The FMA's guidelines will have unintended consequences, “will create confusion” with existing financial markets regulations and, in particular, with the Financial Markets (Conduct of Institutions) Amendment Act 2022 (CoFi) which is due to come fullying into force from March 31, BusinessNZ says in its submission on the consultation document FMA published in November.
“We note the proposed fair outcomes would represent a new concept, something that is neither legislation or regulation, nor guidance for applying such a regulatory requirement,” the organisation said.
BusinessNZ is concerned the guidelines “would create a completely separate rulebook” and add to the complexity of the legislative landscape.
The guidelines should not proceed “until issues including duplication and compliance costs have been resolved through further consultation.”
The NZ Banking Association, which represents 18 registered banks, slammed the guidelines as being inconsistent with existing legislation, lacking in clarity of purpose, introduce the risk of hindsight bias and in providing examples of outcomes, create unintended prescription.
“The guide risks increasing uncertainty” and confusion, and could undermine the principles-based approach of CoFi, the NZBA said.
It pointed to the new government's stated aim of reducing the volume and duplication of regulations.
Cygnus Law noted that the definition of the word “fair” “is inherently unclear as different people will interpret fairness differently.”
“There is no reason to think that what an FSP [financial services provider] thinks is 'fair' with respect to prices will be shared by consumers,” the law firm said.
“In fact, there's almost always likely to be a divergence of view and markets operate to develop a degree on consensus.”
Cygnus said it doesn't agree that fair outcomes “are an appropriate tool in some areas to guide FMA's approach to its role.
“In our view, the guide is seeking to impose the fair outcomes as de facto legal standards. We don't consider that is permitted by law.”
It suggests rewriting the guide “to make it clear that the fair outcomes are aspirational goals and not mandatory requirements.”
Another law firm, Chapman Tripp, says the draft guidelines would impose “significant additional compliance burdens, confusion and uncertainty … without clear legislative authority.”
Chapman Tripp also warned that some of the rationale within the guide for taking regulatory intervention “could increase the risk of successful judicial review against FMA's decision making.”
Because the regulatory expectations in the guide aren't always supported by requirements in relevant legislation, this could undermine confidence in the FMA as an effective enforcement body, it said.
“Without an underpinning statutory base, some of the draft guide lacks the authority of parliament and risks being unenforceable or amenable to judicial review for being contrary to the constitutional principle of the separation of powers,” Chapman Tripp said.
“Only parliament can determine the law and where parliament devolves power to the executive arms of government under a delegated authority, there are limits on the exercise of power which are enforced by the courts.”
