The first quarter of the year has ended with a flurry of activity in the financial services conduct space – legislation has come into effect, legislation has been passed, and a series of Bills have been introduced into the House. Each of these developments will alter the jurisdiction of the Financial Markets Authority (FMA) going forward and financial service providers' conduct obligations into the future.
By way of recap, for those who have been dealing with an atmospheric river of a more physical nature, the main developments are as follows:
- The Conduct of Financial Institutions (COFI) regime came into force on 31 March 2025. It includes new obligations for registered banks, licensed insurers, and non-bank deposit takers - with potential impact for intermediaries, too, in relation to prohibited incentives.
- The Regulatory Systems (Economic Development) Amendment Act 2025 received Royal assent on 29 March 2025. That Act, among other things, will enable the FMA to seek declarations from the courts that terms in "FMC standard form contracts" are unfair. Part 2 of the Financial Markets Conduct Act 2013 (FMCA) will then prohibit such unfair contract terms being included in FMC standard form contracts. These changes are not yet in force. The Act provides that they are to come into force by Order in Council (with a backstop of three years after Royal Assent).
- Three Bills have been introduced into the House stemming from the "fit for purpose financial services reform" review. A key aim of that review was to reinforce the "twin peaks" regulatory model – as such, the new Bills look set to be a fitting tribute to the earlier hard work of the former Minister of Commerce and Consumer Affairs and mountaineer, the Honourable Andrew Bayly.
The three Bills are generally consistent with the structural changes announced in September last year (see our update here). For example, the:
- Credit Contracts and Consumer Finance Amendment Bill proposes to transfer responsibility for the Credit Contracts and Consumer Finance Act (CCCFA) from the Commerce Commission to the FMA, remove the current certification requirements from the CCCFA and replace them with a requirement for lenders to hold licences under the FMCA (with lenders to be grandfathered into the licensing regime), and remove the due diligence obligations for directors and senior managers.
- Financial Markets Conduct Amendment Bill proposes to make certain changes to the minimum requirements for fair conduct programmes under the COFI regime, require the FMA to issue a single licence covering different classes of market services rather than the status quo where one entity may hold multiple licences, introduce new change of control powers for the FMA before certain changes take effect, and provide the FMA with an onsite inspection power to cover all financial markets legislation (being all the legislation listed in Schedule 1 of the Financial Markets Authority Act 2011 which, via the package of Bills, is also intended to be updated to add the CCCFA).
- Financial Service Providers (Registration and Resolution) Amendment Bill proposes to give the Minister a power to require an independent review of 1 or more approved dispute resolution schemes.
Four notable changes which feature in the Bills but which weren't included in the September 2024 announcements are:
- The provision of an explicit discretion under s 95A of the CCCFA to the Courts to vary the effect of sections 99(1A), 101(2) and 102(2) on application by the creditor, lessor or transferee for breaches back to June 2015. This is intended to ensure that the courts can determine consequences for disclosure failures on the basis of what is just and equitable in the circumstances, irrespective of when the failure occurred. This change will sit alongside changes to how the law applies to disclosure failures for new agreements and which will include the removal of s 99(1A) for new agreements.
- The inclusion of a range of more technical changes to aspects of the CCCFA regime. For example, changes to various disclosure obligations, including agreed variation disclosure, continuing disclosure, debt collection disclosure and guarantor disclosure.
- Providing the FMA with the ability to make declarations that certain arrangements are and are not consumer credit contracts and to issue exemptions from the CCCFA regime.
- Granting the Minister a new regulation making power to prescribe requirements for the membership of the board or other governing body of an approved dispute resolution scheme (e.g. as to knowledge, skills, and experience, as well as independence of the board).
The Bills are relatively high on the provisional order paper for the next sitting of the House tomorrow and so may have their first readings in the coming week. It is then anticipated they will follow the usual legislative process with, for example, consideration by the Finance and Expenditure Committee.
In terms of timings, in its recent briefing released to the incoming Minister of Commerce and Consumer Affairs, the Honourable Scott Simpson, the FMA indicated that it strongly supports the introduction of these Bills and passage through Parliament during 2025 (see here). Further, while the Bills anticipate different commencement times for different aspects of the Bills, the FMA's Ministerial briefing says that both the FMA and Commerce Commission are currently working with the expectation that the transfer of responsibilities for the CCCFA will take place late in 2025.
Until then, from 31 March the FMA obtained a level of jurisdiction relating to the CCCFA via the minimum requirements for fair conduct programmes under the COFI regime (s 446J(1)(a) of the FMCA). (That minimum requirement will, in turn, drop away as referred to above under the Financial Markets Conduct Amendment Bill).
As ever, the devil will be in the detail of these new pieces of legislation and the Bills before the House. The above is a summary of key aspects only. Please get in contact if you'd like to discuss anything in more detail.