FMA holds consultation on financial institution licence conditions

FMA holds consultation on financial institution licence conditions | Insurance Business New Zealand

FMA holds consultation on financial institution licence conditions

The Financial Markets Authority (FMA) has released a consultation paper on proposed standard conditions for licences granted under the Financial Markets (Conduct of Institutions) Amendment Act 2022 (CoFI).

The CoFI Act will introduce a new regulatory regime governing the conduct of the market’s financial institutions, such as insurers, banks, and non-bank deposit takers. This regime, the FMA said, has an overarching principle of institutions treating consumers fairly.

The new regime is expected to come into force in early 2025 and will require financial institutions to operate under a “financial institution licence” issued by the FMA. All licence holders and each of their authorised bodies will need to comply with the standard conditions, the FMA said.

The consultation period will run until 5pm on Sept. 7. The FMA will announce final standard conditions at a later date.

The consultation is proposing six standard conditions for licences:

  1. Ongoing requirements – A financial institution must, at all times, continue to satisfy the various requirements for licences, such as directors and senior managers meeting fit and proper criteria
  2. Notification of material changes – A financial institution must notify the FMA in writing within 10 working days of implementing any material change to the nature of its financial institution service
  3. Regulatory returns – A financial institution must provide the FMA with the information the regulator needs to monitor the institution’s ongoing capability to effectively perform its service
  4. Outsourcing – If a financial institution outsources a system or process necessary to the provision of its service, it must be satisfied that the provider is capable of performing the service to the standard required to enable it to meet its market services licensee obligations
  5. Business continuity and technology systems – A financial institution must have and maintain a business continuity plan that is appropriate for the scale and scope of its financial institution service and must notify the FMA of any event that materially impacts the operational resilience of its critical technology systems
  6. Record keeping – A financial institution must create in a timely manner and maintain adequate records in relation to its service

The standard conditions are consistent with those imposed on other licences issued by the FMA, such as financial advice provider licences, the regulator said.

“We strongly encourage industry and stakeholder feedback on our consultations to ensure our regulatory proposals are fair and appropriate,” said Clare Bolingford, FMA director of banking and insurance. “The standard conditions for financial institutions are especially important given these businesses play such an important role in New Zealanders’ everyday lives.”

Licence conditions may impose limits or restrictions on the services that are covered by the licence or impose conditions in relation to the licensing assessment requirements. According to the FMA, conditions are necessary to ensure licence holders continue to meet those requirements, and to help it effectively monitor the licenced population.

The FMA said it expects to start accepting licence applications in mid-2023, or around 18 months prior to the new legislation coming into force.