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1 February 20246 minute read

Insights into the future of financial services regulation

On Wednesday, 31 January 2024 the financial services industry obtained some further insight into the future of financial services regulation. Speeches from the Minister of Commerce and Consumer Affairs, Andrew Bayly (Minister), as well as the Chief Executive of the Financial Markets Authority (FMA), Samantha Barrass (Chief Executive), at the Financial Services Council's “Outlook 2024” event provided the first hints at what the new government's reform will look like, as well as further guidance on the FMA's regulatory approach.

As always, the devil will be in the detail. But in the meantime, we've set out below the key points you need to know, and some of our initial thoughts.


  • “Twin Peaks”: Regulation will move to a purer form of the “twin peaks” model, with RBNZ being the prudential regulator and the FMA being the conduct regulator. This raises two queries from us:
    • Where does this leave the Commerce Commission? Prior to making this point the Minister noted that some institutions are subject to regulation from RBNZ, FMA and the Commerce Commission. Will the current overlap in misleading conduct be tidied by removing this from the Commerce Commissions' ambit when it comes to the financial services industry?
    • Does this align with RBNZ's current review of the insurance prudential legislation, and their proposal to take a more intensive approach to supervision with a wider set of enforcement tools?
  • New scope: Oversight of the Credit Contracts and Consumer Finance Act will move from the Commerce Commission to the FMA, in addition to a review of the regime (discussed below).
  • Fit & proper assessments and cybersecurity reporting: The duplication of fit and proper assessments and cybersecurity reporting to each regulator will be removed. The question will be which regulator will take on this role, and whether that will be appropriate e.g. is the FMA well placed to assess directors and officers against fit and proper standards for insurers?


Conduct of Financial Institutions (COFI)
  • No repeal: As we expected, there will not be a complete repeal of the new COFI legislation but instead targeted changes.
  • Licensing: The Minister wants to move to one conduct licence issued by FMA covering all conduct issues and one prudential licence issued by the Reserve Bank of New Zealand (RBNZ). It appears that some entities will still have dual licensing where they are subject to both prudential and conduct regulation. There was also mention of transitional arrangements, including the “grandfathering” of all conduct licences into a single licence in time. So it appears there may not be complete removal of COFI licencing, or at least not immediately.
  • Scope: Reading between the lines, the statements about moving to a unified conduct licence issued by the FMA hint at all FMA licensed businesses being subject to the revised COFI fair conduct regime. This remains to be seen.
  • Fair conduct programmes (FCP):
    • Continue work: The Minister advised that work already underway in preparing FCPs should not stop. The requirement to have an FCP will remain and, given the Minister's comment, we do not expect the overall substance of the FCP requirements to be materially amended.
    • Requirements: He has also set an expectation that the FMA will provide clear guidance noting that FCPs will look different, for example, for a credit union with two hundred customers compared to a bank with two million. He also set his own expectations for what FCPs should cover:
      • how institutions engage appropriately with customers;
      • how institutions develop new policies and products;
      • transparent fee structures and charging arrangements, particularly intermediaries; and
      • development of adequate complaints processes.
    • Small businesses: Conversely the Chief Executive, in her speech, pointed to the risks of “tick box regulation” and reinforced the Minister's comment tht the FMA will be issuing additional guidance for smaller firms. Both the Minister and The Chief Executive emphasised the responsibility that firms need to take for their own FCPs. The Chief Executive was clear that the FMA will not be signing off FCPs or going through them line by line.


    Fair outcomes

    Shift in approach: The Chief Executive also noted that for the FMA's supervisory approach it will use the fair outcomes rather than detailed compliance requirements to frame discussions with and assessments of providers. Consistent with the FMA's current consultation on outcomes-focussed regulation, institutions can expect engagement with the FMA's monitoring teams to be focussed on the outcomes rather than rules and compliance with rules.


    Other changes:
    • CCCFA: The CCCFA rewrite will have a focus on not unnecessarily limiting access to credit while still protecting vulnerable customers. It appears work on this will be underway quickly, with changes to be announced over coming months. This will be a two-stage process, beginning with removing prescriptive affordability requirements imminently, and a more substantive review in time covering the penalty and disclosure regime as well as the CCCFA's relationship with COFI.
    • Companies Act: A more medium-term goal is reform of the Companies Act, to “simplify, modernise and digitise” and “improve the business environment for financial institutions”. We will be keeping an eye out for any further detail on this one.
    • KiwiSaver: The Minister has also signalled an interest in changing the KiwiSaver settings to help New Zealanders save for retirement. It has been separately reported that the Minister is looking at starting the review in the second half of the year and there will be a focus on encouraging KiwiSaver providers to invest between 5% and 10% of funds in New Zealand businesses.
    • Insurance: Another longer-term plan of the Minister is to look at the work on insurance contract law. This work has been under way by the Ministry of Business, Innovation and Employment for some time, it remains to be seen whether the Minister's involvement will lead to substantive change or more urgency for this one.

    We will keep you up to date as we hear more about the changes we can expect for the industry.


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