Greg Kilminster
Head of Product - Content
Regulatory changes set to transform New Zealand's financial landscape
In a speech at the 20th Annual Financial Markets Law Conference, Jane Brown, Head of Insurance at the Financial Markets Authority (FMA) in New Zealand, shed light on the FMA’s regulatory outlook and priorities. Her speech encompassed the implementation of the Conduct of Financial Institutions (CoFI) regime, the forthcoming transfer of consumer credit regulation from the Commerce Commission to the FMA, and the evolution of the FMA's regulatory approach.
A new era in conduct regulation
Brown began by reflecting on her journey within the insurance sector, noting the alignment of goals between the regulator and the regulated entities—both aiming for consumer trust and confidence. The CoFI regime, set to be a cornerstone of the new regulatory framework, extends its reach across the full spectrum of financial services, including core banking, insurance, and credit. This broad scope will ensure that significant financial milestones in New Zealanders' lives fall under the FMA’s conduct regulation.
The CoFI regime is not merely about imposing new compliance obligations. Instead, it acknowledges the diverse nature of financial firms, ranging from multinational enterprises to local businesses. Brown emphasised that the FMA’s approach is not a one-size-fits-all model but is designed to accommodate the varying strategies, target markets, and operational structures of these firms. The proactive engagement with smaller firms, such as non-bank deposit takers and credit unions, underlines the FMA's tailored approach to regulation.
Navigating the transition to CoFI
Brown noted that the FMA is actively working with firms to ensure they are prepared for the CoFI licensing deadline of March 2025. She urged firms considering exemptions to have a contingency plan and reiterated the necessity of adhering to the legislative requirements. The FMA’s collaborative approach aims to support firms through the transition, drawing on lessons learnt from the implementation of the Financial Services Legislation Amendment Act (FSLAA).
Brown noted that the FMA is committed to processing applications efficiently and ensuring that all participants are supported through the transition.
Consumer credit regulation shift
The transfer of consumer credit regulation to the FMA marks another significant change in New Zealand’s regulatory landscape. Brown highlighted the collaborative efforts between the FMA, policy makers, and the Commerce Commission to ensure a smooth transition. She acknowledged the substantial work done by the Commerce Commission and committed the regulator to upholding the standards of guardianship as the FMA assumes this new role.
The coordination with the Reserve Bank of New Zealand (RBNZ) under the Twin Peaks model is crucial in this transition, ensuring a streamlined approach for the industry: the FMA’s focus on conduct and disclosure will complement the RBNZ’s prudential regulation, fostering a cohesive regulatory environment.
Evolving regulatory approach
Brown outlined the FMA’s four key objectives that will guide its strategic direction:
- evolving an outcomes approach,
- adopting an intelligence-led approach,
- deterring harmful unregulated activities, and
- preventing misleading and deceptive practices.
These objectives she said reflect the FMA’s commitment to a forward-looking, risk-based, and efficient regulatory framework that prioritises consumer and market outcomes.
The FMA is also considering the costs and benefits of its regulatory actions, striving to minimise unnecessary burdens on firms while maintaining robust consumer protection standards. The recent consultation on a class exemption for green bonds exemplifies this approach, seeking to balance market efficiency with investor protection.
Insights and transparency
Brown argued that the FMA’s commitment to transparency is evident in its efforts to share findings from its monitoring and supervisory activities. She mentioned too the publication of insights from the monitoring of the advice sector, providing a balanced report with examples of good practice and areas for improvement. This transparency aims to support industry participants in demonstrating good conduct and meeting regulatory obligations.
In line with its intelligence-led approach, the FMA conducted a comprehensive research study on New Zealanders’ views on fairness in financial services. The findings, based on a survey of approximately 3,000 consumers, offer valuable insights into what fairness means to consumers and will inform evidence-based conversations with industry stakeholders.
Upcoming legislative changes
The forthcoming Contracts of Insurance Bill, which consolidates and modernises existing legislation, represents another significant shift. The Bill introduces new disclosure provisions and rules on unfair contract terms, requiring insurers to adapt. The FMA is preparing to provide guidance to support the implementation of the Bill, which aims to enhance consumer understanding and promote confidence in the insurance market.
In concluding, Brown acknowledged the significant changes faced by the financial services industry in recent years, from the pandemic to new regulatory regimes. She emphasised the shared goal of fostering a fair and thriving financial sector, underscoring the importance of collaboration and open dialogue with industry stakeholders. As the FMA navigates these regulatory changes, its commitment to consumer trust, confidence, and a fair financial system remains paramount.
