Tirohanga: Financial Services Quarterly Outlook – October 2021
Welcome to our first issue of Tirohanga: Financial Services Quarterly Outlook. In this quarterly publication, we highlight what’s coming up in the financial services sector over the next quarter, recap some recent events and those to look out for, take a look at some of the interesting things we’ve been working on over the past three months, and take a look at what some of our alumni have been up to.
This publication is aimed at anyone working or interested in the financial services industry in New Zealand.
We hope you enjoy the first issue of Tirohanga: Financial Services Quarterly Outlook, and if you have any suggestions or topics you would like us to cover, or would like to join the mailing list for our regular short updates, please contact us.
Tirohanga is Te Reo Māori for “view”, “viewpoint”, “perspective” or “outlook”.
The Financial Services Team
Trends: What themes we see as likely to dominate in the next three months
Climate Change and ESG: Now firmly established as a long-running trend is the impact of the focus on Zero Carbon by 2050, which is prompting both new offers of climate friendly products, and projects to ensure issuers’ products deliver on their ESG promises. The Financial Sector (Climate-related Disclosures and Other Matters) Amendment Bill is crystallising the relevance of this to the financial sector.
New Fintech Products: MinterEllisonRuddWatts has been a driving force in the fintech and blockchain space in New Zealand since 2017. We are helping to bring a wide range of virtual asset and crypto products to market. In our view, the growth in this sector is reflective of a new wave of domestic and international innovation, and the normalisation of investments in virtual assets.
Financial Services M&A: We are involved in a significant number of M&A transactions in the financial services sector and expect this to continue into next year. The drivers of this include Australian-owned institutions (in particular) focusing on their core business, and looking to shed non-core activities, other international investors seeking the stable yield of the New Zealand sector, and regulatory changes such as the changes to the default KiwiSaver regime.
Regulatory Action: The main regulators in the sector, the Financial Markets Authority (FMA), the Reserve Bank of New Zealand (RBNZ), the Commerce Commission and the Department of Internal Affairs all now have well-resourced enforcement teams and are taking action. Recent focus areas have included AML/CFT and consumer credit. Broader focus areas e.g. conduct and culture, are expected to re-emerge over the next six months.
What we’ve been up to
Over the last quarter we’ve been busy helping our clients on some interesting and ground-breaking projects, and hosting exciting and insightful seminars, all the while juggling the complications thrown up by the recent COVID-19 lockdown. Obviously much of our work remains confidential, but we have highlighted some examples which are now public. These include:
The Future of Sustainability: This is where Greenwashing ends
On 17 June, we co-hosted with Kernel Wealth and S&P Dow Jones an event called ‘The Future of Sustainability: This Is Where Greenwashing Ends’. The seminar involved a thought-provoking discussion on the future of sustainability, the impact on financial markets and financial market participants, and considerations for sustainable investment in the year ahead.
Lloyd Kavanagh (Partner, Financial Services) presented to a considerable crowd along with a number of influential panellists, including:
- Dean Anderson, Founder and CEO at Kernel Wealth
- Rob Campbell, Professional Director (Chancellor of AUT, and Chair of SkyCity, Ara Ake, WEL Group, and Tourism Holdings)
- Debbie Birch, Professional Director (Chair of Raukawa ki Te Tonga, and IWInvestor)
- Louise Tong, GM Sustainable Finance at Bank of New Zealand
Toha Impact Investments
Toha Foundry is developing the Toha Network which aims to coordinate parties and incentives with the overall purpose of regenerating the environment. It is developing products called Impact Assets using blockchain technology – which coordinate the measurement/ownership of data and payment/financing to complete the objectives. We are helping Toha to develop the first of its Impact Assets – being the Pledge – a digital contract that combines a commitment to take environmental action with the data that proves the action has been taken.
The first Pledges will be under a venture called “Calm the Farm” which aims to support New Zealand farmers to transition their land from conventional to regenerative agriculture management practices. Find out more here.
Origin Capital Kiwifruit Fund
We acted for Origin Capital Partners, which has launched a fund to invest exclusively in New Zealand kiwifruit orchards for wholesale investors. In May 2021 the fund, structured as a private equity style limited partnership, achieved its final close, with $85m raised from investors wanting exposure to the sector. As at September 2021, over 80% of the fund’s capital has already been called, in the acquisition of a number of high-quality kiwifruit investments.
We acted for a group of blockchain industry investors (including Techemy, a prominent virtual asset advisory firm in New Zealand) to create Techemynt Partners LP. The Techemynt group has launched a stablecoin called “NZDS” which is a digital currency fully backed and pegged to the New Zealand dollar on a 1:1 basis. It is always fun to be involved in the developing crypto space.
We acted for Macquarie Asset Management in relation to the New Zealand aspects of their purchase of AMP Capital’s Global Equities and Fixed Income business, which was announced in July 2021. Macquarie’s public announcement is available here.
