NEW ZEALAND: An Introduction to Financial Services

Financial Services in New Zealand  

Territorial scope and regulation of financial services in New Zealand

The Financial Markets Conduct Act 2013 (‘FMCA’) and its regulations are the primary pieces of law regulating the offering of, and dealing in, financial products and financial services in New Zealand. Unless an exclusion or exemption applies, there are numerous disclosure obligations and fair dealing obligations in the FMCA that all offerors of financial products and services must comply with.

The relevant provisions of the FMCA have extraterritorial effect and cover services provided from outside New Zealand into New Zealand. The key effect is that if you are offering financial products or services to New Zealand retail clients, it is likely you will require a licence under the FMCA or at least registration under the Financial Service Providers Register (‘FSPR’).

The provision of ‘financial services’ is usually restricted to financial service providers that are registered on the FSPR (a publicly searchable electronic register). A financial service includes (but is not limited to) any financial advice service, client money or property service, being a registered bank, acting as an issuer of regulated financial products, acting as an insurer, or acting as a custodian. To be registered, a provider needs to participate in an approved dispute resolution scheme (if it provides services to retail clients), and must not be disqualified from registration.

Registration can be blocked where the registration has, will have, or is likely to have, the effect of creating a false or misleading appearance of the extent of financial services provided in or from New Zealand, or of the extent of regulation by New Zealand law. An existing registered provider can be deregistered in the same circumstances.

The detail 

Regulation of financial product offerings

A financial product is an equity security, a debt security, a managed investment product, or a derivative. These terms cover the offer of traditional investment products such as shares, bonds, investment syndicates, investment funds, and superannuation/KiwiSaver schemes.

The rules are designed to ensure retail investors are given sufficient information to make informed investment decisions, and have protections around governance (particularly for managed investment products).

The following providers must be licensed under the FMCA:

• managed investment scheme managers
• derivatives issuers
• discretionary investment management service (‘DIMS’) providers
• providers of regulated financial advice
• crowdfunding platform providers
• peer-to-peer lenders

The licensing process is administered by the Financial Markets Authority (‘FMA’). It involves a detailed assessment of the provider’s business and systems as well as the capability and suitability of its directors and senior management.

Exceptions to licensing under the FMCA are precisely defined and include:

• offers to various categories of wholesale investors and wholesale clients
• offers through licensed intermediaries (which includes DIMS, crowdfunding platforms and peer-to-peer lending providers)
• offers of financial products of a same class as a quoted financial product

There are a number of more specific exemptions to licensing, such as for registered banks and for some incidental offers in New Zealand by overseas listed companies.

Disclosure obligations 

Regulated offers of financial products must be made by way of a product disclosure statement (‘PDS’) which complies with the FMCA and its regulations. The PDS must be provided to each investor and lodged online with the Registrar of Financial Service Providers before the regulated offer can be made.

The FMCA and its regulations place restrictions on the content of a PDS, as well as general fair dealing constraints such as prohibitions on:

• false or misleading conduct
• making unsubstantiated representations
• offering financial products in unsolicited meetings or telephone calls

In addition, the Registrar must be supplied with all required information and documents for the online register of financial product offers.

Secondary markets for financial products

The PDS regime does not normally apply to secondary markets for financial products (i.e. financial products that have previously been allotted), although there are some exceptions to this, such as where the original allotment was made for the purpose of a subsequent offer that is made within 12 months.

Regulation of financial advice 

Financial advice providers providing financial advice to retail clients are required to be licensed and make upfront disclosure of information to clients, especially about fees and remuneration. Providers also have to comply with specific duties including giving priority to clients’ interests, exercising care, diligence, and skill, not recommending a financial product that contravenes the FMCA or its regulations, and not making information available where it contains false or misleading statements.

Financial advice providers who have engaged advisers or nominated representatives face additional duties, including taking all reasonable steps to ensure that all persons engaged to provide financial advice on the provider’s behalf comply with prescribed conduct duties, and implementing processes and controls to limit the nature and scope of the advice given.

In each case, limited conditional exemptions are available for offshore-based providers.

Anti-money laundering and countering financing of terrorism (‘AML/CFT’)

Financial service providers operating in New Zealand also need to be aware of their obligations under the Anti-Money Laundering and Countering Financing of Terrorism Act 2009.

The AML/CFT regime requires overseas entities engaged in specified types of financial business in New Zealand to:

• undertake and prepare a written assessment of the risk of money laundering and the financing of terrorism that it may reasonably expect to face in the course of its business
• establish, implement, and maintain an AML/CFT compliance programme administered by a specified compliance officer
• have the risk assessment and compliance programme audited at least every two years
• carry out various levels of customer monitoring and due diligence, identity verification, and suspicious activity and prescribed transaction reporting

Superannuation and KiwiSaver 

A government-funded superannuation entitlement is available to most persons living in New Zealand provided they meet the eligibility requirements. Individuals can choose to supplement their entitlement through private superannuation schemes and/or a Government-subsidised voluntary retirement savings regime called KiwiSaver. There are prescribed contribution rates required of an employer if an employee is contributing to a KiwiSaver scheme.

Conduct of financial institutions regime

Following extensive conduct and culture reviews by the FMA and the Reserve Bank of New Zealand, the New Zealand government is currently working towards implementing a conduct licensing regime (through amendments to the FMCA), with a particular focus on banks, insurers, and licensed non-bank deposit takers. A range of duties will apply, including a conduct licence requirement and implementation of a fair conduct programme. The new regime is not expected to come into effect until at least late 2024, with applications for licensing anticipated to open mid-2023.

Financial sector climate-related disclosures

The New Zealand government is also working towards introducing mandatory climate-related disclosure requirements for certain ‘FMC reporting entities’. New Zealand will be the first country in the world to introduce a regime that requires financial sector participants to disclose the impacts of climate change on their businesses. This will apply to reporting entities who have a higher level of public accountability, including listed issuers, large banks, large non-bank deposit takers, large insurers, and large managers of managed investment schemes. The new disclosure requirements are expected to commence in 2022.