Contents
The three bills to implement the ‘fit for purpose’ financial services reforms consulted on last year have now been tabled and are awaiting their first reading.
They are:
- The Credit Contracts and Consumer Finance Amendment Bill
- The Financial Markets Conduct Amendment Bill, and
- The Financial Service Providers (Registration and Dispute Resolution) Amendment Bill.
Credit Contracts and Consumer Finance Amendment Bill
This Bill will:
- transfer regulatory responsibility for the Credit Contracts and Consumer Finance Act (CCCFA) from the Commerce Commission to the Financial Markets Authority (FMA). Subsumed within this are a raft of changes to align the regulatory approach for the CCCFA with other financial markets legislation (removing features that are now redundant and replicating other FMA powers such as stop orders and restricted communications)
- make amendments to the disclosure obligations, such as not requiring disclosure to individuals who are acting as trustee or partner. But the improvements are less than what had been hoped for given this was identified as an area of potential reform
- make creditors under credit contracts (not just consumer credit contracts as earlier indicated), and a range of services, including acting as a debt collector and paid broker who assists people with obtaining credit, subject to the fair dealing regime in the Financial Markets Conduct Act 2013 (FMCA). In many cases these services are broadly defined and it is unclear whether the intention was to capture only those where the provider has an obligation under the CCCFA. For example, only debt collection of certain amounts owed by natural persons is regulated under the CCCFA, whereas “debt collector” as defined in the Bill has a wider scope, capturing amounts owing on loans to companies
- adopt licensing for creditors and mobile traders under the FMCA. Those who are already certified (or exempt on the basis that they are licensed by the FMA or registered by the Reserve Bank) will be grandfathered into the new licensing regime under the FMCA. However, FMA will be able to exercise licensing interventions as if it had actively issued the licence (e.g., imposing new licence conditions)
- repeal the duty of directors and senior managers of a creditor under a consumer credit contract to exercise due diligence to ensure the creditor complies with its duties and obligations under the CCCFA. Instead, the existing FMCA regime for director and senior manager liability will apply. These changes are intended to apply only to agreements after the Bill comes into force
- limit the situations in which a creditor’s failure to make the appropriate disclosure (either initially or in respect of certain variations) can mean that the debtor is not liable for the costs of borrowing. Lenders’ concerns have also been heeded and court relief from the no costs of borrowing rule will be backdated to the introduction of the relevant provision.
Creditors and mobile traders, as licensees under the FMCA, will be required to have in place effective methods for monitoring their compliance with their licensee obligations and for identifying material changes in circumstances.
Licensees will also be subject to existing FMCA requirements, such as the requirement to report contraventions (including likely contraventions) and material changes of circumstances to the FMA. And, once licensed, they will be expected to meet the FMA’s expectations in respect of conduct and culture. These are separate to the fair conduct obligations under CoFI.
Lenders who are not yet familiar with the FMA’s views should familiarise themselves with the Guide to the FMA’s view of conduct.
Financial Markets Conduct Amendment Bill (FMC Amendment Bill)
This will:
- amend some aspects of the CoFI regime (in force since 31 March 2025), to simplify and clarify minimum requirements for “fair conduct programmes” (FCP), allow more flexibility and reduce unnecessary prescription and compliance costs by:
- removing some of the duplicative FCP requirements (for instance, those relating to existing legal obligations and the requirement to regularly review the effectiveness of FCPs)
- introducing a new requirement to resolve consumers’ complaints in a timely and effective manner
- adjusting the requirements relating to training, supervising, and monitoring employees to reduce the level of prescription, and
- introducing a clearer requirement to communicate with consumers in a timely, clear, concise, and effective manner about the price of services or products.
- consolidate markets services licences as a “single licence”. Licensees will hold one licence (which can cover one or more classes of market services) rather than separate licences for each class of market service. (The licences held by existing licensees will be automatically consolidated into a single licence)
- introduce a new “change in control” approval process for licensed firms (and authorised bodies) under the FMCA where a person obtains “significant influence” over a licensee or the licensee intends to enter into a “significant transaction” relating to a material part of the licensee’s business, or proposes to amalgamate with another person.
This new approval process aligns with the Reserve Bank’s prudential approach to changes in control and is intended to allow the FMA to consider how a proposed restructure will impact consumers from a conduct perspective - amend the Financial Markets Authority Act 2011 to grant the FMA new “without notice” on-site inspection powers. The previously proposed regulatory power to require an “expert report” has not been included in the Bill
- make a number of technical improvements to the FMCA, including:
- modernising various provisions relating to the keeping of financial product registers and accounting records, and
- making permanent a number of exemptions already made under the FMA’s exemption powers.
Financial Service Providers (Registration and Dispute Resolution) Amendment Bill
This Bill introduces two key changes to the Dispute Resolution Scheme provisions in the Financial Service Providers (Registration and Dispute Resolution) Act 2008:
- new powers and processes for the responsible Minister to require an independent review of approved dispute resolution schemes, and
- regulation-making powers to prescribe requirements for the membership of a board, for its chairperson, and for any deputy or acting chairperson of a dispute resolution scheme provider.
A proposed new power for the Minister to prescribe further requirements relating to dispute resolution scheme rules has not been carried forward into the Bill.
Comment and next steps
Many of the more significant changes, such as the transfer of the regulatory responsibility for the CCCFA from the Commerce Commission to the FMA, have been well-signalled in Government announcements.
Our broad view is that, while the more detailed changes are generally in the right direction, they could have been more ambitious if their purpose is to lead to greater efficiency and remove unnecessary obligations for financial institutions.
There are some sensible changes. Limiting the situations in which failures to make the required disclosures can result in a debtor not being liable for the costs of borrowing is a notable improvement to a disproportionate penalty and should be welcomed by lenders. The same applies in relation to the repeal of the duty of directors and senior managers of a creditor under a consumer credit contract to exercise due diligence to ensure the creditor complies with its duties and obligations under the CCCFA.
The timing of the fair conduct programme minimum standards changes, only days after the introduction of those requirements, might be seen as ironic, as the simplification delivered is fairly limited and would have been more helpful if it had been implemented when financial institutions were preparing their fair conduct programmes, rather than when this work had been completed. Many financial institutions may not welcome the need to rewrite parts of their fair conduct programmes so soon after they have been introduced.
There will be the usual opportunity to seek changes to the Bills at the submissions stage.
Please get in touch with one of our experts for more information about these reforms and their impact on businesses in the financial services sector.
