A new regime requires financial institutions to comply with regulations relating to sales incentives

Purpose of this discussion paper and context

A new regime requires financial institutions to obtain a licence

1. The Financial Markets (Conduct of Institutions) Amendment Act 2022 (CoFI Act) received royal assent on 29 June 2022. This legislation represents a fundamental evolution of conduct regulation of the retail banking and insurance sectors in New Zealand. It introduces a conduct licensing regime for banks, insurers, and non-bank deposit takers (collectively financial institutions) and aims to ensure that financial institutions treat consumers fairly.

2. Under the new CoFI regime, financial institutions will be required to comply with a principle to treat consumers fairly (the fair conduct principle), and must establish, implement and maintain an effective fair conduct programme to ensure that they comply with the principle. Financial institutions will need to operate under a licence issued by the Financial Markets Authority (FMA) that covers the service of ‘acting as a financial institution’ (financial institution licence) in order to provide core banking and insurance products and services to consumers in New Zealand.

3. The FMA will be responsible for supervising and enforcing the new CoFI regime and for issuing financial institution licences. The legislation gives the FMA direct oversight of the general conduct of these financial institutions and provides the FMA with formal supervisory and enforcement tools to support good conduct.

4. The FMA anticipates licensing applications will open from mid-2023. The Government expects the regime to come into full force in early 2025. The FMA has recently consulted separately with industry on the proposed standard conditions to be imposed on a financial institution licence.

This paper seeks feedback on proposed financial institution licensing fees

5. The purpose of this discussion document is to seek feedback on the proposed financial institution licensing fees to apply to licence applications made under the CoFI regime. These fees are proposed to fund the costs the FMA will incur in assessing applications. 

6. Other costs to the FMA resulting from development and implementation of the new CoFI regime will be funded by an increase to the FMA’s baseline funding.  Large parts of this funding will be recovered through increased FMA levies payable by financial institutions, along with a contribution from the Crown. Information about the recent FMA funding and levy review can be found here:

2021 funding and levy review

The increased funding does not cover the costs of the FMA’s time assessing licence applications. Licensing fees are charged separately from and in addition to the FMA levy payable by each entity.

7. The FMA has existing responsibilities for the licensing of other market services and the fees for these licences are set out in the Financial Markets Conduct (Fees) Regulations 2014 (Fees Regulations). The proposed fees for the financial institution licence will be incorporated into the Fees Regulations. MBIE is the agency responsible for any amendments to the Fees Regulations.