Financial services reform underway for higher "clarity" and reduced barriers

Financial services reform underway for higher "clarity" and reduced barriers

Financial services reform underway for higher “clarity” and reduced barriers | Insurance Business New Zealand

Insurance News

Financial services reform underway for higher “clarity” and reduced barriers

FMA to take on a new role as the sole conduct regulator

Insurance News

Kenneth Araullo

Commerce and Consumer Affairs Minister Andrew Bayly has announced the government’s plan to reform financial services regulations, aiming to provide clarity and reduce bureaucratic procedures for institutions and New Zealanders.

The proposed reforms focus on modifying financial market conduct regulation, addressing overlapping roles of key regulatory bodies, and streamlining licensing requirements. Bayly highlighted the current complexity in governance due to excessive regulation, which has led to less coherent management within the financial sector and suboptimal outcomes for both individuals and businesses.

Under the current system, some financial institutions are accountable to three regulators: the Reserve Bank of New Zealand (RBNZ), Financial Markets Authority (FMA), and Commerce Commission. The new plan intends to establish a simplified model, designating RBNZ as the prudential regulator and FMA as the sole conduct regulator.

The conduct oversight of the Credit Contracts and Consumer Finance Act (CCCFA), currently under the Commerce Commission, will shift to the FMA. Additionally, many financial institutions currently hold multiple licenses from both the FMA and RBNZ, adding to their operational challenges. The reform aims to consolidate this into a single conduct license overseen by the FMA and a single prudential license by the RBNZ.

Bayly also discussed plans to reform the Financial Markets (Conduct of Institutions) Amendment Act (CoFI) and the CCCFA. The CoFI, while crucial for protecting consumer interests, requires streamlining to provide financial institutions with the certainty and flexibility they need, Bayly said. The primary responsibility for developing Fair Conduct Programmes (FCP) lies with the institutions themselves, but the FMA will offer clear guidance on minimum requirements.

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The FCP expectations will vary based on the size and scope of the institution, but the emphasis on fair treatment remains a constant. For instance, a credit union serving two hundred customers will have a different FCP compared to a bank with 2 million customers.

Bayly said that reforms to the CCCFA aim to protect vulnerable consumers while ensuring access to credit for those who can afford it. Current stringent lending laws have resulted in many New Zealanders being denied loans. The government, in agreement with ACT, plans to rewrite the CCCFA, with a two-step amendment process to be announced in the coming months.

Bayly also expressed his intention to update and digitise the Companies Act, noting that parts of it are thirty years old and require modernisation.

These reforms are designed to improve the business environment for financial institutions and contribute to the country’s economic recovery, Bayly said.

Financial service reforms – Financial Advice New Zealand reacts

Financial Advice New Zealand has expressed support for Bayly’s announcement, in particular with regards to streamlining the regulations under the CoFi while maintaining a fair conduct program for consumer protection.

The organisation noted that the move towards a single conduct licence system, to be overseen by the FMA, is expected to provide a more straightforward process. This change is anticipated to help Financial Advice New Zealand’s members concentrate on client outcomes and business expansion.

Tony Dench, the interim CEO of Financial Advice New Zealand, commented on the government’s approach, noting the open discussions with Bayly and the Ministry. He highlighted their willingness to understand the impact of these changes on financial advisers.

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The revision of the CCCFA is seen as an opportunity for lenders to make the lending process more efficient, potentially aiding financial advisers in assisting more New Zealanders in acquiring homes.

In the context of the current economic climate, marked by rising living costs and uncertainty, financial advisers have been instrumental in supporting New Zealanders. Their role has been particularly crucial during these challenging economic times. As the industry undergoes further changes, the importance of accessing quality financial advice for New Zealanders’ financial health, wealth, and well-being is emphasised.

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