Over the last ten years, there have been many changes in this space. These changes have led to improved conduct and outcomes - but they have also resulted in a regulatory landscape that is difficult to navigate. They have further created substantial compliance costs. The Bills are intended to remedy these concerns. Their objectives are to simplify and streamline the regulation of financial services (including by reducing duplication), ensure the effectiveness of the financial services regulation regime, ensure the legislation is clear and proportionate, remove undue compliance costs, and improve outcomes for consumers.

This article provides a brief overview of each Bill, by way of a quick “heads up”. We will shortly publish additional articles discussing the FMC Bill and CCCFA Bill in more detail.

Financial Markets Conduct Amendment Bill

The FMC Bill will amend the Financial Markets Conduct Act 2013 (FMCA) and Financial Markets Authority Act 2011 (FMA Act). The key reforms are as follows:

• Single licence: Currently, a financial service provider who provides a range of market services may need to obtain a different license under the FMCA for each of those services. For example, a bank requires separate licenses under the FMCA to be a financial institution, provide a financial advice service, issue derivatives to retail clients, and so on. Under the FMC Bill, the Financial Markets Authority (FMA) will issue a single licence covering all FMCA market services. Existing FMCA licenses held by a firm will be consolidated automatically into a single licence.
• Fair conduct programmes: The CoFI Act requires financial institutions (ie registered banks, licensed non-bank deposit takers, and licensed insurers that provide relevant services) to have, and comply with, fair conduct programmes. The FMC Bill is intended to simplify and clarify these programmes’ minimum requirements. It will (among other things) adjust the requirements relating to training, supervising, and monitoring employees, remove the requirement for a regular review of the programme’s effectiveness, clarify the requirements on communicating with consumers (to expressly include communicating about the price of services or products), and add a requirement to resolve consumers’ complaints in a timely and effective manner to the existing obligations.
• FMA change-in-control approval: The FMC Bill will introduce change-in-control approval provisions. These will require firms holding a licence under the FMCA, or authorised bodies, to obtain regulatory approval from the FMA before certain changes in firms take effect. This will cover changes where another person obtains “significant influence”, which will occur when a person obtains 25% or more of voting rights or the ability to appoint 50% of directors. It will also cover significant transactions (asset sales) concerning a material part of the business, and amalgamations.
• FMA on-site inspection: The FMC Bill will introduce on-site inspection powers for the FMA. It will empower the FMA, without notice, to enter and remain at a place of business of a financial markets participant to monitor compliance.
• Technical amendments: The FMC Bill will make several technical amendments to the FMCA and its Regulations and to the FMA Act to cut “red tape”, improve the operation of the legislation, and reduce costs.
• Exemptions: Existing exemptions granted by the FMA will become permanent exemptions contained in the FMCA. This will avoid the need for renewals by the FMA.

Financial Service Providers (Registration and Dispute Resolution) Amendment Bill

The FSP Bill will amend the Financial Service Providers (Registration and Dispute Resolution) Act 2008 (FSP Act).

The FSP Act provides for a financial dispute resolution regime. It requires a financial service provider that provides financial services to retail clients to be a member of an approved dispute resolution scheme (Scheme) and to comply with that Scheme’s binding determinations. This enables consumers to resolve disputes with their banks, insurers, financial advisers, or other financial service providers for free, without having to go to court.

The key changes proposed to this regime through the FSP Bill are to: 

• Governance of Scheme operators: incorporate a regulation-making power in the FSP Act to establish rules around of the make-up and governance of Scheme operators; and
• Reviews of Schemes: give the responsible Minister the power to require an independent review of a Scheme and decide how the review should be undertaken.

Credit Contracts and Consumer Finance Amendment Bill

The CCCFA Bill will amend the Credit Contracts and Consumer Finance Act 2003 (CCCFA), FMCA, FMA Act, FSP Act, and associated legislation.

The CCCFA Bill is far-reaching. The proposed amendments are intended to increase the effective regulation and efficient operation of markets for consumer credit, remove disproportionate duties and obligations, and improve consumer protection by providing the FMA with a range of regulatory tools and powers.

The key amendments proposed by the CCCFA Bill are as follows: 

• New regulator: The CCCFA Bill will transfer the regulatory responsibility for credit contracts and consumer finance from the Commerce Commission to the FMA.
• New licensing regime: The CCCFA Bill will transition creditors and mobile traders from the current regime of ‘fit-and-proper’ certification by the Commerce Commission to a new licensing regime under the FMCA.
• Alignment with other financial market legislation: In addition to licensing under the FMCA, the CCCFA Bill will amend the CCCFA to align it more closely with other financial markets legislation. This is intended to create a consistent and proportionate regulatory system. It will remove aspects of the CCCFA (such as the due diligence duty for directors and senior managers) that are considered unnecessary because of, or that do not fit as well with, the new regulatory approach and licensing model.
• Disclosure: Under the CCCFA, a borrower is not liable for the costs of borrowing if a lender fails to make required initial or variation disclosure in respect of a consumer credit contract, although a court can order full or partial relief from this consequence where that is just and equitable. However, the creditor bears the burden of seeking the court order, and the outcome of an application is uncertain. The CCCFA Bill seeks to address these concerns. It will repeal the existing provisions whereby the borrower is not liable for the costs of borrowing, and instead empower the court to order redress if the borrower has been prejudiced by the non-disclosure or improper disclosure. The CCCFA Bill will also provide for retroactive relief in certain cases of past non-compliance (including those that may be the subject of existing litigation).

Next steps

We will shortly publish additional articles on the FMC Bill and CCCFA Bill.

It is important for financial service providers to be familiar with these Bills, due to the significant regulatory changes they will make. There will be an opportunity to make submissions on these Bills when they are at the Select Committee stage, which we anticipate will occur relatively soon (based on the most recent CoFR Regulatory Initiatives Calendar).

Get in touch

Please reach out to one of our experts if you are unclear about the Bills’ implications for your business or if you will require assistance to make a submission to the Select Committee.

Special thanks to Greer Bonnette for her assistance in writing this article.