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APRA unveils digital prudential handbook to modernise regulatory framework
The Australian Prudential Regulation Authority (APRA) has completed a key milestone in its multi-year project to modernise the prudential architecture (MPA) with the release of the final version of its new digital Prudential Handbook. Launched in 2021, the MPA initiative aims to streamline APRA's regulatory framework for banks, insurers, and superannuation trustees, enhancing clarity, simplicity, and adaptability in a rapidly evolving financial landscape.
The MPA program has restructured the prudential framework into clear pillars, consolidating standards and guidance to improve regulation. A 'digital first' approach leverages technology to make standards and policy information more accessible and manageable. Additionally, the initiative enables APRA to address emerging risks efficiently within the existing framework.
The new Prudential Handbook, initially released in beta last month, integrates all of APRA’s prudential standards, practice guides, and supporting information into a single, easily navigable digital format. This comprehensive resource is designed to cater to various users across regulated industries and the broader community.
APRA Chair John Lonsdale praised the industry's contribution to shaping the MPA initiative. "Since APRA’s creation in 1998, the prudential framework has grown substantially in response to new risks and changes in the operating environment. While necessary to protect the community, the framework had become complex and burdensome to comply with."
With the digital Prudential Handbook now established, APRA remains committed to further refining the prudential framework and welcomes ongoing industry feedback and suggestions.
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Key regulatory appointments in US and UK
The Bank of England has confirmed three new appointments to its Enforcement Decision Making Committee. The three appointments are:
- Harry Matovu KC: Harry Matovu KC is a senior barrister at Brick Court Chambers, specialising in major domestic and international commercial disputes. He also serves as an arbitrator, is a Governing Bencher of the Inner Temple, and founder and Chair of the Black Talent Charter. He has held significant roles in legal governance and charitable organisations.
- Dame Clare Moulder DBE: Dame Clare Moulder DBE is a retired High Court Judge (KBD) and former partner at Linklaters. She specialised in banking and capital markets transactions, particularly derivatives and structured products. Since retiring in 2022, she continues to hear complex commercial disputes in the Commercial Court.
- Pauline Wallace: Pauline Wallace is a Chartered Accountant and chair of the UK Endorsement Board, overseeing the adoption of International Financial Reporting Standards. She also serves on The Pensions Regulator's Determinations Panel and has held prominent roles in regulatory committees and PwC.
Meanwhile in the US, the Securities and Exchange Commission (SEC) has confirmed that Richard Best, Director of the Division of Examinations at the SEC, will take leave to focus on his health and Keith E Cassidy, the current Deputy Director, will serve as interim Acting Director. Cassidy is a commanding officer in the US Marine Corps Reserve and has served in various governmental roles, including the SEC’s Office of Legislative and Intergovernmental Affairs.
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AMF and Banque de France advocate for T+1 settlement cycle transition
The Autorité des Marchés Financiers (AMF) and the Banque de France have issued a call for a well-coordinated and efficient transition to a T+1 settlement cycle for securities transactions across the European Union. This push aligns with the European Commission's acceptance of the T+1 principle, highlighting the need for meticulous planning to address the specific challenges posed by EU markets.
Cross-border cooperation crucial
The AMF and the Banque de France emphasised the importance of close cooperation with the UK and Switzerland due to the interdependencies between these markets and the EU.
Two-phased approach recommended
The regulators advocate for a two-phased approach. Initially, within the current T+2 settlement cycle, all securities trades should be confirmed and allocated by the end of the trade date. This will necessitate significant operational and technical upgrades, including the standardisation of data exchanges and automation of manual processes. Following this, the settlement cycle can be reduced to T+1, contingent upon achieving a satisfactory level of same-day trade confirmations.
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Australian treasury issues three consultations
The Australian government has issued three new consultation papers (CP) on capital gains tax and payment times reporting rules.
Improving the foreign resident capital gains withholding tax regime: the government has proposed measures to increase the integrity of the foreign resident capital gains withholding (FRCGW) regime and this CP proposes the legislation required to increase the FRCGW rate for relevant CGT assets from 12.5 per cent to 15 per cent and remove the current $750,000 threshold. Responses are required by 5 August 2024.
Strengthening the foreign resident capital gains tax regime: The government has proposed a measure to strengthen the foreign resident capital gains tax regime, to ensure that foreign residents can be appropriately taxed on direct and indirect disposals of assets with a close economic connection to Australian land and natural resources. The amendments apply to capital gains tax events commencing on or after 1 July 2025 with responses required by 20 August 2024.
Payment Times Reporting Rules amendments: the government has proposed new rules to support the Payment Times Reporting (Amendment) Bill 2024 which received Royal Assent on 9 July 2024. The CP contains technical matters such as reporting content and calculation methodologies required for payment times reporting. Responses are required by 19 August.
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