We have assisted two AML/CFT reporting entities in their engagement with supervisors in relation to warnings issued under the AML/CFT Act. The details surrounding these matters are confidential, but they reinforce the greater willingness of AML/CFT supervisors to take formal steps when they have reasonable grounds to believe a reporting entity has engaged in conduct that constitutes a civil liability act. In both cases, we were successful in achieving an outcome acceptable to our clients. More broadly, many clients have sought our advice on how the regime applies to them.
FMA supervision priorities
On 30 June, Alistair Robertson (Special Counsel, Financial Services) and Lloyd Kavanagh hosted James Greig (Director of Supervision, FMA), for an informative update on the FMA’s concerns and priorities from a supervision perspective, and moderated the Q&A, before the event wrapped up with networking and drinks.
The key takeaways from the seminar were:
- The FMA is encouraging financial advice providers to apply for their full licence as early as possible and may consider imposing a deadline in 2022 by when all applications must be received.
- In relation to the new financial advice regime, the FMA’s short term focus is on record keeping and disclosure, particularly how disclosure is delivered and received by customers.
- While the FMA is generally happy with the conduct of participants in the market, the Supervision Insights Report published in September 2020 highlighted some issues relating to governance and oversight, Compliance Assurance Programs, and misleading and deceptive conduct. These will continue to be a focus of FMA’s supervision monitoring activities.
- The FMA’s future workplans include a joint review with the RBNZ focusing on governance, and publication of a Conduct Maturity Framework building on the FMA’s 2017 conduct guide.
COVID-19 Restrictions on Financial Service Businesses
We’ve been keeping an eye on what the current Alert Level 3 and Alert Level 2 restrictions mean for financial service businesses. In this lockdown, the exemptions for financial service businesses have been narrower than those provided in the 2020 lockdown. These restrictions are also continuing to evolve. You can read our alert on the topic, which we will continue to update.
Event with Digital Identity New Zealand
Date and Time: Wednesday 20 October 5:30 – 6:30PM
Please join Lloyd Kavanagh, Janine Granger (Co-founder and CEO of Easy Crypto), Nick Kokay (Senior Policy Advisor at the Ministry of Justice), Claire Barber (CEO of MATTR), and Daniel Rogers (Founder & Director at Avid AML Limited) for an insightful discussion and seminar on the latest trends and issues regarding the AML/CFT Act.
In this kōrero we will be discussing the DINZ-commissioned analysis of the Reliance and Re-Use of Identity Verification for AML/CFT Act purposes. We will share the full report with registrants and discuss the key findings and recommended actions.
We will also be discussing the review of the AML/CFT Act, which is currently underway.
Review of the AML/CFT Act by the Ministry of Justice
The Ministry of Justice is set to release the consultation document for their statutory review of the AML/CFT Act next week. It promises to involve a root and branch reassessment of a key regime which has had a major impact across the financial services sector since it came into force in 2013. This follows the release by the Financial Action Task Force (FATF) of their Mutual Evaluation of New Zealand in April, which noted that some improvements to the New Zealand AML/CFT regime were necessary to bring them up to the high FATF standards. Our own Lloyd Kavanagh is a member of the Ministry of Justice’s Industry Advisory Group.
The Ministry of Justice will invite submissions from the public.
If you would like to know more about the review of the AML/CFT Act or would like assistance in drafting a submission for the consultation when it goes live, please contact one of our experts.
Finalisation of the Climate Related Disclosures Bill and XRB’s First Discussion Document for the Climate Disclosures Regime
The Financial Sector (Climate-related Disclosures and Other Matters) Amendment Bill has completed the Second Reading stage in its passage through Parliament this week, and is expected to be enacted before the end of the year. Coming into force via amendments to the Financial Markets Conduct Act 2013, the Financial Reporting Act 2013, and the Public Audit Act 2001, the Bill will make mandatory climate-related disclosures for large listed companies with a market capitalisation of more than $60 million; large licensed insurers, registered banks, credit unions, building societies and managers of investment schemes with more than $1 billion in assets; and some Crown financial institutions (via letters of expectation). Subject to Parliamentary approval, these entities could be required to make disclosures in accordance with standards to be issued by the External Reporting Board (XRB) alongside wider year end reporting in 2023 at the earliest.
The XRB is set to release the first discussion document in relation to their development of the financial reporting standard for climate-related financial disclosures on 20 October. This first document will focus on Governance and Risk Management. The initial draft will be released for a four-week consultation period, which will close on 22 November. For more information about the XRB’s role in developing the financial reporting standard for climate-related financial disclosures, please click here.
INFINZ event on TCFD Reporting
Date and Time: Thursday 4 November 5:30 – 7:30pm
Please join Lloyd Kavanagh, Mark Cross (Non-Executive Director of Xero, Chorus, and Z Energy), and Michele Embling (Chair of XRB, SFF Board) for an insightful discussion on the first discussion document released by XRB in relation to their development of the financial reporting standard for climate-related financial disclosures, which focuses on Governance and Risk Management.
