senior manager due diligence duty (and related liability) under section 59B of the Credit Contract and Consumer Finance Act 2003 (CCCFA) for all consumer credit providers. This represents a departure in approach from the Deposit Takers Act 2023, under which directors will be subject to a due diligence duty to ensure compliance by the deposit taker with its prudential obligations.
- Limit the effect of section 99(1A) (which provides that a borrower is not liable for the costs of borrowing in relation to a period of non-compliant section 17 (initial) or section 22 (agreed variation) disclosure), by requiring proof of actual harm arising from the non-compliance.
- Consider further potential changes to CCCFA variation and pre-debt collection disclosure.
Financial services conduct legislation and FMA powers
- Consolidate the market services licensing regime under the Financial Markets Conduct Act 2013 (FMCA) so that the FMA will be required to issue a single licence covering each class of market service provided by a licensee. This would also involve deeming existing market services licensees to hold a licence that covers each class of market service for which it is currently licensed.
- Introduce a requirement for creditors under consumer credit contracts to be licensed by the FMA as a provider of that class of market service, remove the existing fit and proper certification regime under the CCCFA and deem creditors that currently hold a fit and proper certification and financial institutions (who are currently exempt from the requirement) to be licensed under the new regime.
- Make some minor changes to simplify the minimum requirements for a financial institution's fair conduct programme under the FMCA conduct of financial institutions (COFI) regime.
- Require market services licensees to obtain the FMA's approval of a change in control (rather than just notifying the FMA of the change, as is currently the case).
- Grant the FMA the power to carry out an on-site inspection of a financial markets participant without notice.
Financial services dispute resolution
- Amend the Financial Service Providers (Registration and Dispute Resolution) Act 2008 to introduce requirements in relation to independent reviews of the schemes (in particular, shifting conduct of these reviews away from the schemes themselves to an independent third party appointed by the responsible Minister).
- Further consider issues relating to reporting metrics and improving access to and awareness of the schemes.