On 16 September 2024, the Financial Markets Authority (FMA) released a Consultation Paper on the annual regulatory returns to be provided by licensed 'financial institutions', in accordance with standard condition 3 of the standard conditions for financial institutions, as well as the proposed information to be provided to the FMA by those financial institutions (Information Sheet). Submissions on the Consultation Paper and the Information Sheet are due by 5.00pm on 25 October 2024.
Our view is that the proposed regulatory return requirement is an important consideration for financial institutions in the following ways:
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The types of information to be provided include data on board reporting, customer complaints, remediations, associated products and distribution methods
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The information provided to the FMA as a part of the regulatory return (including the extent to which licence holders are meeting their obligations - primarily the obligations to comply with conditions of licence and maintain and comply with a Fair Conduct Programme) has been stated by the FMA to determine the focus and priority of its supervision and monitoring functions and accordingly, its investigative and enforcement functions.
Financial institutions will need to consider how this regulatory return requirement will fit alongside any existing reporting obligations, including the mandatory breach reporting obligation under section 412 of the Financial Markets Conduct Act 2013 for those financial institutions who already hold market services licences.
What has happened?
From 31 March 2025, all registered banks, licensed insurers and licensed non-bank deposit takers who are in the business of providing one or more relevant services (generally speaking, financial services to retail clients/consumers) will be required to be licensed as a financial institution as a part of amendments to the Financial Markets Conduct Act 2013 (more commonly referred to as the CoFI regime).
The Consultation Paper and the Information Sheet outline what questions the FMA will ask, and accordingly what information financial institutions will be required to provide, as a part of the annual regulatory return process.
These questions are in respect of the following categories:
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Business structure, including what relevant services are provided
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Fair conduct programme, including when this was last reviewed and the method used
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Associated products, including types of products offered, customer numbers, intermediaries and distribution methods
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Consumer care and handling conflicts, including in relation to sales incentives
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Conduct risk management, including details of board reporting, complaints received and customer remediations paid out
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Employees and agents (including in relation to training); outsourcing; business continuity plan and operational resilience (including events of activation and testing); and record keeping.
While a number of these categories are of the same or similar nature as other information reporting obligations, certain information may be new for many financial institutions such as customer complaint and remediation data. Financial institutions will need to ensure they have sufficient processes in place to meet the implicit FMA expectations in the proposed information, and to collect and store data required to give compliant annual regulatory returns.
As a part of the 2024 financial services reforms the Government indicated an intention to streamline the regulatory burden facing financial markets participants (which includes financial institutions), and particularly in relation to the duplication of regular reporting requirements. The FMA has referred to this Government intention in the Consultation Paper, and in light of the proposed move to a single market conduct licence we would anticipate the FMA to consolidate the reporting it requires from its licensed entities. For further information on the 2024 financial services reforms please see our article, Government announces decisions on financial services reforms.
What is next?
The FMA is consulting, with submissions being due by 5.00pm on 25 October 2024, on a series of questions in respect of the Consultation Paper and Information Sheet.
These questions include:
· Any information that the FMA should not ask for
· Any additional information that the FMA should be collecting
· What costs businesses will incur in providing the required information (including in respect of the regulatory burden suffered as a result of multiple regulatory returns).
The FMA is also seeking feedback on whether the systems of financial institutions will be prepared to collect the proposed information for a reporting period beginning 1 July 2025 (the regulatory return questions are expected to be published in March 2025). Otherwise, the FMA is proposing having a 9-month reporting period beginning 1 October 2025 for the first reporting period.
If you are a financial institution we recommend you familiarise yourself with the proposed regulatory return requirements and the availability of the information to be provided (including the burden of doing so). If you wish to make a submission on the Consultation Paper and Information Sheet, or would like to discuss any aspect of the CoFI regime, please get in touch with our financial services regulation team.
This article was co-authored by Thomas Carr (solicitor), and Andrew Suggate (senior associate).