Event with XRB: Climate-related disclosures – Consultation on governance and risk management
Date and Time: Thursday 11 November 12:30 – 2pm
The Government introduced legislation into Parliament earlier this year to implement mandatory reporting on climate risks and tasked the External Reporting Board (XRB) with developing disclosure standards to support the new reporting regime.
The Financial Sector (Climate-related Disclosures and Other Matters) Amendment Bill proposes to make New Zealand one of the first countries in the world to enforce mandatory climate-related disclosures for large financial institutions and listed issuers. Subject to parliamentary approval, these entities could be required to make disclosures alongside wider year end reporting by 2023.
The disclosure standards will be based on the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD) and are being consulted on through the three stages – the first stage will focus on Governance and Risk Management.
Join us, in person or online, for a session with April Mackenzie (Chief Executive, XRB) and Lloyd Kavanagh (Partner, MinterEllisonRuddWatts), where they will provide:
- a summary of the TCFD and the overall objectives of the disclosure regime;
- an explanation of what is proposed to be included in the Governance and Risk Management sections of the new standards and key questions the XRB are seeking feedback on; and,
- an overview of future issues on the XRB’s agenda, such as scenario analysis and GHG accounting.
This event will also provide guests with an opportunity to ask questions and provide direct feedback on the draft standards.
Click here to register to attend in person.
Click here to register to attend via Zoom.
Cryptocurrency Select Committee
The Finance and Expenditure Committee (the Committee) is conducting the inquiry in order to further their understanding of the topic and is expected to report back soon.
The terms of reference for the inquiry are:
- to inquire into, and establish the nature and benefits of cryptocurrencies;
- to identify the risks cryptocurrencies pose to the monetary system and financial stability, including tax implications, in New Zealand;
- to establish how cryptocurrencies are used by criminal organisations; and
- to establish whether means exist to regulate cryptocurrencies, either by sovereign states, central banks, or multi-lateral co-operation.
To view the written submissions made to the Committee to date, please click here. The invitation for written submissions has completed, however, the inquiry is ongoing and is currently hearing oral submissions on the current and future nature, impact, and risks of cryptocurrencies. Jeremy Muir (Partner, Financial Services) has been appointed as a special adviser to the Committee.
CoFI Bill Awaits Second Reading
The Financial Markets (Conduct of Institutions) Amendment Bill (CoFI Bill) is currently awaiting its Second Reading. Then it will go through Committee of the Whole House and Third Reading stages before being passed. The CoFI Bill is likely to reach the Committee of the Whole House stage in late 2021.
The CoFI Bill is intended to cover registered banks, licensed insurers, and licensed non-bank deposit takers, and to apply broadly to relevant services and associated products provided by those specified financial institutions (including financial businesses and intermediaries who deal with them). At its heart, the concept is to introduce conduct licensing by the FMA in relation to retail banking (deposit taking and lending) and insurance.
For more information about the CoFI Bill, please click here.
If you would like to know more about the CoFI Bill and what it potentially means for your organisation, please contact one of our experts.
Event: Regenerations Reimagined
Date: Monday 6 and Tuesday 7 December
We will be sponsoring Tech Alley at the Financial Services Council Conference 2021. The conference – ReGenerations Reimagined – will run in two parts: A combination of smaller sessions throughout October and November, in the lead up to a face-to-face conference, including Tech Alley, to be held on Monday 6 and Tuesday 7 December at the Cordis Hotel.
Alumni spotlight: Jemimah Giblett
In this issue of the Tirohanga: Financial Services Quarterly Outlook, we shine a light on our alumna Jemimah Giblett. Jemimah was a member of the Financial Services team between February 2016 and August 2020. Since August 2020, she has been a Senior Legal Counsel at Sharesies Limited, where she has been a highly effective and integral member of the team, helping Sharesies with their expansion into different products. Her significant contributions were recently acknowledged by her nomination for the Young In-House Lawyer of the Year award.
In case you missed it
We are continually publishing financial services updates on industry developments that we think our clients might be interested in. If you’ve missed some of our updates, below is a list of what we’ve published in the last quarter.
- High court clarifies approach to AML penalties
- High Court provides further clarification for AML penalties approach
- FMA announces escalation in AML/CFT enforcement approach
- AML/CFT supervisors extend annual report deadline
- AML/CFT supervisors release updated guideline for the Amended Identity Verification Code of Practice 2013
- FATF releases review of virtual asset and virtual asset service provider standards
- Transitional compliance period for new AML/CFT nominee CDD Obligations
- Policyholder security: IPSA option paper released
- FMA releases report covering fire and general insurers conduct and culture
- COVID-19: Financial services operating under Level 4
- Financial Services and New Zealand’s COVID-19 Strategy
Climate Change and Finance
- Select Committee reports back on Climate-related Disclosures Bill
- Traders of NZUs to note Ministry for the Environment consultation on governance framework and industrial allocation
Conduct of Market Participants
- Customer vulnerability: Immediate priorities of the FMA
- Regulation of the retail payments system: Proposed policy approvals