Bell Gully's Blair Keown identifies seven key questions in the 'fit for purpose financial services conduct regulation' consultation

The consultation provides market participants with a final opportunity to influence the content of the Financial Markets (Conduct of Institutions) Amendment Act 2022 (COFI) before the regime becomes fully operational. However, the consultation also proposes potentially significant expansions to the Financial Markets Authority’s (FMA)’s powers that should be of real interest to the industry, alongside other proposals to simplify FMA licensing and achieve greater alignment between the FMA and the Reserve Bank of New Zealand (RBNZ). 

We identify seven key questions that banks, insurers and other financial product and service providers should be asking when assessing the consultation and deciding whether to make a submission. 

1. Should the minimum requirements for a fair conduct programme change? The consultation has flagged the possible removal of existing fair conduct programme requirements (e.g. policies, processes, systems and controls for “enabling the institution to meet its legal obligations to consumers”, “identifying, monitoring and managing conduct risk” and/or “reviewing the effectiveness of the [fair conduct] programme"). It has also raised the possibility of new requirements relating to fees and charges and complaints handling, while identifying a possible consolidation of existing fair conduct programme requirements relating to employees and agents.
    
2. Is the fair conduct principle fit for purpose? The consultation favours the retention of a non-exhaustive definition of “treating consumers fairly”. However, it has asked whether the definition should be exhaustive or if changes are needed to the five existing elements of the fair conduct definition (i.e. (i) paying due regard to consumers’ interests, (ii) acting ethically, transparently and in good faith, (iii) assisting consumers to make informed decisions, (iv) ensuring relevant services and products are likely to meet the requirements of likely consumers, and (v) not subjecting consumers to unfair pressure tactics or undue influence).    
3. Is there anything else about COFI that needs to change? The consultation invites comments on any other areas of the COFI regime that are not covered in the consultation. Market participants now have a final opportunity to raise any critical concerns that may have been overlooked in earlier consultations for consideration by a government that is seeking to simplify and streamline regulation and remove undue compliance costs.
    
4. Does FMA licensing need to be simplified?  The consultation proposes that the FMA issue a single conduct licence for all market services, including acting as a financial institution under COFI. The government is separately consulting on whether “acting as a creditor under a consumer credit contract” should require a market services licence.
    
5. Should the FMA have a say in change of control applications? The consultation proposes that the FMA be given a power to approve a change of control of any FMA licensed entity based on licensing criteria in the Financial Markets Conduct Act 2013. The power would operate alongside the RBNZ’s existing power to assess changes of control (and transfers, amalgamations or changes in corporate form) against prudential criteria.  Co-ordination between the FMA and RBNZ for dual regulated firms has also been proposed.
    
6. Should the FMA have power to onsite inspections without notice? The consultation proposes that the FMA be given a power to conduct on-site inspections without consent or notice for the purposes of supervising firms. As an AML supervisor, the FMA already has a limited power to conduct onsite inspection for purposes consistent with the AML/CFT Act. The current proposals may go well beyond this.
    
7. Should the FMA have power to require skilled persons reports? The consultation proposes that the FMA be given a power to require a “skilled person report”. That is, a legal requirement that a person/institution instruct, at their own expense, a suitably qualified (and FMA-approved) person to report on any matters relating to their business, operation or management.  Such reports are a feature of the regulatory landscape in the UK and Australia and have been identified in the consultation as a possible diagnostic/monitoring tool to assess compliance with the COFI regime.

Submissions close on 19 June 2024.

*Blair Keown is a Bell Gully partner based in Auckland. This article first appeared here and is used with permission.