Enforcement by the Financial Regulators in April 2015

Home Insights Enforcement by the Financial Regulators in April 2015

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Contributed by: Polly Pope and Emma Rae

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Published on: May 06, 2015


Points of interest this month

Sportzone chapter 3: Court of Appeal follows the High Court

The law on what fees may be considered “unreasonable” under the Credit Contracts and Consumer Finance Act 2003 is, in large part, currently before the courts in the high-profile Sportzone litigation. In the latest chapter, the Court of Appeal has affirmed the approach of Justice Toogood in the High Court, stating that a creditor can only use fees to recover costs that are “sufficiently close and relevant” to a particular transaction. 

This case is of considerable significance to lenders in New Zealand. Once it is clear the case has been brought to an end, MBIE will consider what changes need to be made to the Responsible Lending Code to reflect the final outcome. The Code was published in March 2015 (a copy is available here) and comes into force in June this year, providing a greater level of clarity and guidance about lenders' responsibilities. In addition, the Commerce Commission is expected to issue revised consumer lending guidelines at the conclusion of the litigation.

The Court of Appeal decision can be found here, and the Commerce Commission’s media release following the decision is here. For discussion of the High Court's judgment, see the October edition of this newsletter).

Australian courts impose multimillion dollar penalty for breach of responsible lending rules

The judgment in reportedly the first court case on Australia’s responsible lending provisions has been released. The lender responsibility principles introduced in New Zealand by the Credit Contracts and Consumer Finance Amendment Act 2014 are consistent with aspects of the Australian regime. The case involved a lender offering low-value short term loans. The Court found widespread contraventions across the hundreds of sample contracts it considered (relating to over 300,000 credit contracts entered into over a number of years). These were considered significant in nature, extent and duration, and resulted in multimillion dollar pecuniary penalty orders totalling approximately $18 million across the loan arranger and funder. Under the New Zealand regime, a court will have the discretion to make a range of orders, including for exemplary damages, where responsible lending obligations are breached.

Australia Securities and Investments Commission v The Cash Store Pty Ltd (in liquidation). A copy of the relevant decisions on liability and penalties can be found here and here.

FMA releases market analysis of Authorised Financial Advisers

The FMA has released its report on the shape and practices of the financial advice industry, based on a summary of information returns submitted by Authorised Financial Advisers (AFAs) in 2014 as part of their new annual reporting requirements. The report aims to improve understanding of the sector by AFAs and the public, and will also be used as a baseline to map trends in later years. 

From an enforcement perspective, the FMA has noted that it will use the information to inform its risk-based approach to monitoring and surveillance of AFAs, identify any significant issues that need to be followed up, and to inform any changes to its oversight of the financial advice sector. In particular, the FMA has indicated that it intends to pay attention to the potential for remuneration arrangements to create conflicts of interest, the use and amount of fixed fees, and building an understanding of how AFAs are managing complaints.

The full report is available here, and the FMA’s media release can be found here.

The FMA enters into further Memoranda of Understanding

The FMA has now signed Memoranda of Understanding (MOUs) with the Insurance Savings Ombudsman and the Banking Ombudsman Scheme.  

These are the latest institutions to enter into a MOU with the FMA, which has a number of similar arrangements with other New Zealand financial regulators (including the Commerce Commission, SFO, Reserve Bank, Financial Dispute Resolution Scheme and Financial Services Complaints Limited). 

The most recent MOUs continue to reinforce the FMA’s policy of co-ordinating its information sharing and enforcement activities with relevant agencies, and sit alongside a number of bilateral assistance and co-operation arrangements between the FMA and various overseas securities regulators.

The FMA’s press release on the latest MOUs can be found here, and the full list of all MOUs the FMA has entered into can be found here.

Fines for breaches of financial reporting rules

The directors of SPI Property Fund Limited were fined $25,312 each for failing to file audited financial statements for three consecutive years. The prosecution follows the FMA’s review into the non-filing of financial statements discussed in a previous edition of this newsletter.

A copy of the FMA’s media release announcing the SPI Property decision is available here.


This publication is intended only to provide a summary of the subject covered. It does not purport to be comprehensive or to provide legal advice. No person should act in reliance on any statement contained in this publication without first obtaining specific professional advice.

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