As has been widely publicised, the Minister of Commerce and Consumer Affairs has undertaken to review and reform aspects of financial services regulation in New Zealand in two phases.
The first phase primarily involves targeted amendments to the Credit Contracts and Consumer Finance Act 2003 (CCCFA) via regulation or amendments to the Responsible Lending Code (covered in our update here). Phase 2 is to involve a more substantive review of certain aspects of financial services regulation.
Phase 2 has commenced in earnest today for financial market participants and consumers with the Ministry of Business, Innovation & Employment (MBIE) releasing three discussion papers. Submissions on each are sought by 19 June 2024. The three papers are:
- Fit for purpose consumer credit legislation;
- Fit for purpose financial services conduct regulation; and
- Effective financial dispute resolution.
In addition to the discussion papers, MBIE will be conducting a consumer survey for those who have experience with credit, high-cost credit and/or dispute resolution services. MBIE has said that consumer feedback will be critical to inform their advice.
The consultation timeframes are tight. This pace appears to have been set by the Minister. A recent Cabinet Paper recorded an intention to take proposals for legislative change on Phase 2 back to Cabinet in August and introduce an amendment Bill to the House by December 2024.
A quick summary of the scope of each paper follows. Please contact us if you would like a more detailed conversation about the discussion papers or next steps.
Fit for purpose consumer credit legislation
The discussion paper seeks input on:
- Options to amend the liability settings for directors and senior managers currently provided under s 59B of the CCCFA.
- Options for the regulatory settings between credit and conduct regulation given Cabinet's recent decision that the FMA will take over from the Commerce Commission as the regulator responsible for the CCCFA. This section of the paper includes content relating to:
- The legislative changes necessary to implement the transition, including amendments to the CCCFA itself, the FMCA and the FMA Act.
- How lenders currently certified by the Commerce Commission as lenders (ie who hold no existing financial services licence) will be moved under FMA oversight.
- Options to amend what and when information is disclosed to borrowers and guarantors under the CCCFA and how information must be disclosed.
- Options for the penalties regime relating to initial and agreed variation disclosure, with a specific focus on ss 99(1A), 95A and 95B of the CCCFA.
- Options for changing the high-cost credit provisions.
The paper is silent as to the likely timing of the FMA taking on jurisdiction for the CCCFA. However, given the legislative changes required (and assuming a fast track process is not adopted), this looks unlikely to occur until either well into 2025 or early 2026.
We also note that, while the paper anticipates that an effect of the changes will be that the FMA will bring credit products within the fair dealing provisions of the FMCA, it does not address the ongoing role of the Commission. This includes whether amendments will be made to the Fair Trading Act to remove areas of potential dual jurisdiction.
Fit for purpose financial services conduct regulation
The discussion paper seeks input on:
- Options for amending the minimum requirements for fair conduct programmes in the Financial Markets (Conduct of Financial Institutions) Amendment Act 2022 (COFI) (with proposals for both deletions and additions to the current statutory requirements put on the table).
- Options for amending the fair conduct principle itself in COFI.
- An option to streamline FMA licensing to require the FMA to issue a single licence covering different classes of market service.
- An option to enable the FMA and RBNZ to rely on an assessment by the other regulator in assessing matters relating to dual-regulated firms.
- Options to amend the FMA's supervisory and monitoring tools, including:
- Introducing change of control approval requirements for FMCA licensed firms similar to RBNZ requirements.
- Giving the FMA on-site inspection powers.
- Giving the FMA powers to require a report from regulated firms (similar to the RBNZ's power in s 95 of the Banking (Prudential Supervision) Act 1989).
To the extent that the paper raises the potential for amendments to COFI, the paper highlights that it is unlikely any amendments will be enacted to commence before 2026. The paper, therefore, reinforces the message that stakeholders need to continue work in preparation for the commencement of the current regime on 31 March 2025.
In relation to this paper:
- While, for the most part, the discussion papers released seek to restrict submitters to the issues identified, there is an open question as to whether submitters have any comments in relation to other aspects of the COFI Act. One point to reflect on here is whether the current settings which make certain sections within COFI "civil liability" provisions in the FMCA is appropriate. New Zealand has gone further than other jurisdictions in this respect by enabling, not just the FMA, but other third parties to bring civil claims against financial institutions for potential fair conduct programme related breaches. The Contracts of Insurance Bill provides a good example now of the option for targeted consequences for particular FMCA breaches which stop short of civil liability consequences.
- The paper does not address other law reform processes underway which may intersect with the FMA's jurisdiction, the CCCFA and/or COFI, including the Contracts of Insurance Bill and the select committee inquiry underway on climate adaptation. Submitters should, however, keep this broader context in mind when responding to the consultation.
Effective financial dispute resolution
The discussion paper seeks input on ways to improve consumer access to and effectiveness of the financial dispute resolution system provided for by the Financial Service Providers (Registration and Dispute Resolution) Act. The paper is pitched at a higher level than the other two papers and it does not propose to make fundamental changes to the overall scheme model. High level options include:
- Retaining the status quo – including as the Financial Service Providers (Rules for Approved Dispute Resolution Schemes) Regulations 2024 due to commence on July 2024 bed in.
- Implementing additional steps to support consumer access and awareness of schemes – for example, by providing additional advice and support through the process.
- Enhancing scheme effectiveness through improved oversight and accountability – for example, by improving the consistency of independent reviews or the Government setting further scheme rules, requiring independent governance arrangements, or requiring schemes to provide prescribed data and metrics and then evaluating them against that.