Changes to CCCFA and CoFI open opportunities

Financial Advice New Zealand says the government’s changes to the Credit Contracts and Consumer Finance Act (CCCFA) will give lenders the opportunity to streamline their processes and also allow financial advisers to help more Kiwis into homes.

Wednesday, January 31st 2024, 12:10PM

FANZ interim chief executive Tony Dench says it has been a trying time for many consumers as they navigate rising costs of living and uncertain economic times.

The Government is making changes to the CCCFA and contentious Conduct of Financial Institutions (CoFI) legislation.

With the CCCFA, Commerce and Consumer Affairs Minister Andrew Bayly will remove prescriptive affordability requirements for lower risk lending and undertake a more substantive review of the Act, including its penalty and disclosure regime. He says changes will be identified by March/April and be ready by mid-year.

The Financial Services Council (FSC) says it will work with Bayly and his officials to develop a CCCFA regime providing necessary protections to those consumers who need them, but which do not treat every borrower as vulnerable or incapable of managing their own finances.

“We have already provided some suggestions as to how this could be achieved to provide a sustainable regulatory framework for consumer credit that will serve New Zealand consumers for years to come,” Lyn McMorran, FSF executive director says.

However, in the FSF’s view, more work is needed to be certain the minister’s suggestion of moving enforcement of the CCCFA from the Commerce Commission to the FMA will lead to lower compliance costs for institutions.

“The FSF agrees with Bayly that successive governments, albeit with the right intentions, have added layer upon layer of compliance requirements on the financial services sector without any one of them stepping back and looking at the overall regulatory framework to consider where there are overlaps or gaps.”

McMorran says the resulting complex licensing regimes for various aspects of a financial services provider’s business has led to a lack of access to appropriate financial products for many consumers. It has meant higher compliance costs for providers which are inevitably passed on to the customer.

CoFI review

Instead of scrapping CoFI, Bayly will review it, reinforcing the principle that businesses applying for a licence under CoFI are responsible for determining an appropriate fair conduct programme for their specific needs – in essence a proportionate approach.

The review will also require the FMA to issue clear guidance for smaller institutions to meet minimum requirements of conduct.

Bayly is also tidying up the country’s financial architecture by separating regulation and conduct. The Reserve Bank will be the prudential regulator and the FMA the conduct regulator.

The FMA will issue a single licence covering conduct issues for financial institutions, while also clearly defining obligations within the Financial Markets Conduct Act, meaning easier reference for growing or contracting financial institutions.

And duplication will be removed in areas of initial fit-and-proper person assessments required by both the FMA and RBNZ but both entities will report separately on cyber resilience.

Bayly says the about 100 financial institutions that need to be licenced under the CoFI regime by March next year need to continue working towards that.

Dench says the finance sector has had numerous changes to many regulations and simplifying them will provide a clear process allowing FANZ members to focus on clients’ outcomes and business growth.

The FSF, whose members are subject to the CoFI regime, says the levies they will pay to the FMA to regulate their conduct adds significant further compliance cost. So there is the question as to whether the cost for the FMA to set up as the consumer credit regulator will also be passed on to their regulated entities, McMorran says.

However, both FANZ and FSF are pleased Bayly is listening to financial services providers with respect to the complexity of the regulatory framework, and is committed to improving it for regulated entities and consumers.

Dench says the government has taken a considered and consultative approach and Bayly and the ministry have been open to understanding the implications of the changes for financial advisers.

“Financial advisers have played a critical role in supporting New Zealanders through unprecedented economic times. It is more important than ever for New Zealanders to access good quality financial advice for their financial health, wealth, and well-being.”

Other changes

Bayly also has other irons in the fire for reforming the financial space.

Chief among them is reform of the 30 year-old Companies Act, which he describes as an important part of the corporate landscape for decades, providing the operating framework for all NZ companies, including those in the financial sector.

“Aspects of it are out of date and can be improved,” he says.

Bayly says it is an important longer-term project that he expects to work on for a while.

While reform of the Companies Act, the CCCFA and CoFI are the priority, he says other sector issues need to be addressed as well.

These include exploring changes to capital markets settings to help businesses and investors thrive, changing KiwiSaver settings to help people save more for retirement and insurance contract law so insurers and policyholders have better certainty about the deals they’re striking.

Tags: CCCFA