Tight parliamentary schedules would likely see firms caught by the Conduct of Financial Institution (COFI) rules cop a double-whammy of regulatory adjustments, according to the Ministry of Business, Innovation and Employment (MBIE).
In a consultation handed down last week, MBIE says the mooted the COFI reforms, put in place at the behest of the new National-led government, would probably come into force by 2026 “at the earliest” while the current law kicks off on March 31 next year.
“We acknowledge that this timetable means financial institutions will need to comply with the current legislation (without amendments) until the amendment bill is passed and the obligations under it commence in around 2026,” the consultation paper says. “This may result in additional costs for financial institutions to review, and if necessary, adjust, their fair conduct programmes later to respond to any changes made through the amendment bill.”
MBIE notes that “many financial institutions are already well-progressed” in preparing for COFI licensing in line with original specifications under continued government encouragement.
However, the consultation document says “clear and proactive communication” could reduce risks with the proposed reforms expected to bring efficiencies over the long term.
“… although there may be some one-off costs involved relating to the need to review and adjust programmes in response to changes, these changes may reduce compliance burden and costs on an ongoing basis,” the MBIE paper says.
The wide-sweeping COFI reforms championed by Commerce Minister Andrew Bayly include plans to remove some “minimum requirements for fair conduct programmes” as well as moving to a single licence model for firms subject to multiple licensing processes under the current regime.
Furthermore, the proposed ‘Fit for purpose financial services conduct regulation’ rejig will grant the Financial Markets Authority powers to search business premises without warning (currently the regulator must issue prior notice of visits) and make firms under investigation subject to independent “expert” reports.
The government recently empowered the Reserve Bank of NZ (RBNZ) to carry out surprise on-site inspections of businesses under its purview, the MBIE paper says.
“Such powers are consistent with standard international expectations for financial markets conduct regulators like the FMA,” the consultation says. “International standards for securities regulation are set by the International Organization of Securities Commissions (IOSCO).”
If the reforms are introduced both the RBNZ and FMA will also be able to rely on ‘assessments’ of businesses conducted by either regulator “where appropriate” rather than embark on separate investigations – part of the government strategy to bolster the ‘twin peaks’ regulatory approach.
In a separate paper, MBIE also lays out proposals to tighten oversight and accountability of the financial dispute resolution sector, which currently splits duties between four providers.
“We are not currently proposing options to change the overall scheme model, such as consolidating the schemes into a single entity as has occurred in some overseas jurisdictions including Australia and the UK,” MBIE says. “This is because it will take time to see how the regulations to align the schemes’ rules, as discussed above, are working to improve outcomes for consumers, before assessing the need for structural change.”
MBIE, which last month revealed about 300 staff cuts as part of the government’s state sector austerity plan, is also consulting on proposed changes to consumer credit laws as part of the Bayly-led policy revamp.