The details of the proposed changes are yet to be revealed but run the gamut of the sector – from the new conduct regime, consumer credit, KiwiSaver, capital markets settings, and insurance contract law, through to reform of the overarching model of financial regulation in New Zealand.
In a revision to the National Party’s pre-election policy, the new conduct regime introduced by the Financial Markets (Conduct of Institutions) Amendment Act 2022 (COFI Act) will remain, but the Minister signalled further “streamlining” work before it is fully implemented. The Minister also signalled an intention to bring the Credit Contracts and Consumer Finance Act (CCCFA) under the remit of the FMA, as well as making various changes to associated regulations, and also to “simplify, modernise and digitise” the Companies Act.
Simplifying regulatory relationships and obligations
The Minister said that “excessive layering of regulation and legislation has led to a loss of coherence in governance of the financial sector". While this was “well intentioned”, there was a failure “to deliver optimal outcomes for Kiwis and businesses”.
One particular area of focus for the Government is a “simplified model” of regulatory engagement, with the Reserve Bank remaining the prudential regulator and the FMA becoming the “single conduct regulator”. Financial institutions would hold “one conduct licence overseen by the FMA, and one prudential licence by the RNBZ”.
As part of this change, oversight of the CCCFA would shift from the Commerce Commission to the FMA. This is a major change to the status quo given the Commission currently has primary regulatory responsibility for policing consumer credit contracts, and has actively regulated compliance since the inception of the CCCFA in 2005. Its current statutory responsibilities include issuing infringement notices, prosecuting breaches, approving applications in relation to certification requirements introduced in 2021, and issuing advice and guidance to consumers and creditors.
CCCFA reform signalled
In addition to oversight of the CCCFA shifting to the FMA, the Minister has also announced steps to amend the CCCFA. Under the National/Act coalition agreement, the Government has agreed to rewrite the CCCFA “to protect vulnerable consumers without unnecessarily limiting access to credit”. The Minister said there will be a two-step process to amend the CCCFA, with changes to be announced over the coming months. It is expected that the first step will involve the removal of certain affordability requirements for lower-risk lending (which have been widely criticised for their highly prescriptive approach), before a more substantive review of other aspects of the CCCFA in due course.
COFI regime to stay but with changes
Prior to the election, the National Party had included the repeal of COFI as part of its 100-point plan. However, in his first major announcement, the Minister has said that COFI is set to stay and that it “serves an important purpose to support good financial outcomes for consumers”.
At the same time, the Government has said that COFI “needs streamlining” to enable “certainty and flexibility”. The detail of any streamlining is yet to be provided and it is unclear how, if at all, the Government will navigate those aspects of COFI that are already in play (e.g. an Act that has been passed, regulations that have been made, and a licensing application process already underway). In order to achieve “certainty”, it will be critical for the Government to announce the further changes promptly given the considerable work that the sector has already undertaken to prepare for full implementation of COFI by 31 March 2025.
The Minister’s expectation is that the FMA will provide “clear guidance as to the minimum requirements” of a Fair Conduct Programme, although existing minimum requirements are currently already contained in the COFI Act. In addition, as previously noted, in November 2022, the FMA published an information sheet on Fair Conduct Programmes and licence application sheet which provide guidance in relation to the minimum requirements. It is unclear whether and to what extent the further guidance announced by the Minister will amend or override the current requirements.
Companies Act changes to come
Finally, the Minister indicated his intention to “simplify, modernise and digitise the Companies Act”. It is unclear what shape these reforms will take and whether they will be targeted to “digitising” or encompass a wider review and reform.
As we have previously noted, the Supreme Court recently endorsed a legislative review of directors’ duties. In our view, it is important that such a proposed review of and reform to the Companies Act is thorough and considered. We therefore welcome the Minister’s indication that this will be a longer-term project.
With the Minister also indicating potential changes to KiwiSaver, capital market settings and insurance contract law, it is set to remain a busy period of reform across the financial sector. Bell Gully will be closely monitoring all of the proposed reforms and will provide further updates when more details are known.
If you have any questions about the matters raised in this article, please get in touch with the contacts listed or your usual Bell Gully adviser.