Key legislation to change authority
The Financial Markets Authority (FMA) has outlined its position ahead of it taking over responsibility for the CCCFA, a key piece of legislation that governs responsible lending.
Speaking at the Financial Services Council (FSF) 2024 Conference on Wednesday, Samantha Barrass (pictured above), FMA chief executive, explained the FMA’s approach to regulation.
The speech comes after the government announced earlier in the year that the Credit Contracts and Consumer Finance Act (CCCFA) would no longer be overseen by the Commerce Commission (ComCom).
After speaking about the strong relationship between the FMA and FSC, Barrass framed the speech around the theme of “consumer resilience and prosperity”.
“That is because, once responsibility for the CCCFA is transferred to us, we will have a role in overseeing the financial products that touch most New Zealanders’ lives,” Barrass said.
“Whether it is securing a loan for a car, getting professional financial advice, buying your first home and insuring it, insuring yourself and your livelihood, or saving and investing for your retirement and other financial goals, the FMA will have a key role in making sure New Zealanders have trust and confidence in the financial services sector.”
The FMA’s approach to regulation
With the CCCFA undergoing significant regulatory change, Barrass said it was important the FMA’s regulatory approach was clear and understood.
She talked about the times growing up in 1980s Christchurch, where, according to Barrass, regulation was “deeply discredited”.
“I associated it with driving an over-controlled economy including poor services (such as three months to get a phone line), and unrealistic controls on prices – the NZ dollar, rents and interest rates, to name a few,” she said.
An “idealistic” economics student, and “huge supporter” of the role of markets to drive growth and prosperity, Barrass said she was sceptical about regulation and felt “we always needed to be clear that regulation was a necessary intervention to support growth and the long-term prospects of New Zealanders”.
“It became so much of a driving passion for me that, 40 years later, I’m here talking to you as the chief executive of a regulator. Not many people grow up wanting to be a regulator, but there you go.”
Barrass spoke about the FMA’s underlying philosophy – “We cannot simply regulate for the sake of regulating”.
“Regulation needs to pass the ‘so what’ test, as well as enabling innovation. By keeping an eye on unnecessary regulatory burden, we can ensure our regulatory approach is achieving the outcomes we, and New Zealanders, expect.”
“It’s why, for example, we have provided the government with a list of proposals where both our time, and yours, can be used more valuably – while still ensuring consumers and investors are protected,” Barrass said. “We have also valued you proactively highlighting to us further changes that the FMA and the minister should consider.”
The history of the CCCFA: ‘Unnecessary’ regulatory burden
While the CCCFA has been around for over two decades, it wasn't until 2021 that it became a major talking point again when the Labour government changed the policy.
Intended to stamp out predatory lending, many found these changes overly prescriptive.
These revisions required lenders to follow a standardised method for assessing borrowers' ability to repay loans. Everyone was treated with the same level of risk, regardless of whether they were applying for a small overdraft of $1,000 or a significant home loan of $1 million.
The changes led to immediate backlash, with one adviser labelling it “the most draconian piece of legislation” they had ever seen.
With the National Party winning the general election in October, CCCFA reform was prioritised, and by April 2024, Commerce and Consumer Affairs Minister Andrew Bayly revoked 11 pages of the affordability regulations – and included a proposal to change who govern it.
With so much focus on unnecessary regulatory burden, Barrass emphasised that the important point here is on the word “unnecessary”.
“We cannot and must not forget the crystalised harm or risk of harm, un-prevented by market forces, that created the need for regulation in the first place,” she said.
“The finance company collapses, and the risks and harm exposed, unmitigated by market forces, created a powerful argument for regulation to support mum-and-dad investors and quality capital markets in New Zealand.”
Financial services reforms: ComCom in charge for now
Barrass acknowledged that many are eagerly awaiting these ministerial decisions on the financial services reform consultation from earlier in the year.
She said the Commerce Commission and the FMA had been working “very closely” on the transfer of credit functions, with several joint activities underway.
“As part of this, you will also start to see the FMA in some of the commission’s stakeholder engagement activities,” Barrass said.
“Both regulators are very committed to a seamless transfer of responsibilities and await legislation to be passed by Parliament to give effect to this.”
“Until then, the Commerce Commission is still the regulator of the CCCFA, and lenders should continue to engage with the commission as normal.”
To view the full speech click here.
