Last week, the Financial Markets (Conduct of Institutions) Amendment (Duty to Provide Financial Services) Amendment Bill (Bill) was drawn from the Parliamentary ballot, with the result that it will proceed to first reading.
The Bill, colloquially named the "woke banking" bill and put forward by NZ First MP Andy Foster, endeavours to prevent banks withdrawing services from customers for non-commercial reasons such as "murky 'environmental, social or governance' moralising". Perhaps inadvertently, the Bill captures registered banks, licensed insurers and non-bank deposit takers.
In our view, the Bill as currently drafted is likely to be unworkable in practice, whether viewed from the perspective of financial institutions or their customers. Specifically, while the Bill provides that a financial institution must not treat any consumer less favourably in the provision of financial services based on factors such as ESG considerations, it leaves open the ability for financial institutions to withdraw or refuse to provide services "for a valid and verifiable commercial reason" or as required or permitted by any other enactment. Taking climate change as an example of an "ESG consideration", there is now widespread recognition that climate change can give rise to material financial risk (such as risks associated with the physical impacts of climate change or risks associated with the climate transition itself) for both financial institutions and their customers. In those circumstances, the Bill in its current form would be difficult for financial institutions to apply in practice.
Financial institutions and their customers (including those in emissions intensive sectors) require certainty as to how financial services will be provided as New Zealand transitions to a low-emissions, climate-resilient future. Legislation that seeks to distinguish between commercial and "other" reasons, without providing clarity as to how that distinction can be drawn, risks undermining that aim.
Below, we set out further detail of the proposals in the Bill and the process from here.
What is the background to the Bill?
In recent years, many financial institutions have independently put in place policies and commitments around the sectors and organisations to whom they will provide financial services. For example, banks may have internal policies in place that limit their lending to sectors such as controversial weapons, coal and other fossil fuels.
In addition, there has been a recent focus on the circumstances in which a bank may "de-bank" a customer for reasons that are not (at least directly) purely financial. Notably, in Bank of New Zealand v The Christian Church Community Trust [2024] NZCA 654,* the Court of Appeal set aside an injunction previously put in place by the High Court that prevented BNZ from terminating its banking relationship with the commercial and charitable entities associated with the Gloriavale Christian Community. BNZ had decided to close the entities' accounts on the basis of its internal human rights policy and in circumstances where the banking contract provided that it could close the accounts "for any reason". The Court of Appeal confirmed the orthodox common law position that, in the absence of express contrary agreement or statutory impediment, a bank may terminate a banking contract on reasonable notice. In doing so, it dismissed arguments advanced by Gloriavale that sought to place a limitation on BNZ's termination right.
The Bill was introduced against the background above, with the explanatory note to the Bill stating that it is intended to prevent registered banks withdrawing banking services from consumers "whose political views or outlook may not align with the sensibilities of that institution".
What does the Bill propose to do?
The Bill proposes to amend the Financial Markets Conduct Act 2013 (FMCA) by inserting a new section entitled "Financial institutions must not withdraw or refuse to provide financial services expect for commercial reason". That section would sit within the part of the FMCA containing the Conduct of Financial Institutions regime.
Pursuant to this proposed provision, a financial institution must provide financial services to a consumer and must not treat them less favourably than they otherwise would for any of the following reasons:
- any of the prohibited grounds of discrimination in s 21 of the Human Rights Act 1993 (for example, religious belief, ethical belief, or political opinion);
- any direct or indirect environmental, social, or governance consideration;
- any climate-related reporting standard issued by the External Reporting Board; or
- the industry within which the consumer operates.
However, the Bill expressly reserves the ability for financial institutions to withdraw or refuse to provide services, or to treat a consumer less favourably, for a valid and verifiable commercial reason or as required or permitted by any other enactment.
The proposals in the Bill are radical in that they seek to override the default position at law that a financial institution is generally entitled to determine who it provides services to and can terminate relationships on reasonable notice subject to any statutory or contractual restriction. Conversely, it is of course already the law that a financial institution is not entitled to refuse to provide services or treat anyone less favourably by reason of any of on the prohibited grounds of discrimination under the Human Rights Act 1993, and to that extent the Bill is redundant.
In terms of enforcement, the Bill proposes to create an offence for breaching the proposed new provision, with penalties including imprisonment of up to 3 years and fines of up to $500,000.
What are the next steps from here?
Having been drawn from the ballot, the Bill will now proceed to its first reading. Both the timing of the first reading and the extent of any support, if any, outside of NZ First are presently unclear.
If the Bill proceeds passed the first reading, it will go to Select Committee where there will be an opportunity for the public to make submissions on the Bill.
*Russell McVeagh acted for Bank of New Zealand in this case.