National's Andrew Bayly on fair conduct, anti-money laundering and how open banking could help combat scams

The regulatory architecture of the finance sector is muddled and confusing with overlapping responsibilities falling to different regulators, National’s spokesperson for commerce and consumer affairs Andrew Bayly says.

The Opposition has said it would ditch some legislation if it were to win this year’s General Election, singling out the incoming Conduct of Financial Institutions (CoFI) regime which will come into effect in 2025.

The CoFI regime will mean financial institutions including banks and insurers will need a conduct license from the Financial Markets Authority (FMA). Under the regime they will need to establish and maintain fair conduct programmes.

The law aims to ensure that New Zealanders get the right financial products and services throughout their lives, and can have trust and confidence those products and services will do what they should.

The FMA will have expanded responsibilities in terms of licensing, monitoring and enforcement.

Bayly said the National Party agrees fair conduct is important, but questions whether CoFI is the “right mechanism to actually achieve meaningful outcomes”.

He said CoFI was a compliance-based approach that required documentation from financial institutions and to then have those signed off by the FMA.

Bayly said with CoFI, that makes potentially three licenses that will be needed in the sector; a prudential license from the Reserve Bank which lays out how much capital for example a bank needs to hold, and then there is the approved financial advisor regime which also requires a license.

Bayly said there is also the Financial Markets Conduct Act, which has a “fair dealing part”, voluntary banking codes of practice, insurance codes and there is also the Credit Contracts and Consumer Finance Act (CCCFA) “which deals with conduct” too.

National’s commerce spokesperson said no-one has stood back and looked at how complex and prescriptive the regulatory regime is, particularly from a consumer perspective.

"We want to make sure that we have a regulatory framework covering the entire finance sector, with people more clearly understanding what are their responsibilities, who is accountable, and what is the nature of the regulation."

He said if NZ was starting fresh, perhaps there could be one license covering all of those components including fair dealing.

Bayly said it would be better to have a risk-based approach to issues including fair conduct rather than a compliance-based prescriptive approach.

He said NZ had a “live example” in how these prescriptive legislative approaches can backfire with the CCCFA.

The Labour Government has been forced to keep tweaking changes it made to this legislation in 2021 which introduced intensive affordability assessments of potential borrowers. This saw even borrowers considered low-risk have their spending investigated in detail, with some being knocked-back for loans and credit.

Commerce and Consumer Affairs Minister Duncan Webb has acknowledged the issues with the CCCFA and recently triggered a “wider review” of it, with an eye to junking those prescriptive affordability assessment requirements.

Bayly, who is a chartered accountant and founded a merchant bank with his twin brother before joining Parliament, said people within the financial sector had complained to him that the new CoFI rules had led to plenty of hiring to oversee the regime, but wouldn’t do much to help consumers.

“I think the architecture overseeing the finance sector has now got pretty muddled. The responsibilities fall across the regulators. If you talk to someone in the sector they will say I am responsible to the Reserve Bank for one thing, the Commerce Commission for another and the FMA something else, and actually, it's conceptually quite confusing. My comments shouldn't be interpreted that we're not interested in conduct. I agree with all the principles of conduct for customers, you know, communicate with them well, handle complaints properly. That's all good stuff. But it's the process in which we do it [that] is the problem, and we need to do that in a much more seamless way.”

Bayly has previously told media the party would look at New Zealand’s anti-money laundering laws (AML). He said it’s not about "throwing it out" altogether, as the country has international obligations in terms of AML, but it is ensuring the legislation and outcomes work, and the regulatory regime works too.

Bayly on open banking 

Bayly is a member of Parliament's Finance and Expenditure Committee which recently made three recommendations to help quell the rising number of financial scams facing New Zealanders.

The Committee recommended New Zealand investigate a voluntary reimbursement scheme for people tricked into paying scammers, similar to one introduced in the United Kingdom called the Contingent Reimbursement Code.

This code means people conned into making payments to scammers will likely get their money back from banks, “if the combination of a person’s individual circumstances and the scam itself mean that it wasn’t reasonable to expect that person to have protected themselves then they should always be given their money back”.

Bayly said the impact of financial scams was devastating and more could be done to protect New Zealanders.

"[Being scammed] is horrible. It's like being robbed, someone has come into your house. Its the equivalent of that, but it's a virtual thing."

He said if he were Commerce and Consumer Affairs Minister, he would be driven by "what worries consumers".

Bayly said first, we needed to recognise there was a problem. He said it seemed to be that New Zealanders were being targeted by scammers.

Here he also sees a messy regulatory landscape; with multiple agencies involved in scam detection and consumer protection and no clarity on which regulator should take the lead. Bayly said the FMA should probably be the lead agency on scams.

The Committee also recommended the introduction of name and account number checking before payments are made, which was introduced in the UK in 2020, and recommended the Government “urge” the New Zealand Banking Association (NZBA) to update its Code of Banking Practice to “offer further measures that help protect consumers from scams and fraudulent activity”.

He said the Banking Ombudsman Scheme could perhaps be expanded and its role "upgraded" to focus more on scams.

Bayly said another way to protect New Zealanders from scams would be bringing in open banking.

Open banking allows people to securely hold and move their financial information between banks and financial providers and have their information shared with third-party providers.

Banked-owned payments provider Payments NZ said in May it would produce open banking standards within 18 months and NZ's big four, ANZ, ASB, BNZ and Westpac would introduce it in 2024.

It said the safest and most secure way to share customer data is through standardised Application Programming Interfaces (APIs).

In 2022 the Government said it would bring in a consumer data right framework (CDR) to give consumers the right to have their data shared.

Bayly said National was "very keen" on open banking and it had the potential to protect consumers.

He said open banking needed personal data stored in a virtual secure location, and technologies like blockchain could be used for that, good customer identification was needed, and a CDR was also needed.

"Of course, the reason why I'm talking about this is once you've got the security around your data, and also your ID, that makes it quite easy to deal with things like investment transactions and authorised transactions."

He said the party was looking at how it might do introduce open banking efficiently and move quickly to bring it into place.

"It's not just about banking people, don't misunderstand what open banking offers. One of the byproducts would be to help some security issues around these types of transactions, scamming transactions."