Tirohanga: Financial Services Quarterly Outlook - April 2022

Welcome to our third issue of Tirohanga: Financial Services Quarterly Outlook. 

New Zealand is now looking forward to re-connecting with the rest of the world as the spread of the Omicron variant of COVID-19 passes its peak here. From 12 April, vaccinated Australian citizens and permanent residents (among others) will be able to enter New Zealand and self-test on arrival without needing to isolate. From 1 May, this will also apply to vaccinated visitors from other visa waiver countries (most OECD jurisdictions) and others who already hold a valid visitor visa. We expect this opening up will increase confidence and add further impetus to the strong foreign investment flows.

The other major current event is the Russian invasion of Ukraine. This has caused a significant humanitarian crisis in Europe and has also shaken global financial markets, which in turn has impacted New Zealand. However, the consequences here have been far less than those closer to the war front. In this issue, we explore the potential impact of these developments on the financial services sector, highlight other issues we see as coming to the fore in the industry, and recap some of the things we have been involved in over the past three months.

We also highlight another one of our exceptional alumnae, Samantha Zhang, who is currently at Rothschild & Co in London, having previously spent just over three and half years at Freshfields Bruckhaus Deringer. We also introduce our fabulous Financial Services Team (Team), who work hard to deliver quality advice and services to our clients.

Finally, we are delighted to have been named the winner of the prestigious 2022 Beaton Client Choice Award for ‘Best Provider to Financial and Insurance Services’ in Australasia. The Client Choice Awards recognise best practice in the professional services sector throughout Australia and New Zealand. The awards are independently researched by Beaton with the results this year based on over 15,000 pieces of client feedback.

We hope you enjoy this issue of Tirohanga, 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.

If you want to look back at our first and second issues, you can find them here and here respectively.

Kind Regards,

The Financial Services Team

Trends: What themes we see in the next three months

In many ways the trends we see in the next three months are a continuation of, and in some areas an intensification of, the main themes we identified in previous issues. In particular, M&A transactions in the financial services sector keep us very busy, and we work closely alongside our M&A colleagues in respect of these. There are, however, also new changes that we see as likely to spur on new trends.

The great re-opening of New Zealand

With the rise of the Omicron variant of COVID-19, the Government’s previous approach of keeping the borders shut to prevent the virus from spreading even further has since been jettisoned. From 12 April, vaccinated Australian citizens and permanent residents will be able to enter New Zealand and self-test on arrival. Furthermore, current temporary work and student visa holders from anywhere in the world who can still meet their visa requirements, as well as up to 5,000 international students from anywhere in the world, will also be able to enter New Zealand on the same basis. Such as influx in skilled labour and international students will likely have a stimulating effect on the New Zealand economy, which has largely closed its doors to such categories of visitors since early 2020. Furthermore, from 1 May, vaccinated visitors from visa waiver countries and those from other countries who already hold a valid visitor visa will also be able to enter New Zealand and self-test on arrival. These developments will likely enhance economic confidence in New Zealand and provide a strong impetus for further foreign investment flows into the country.

Impact of the Russian invasion of Ukraine

The Russian invasion of Ukraine has had a significant impact globally. Not only has it caused a humanitarian crisis in Ukraine and its surrounding neighbours, but it also has shaken global financial markets and oil prices. Domestically, the passage of the Russia Sanctions Act 2022 and the promulgation of the Russia Sanctions Regulations 2022 have significantly impacted businesses and persons who may be dealing with sanctioned entities or individuals. With the war still ongoing with no clear end in sight, the corresponding impact of the conflict on global and domestic financial markets and the impact of the implemented sanctions will likely be felt for at least the next couple of months. In particular, we predict that more and more investors and businesses will seek to reduce or sever any economic ties they have with entities associated with Russia.

Wave of law reforms pressing ahead

Domestically, law reform projects, some of which suffered delays due to the impact of the COVID-19 lockdown in the second half of 2021, are now pressing ahead. The Deposit Takers Bill is expected to be introduced to Parliament in the first half of 2022, after a consultation on the exposure draft closed in February. On the insurance front, the long-awaited Insurance Contracts Bill has been released by the Ministry of Business, Innovation and Employment (MBIE) for consultation, and the Reserve Bank of New Zealand (RBNZ) is actively seeking input on whether the penalties and enforcement tools available to it when supervising insurers, and its powers to manage distressed insurers, should be expanded. Finally, we also expect the Financial Markets (Conduct of Institutions) Amendment Bill to make its way through Parliament, and be enacted later this year.

Cryptocurrencies and digital assets

In Australia, the Treasury is currently consulting on a licensing and custody regime for crypto asset secondary service providers. We anticipate that this development may also influence the attitude of the New Zealand regulators and government agencies, including through the ongoing Inquiry into the Current and Future Nature, Impact, and Risks of Cryptocurrencies by the Finance & Expenditure Select Committee which has now finished hearing submissions and is moving into the report writing phase. Jeremy Muir (Partner) is retained by the Select Committee as a special adviser.

Firming up of the FMA’s regulatory approach

In February this year, Samantha Barras officially took up her role as the new CEO of the Financial Markets Authority (FMA). In our previous issue, we predicted that her appointment would bring new priorities and approaches to the FMA’s supervision and enforcement, and this has proved to be the case. In a speech to the Financial Services Council in March, Barras outlined the regulatory and supervision approach of the FMA under her leadership. She further emphasised that the FMA is focused on investor vulnerability and outcomes, ensuring that new regulatory regimes are implemented smoothly, and the conduct of participants in the financial sector, among other priorities. We predict that the impact of the FMA’s new approach and priorities will likely be seen in the next couple of months.

For a copy of the speech made by Barras, please click here.

What we’ve been up to

What we’ve been up to

Over the first quarter of 2022, we’ve been busy helping our clients on some interesting and ground-breaking projects, and hosting an exciting and insightful seminar, all the while juggling the complications thrown up by the Omicron outbreak of COVID-19. Obviously much of our work remains confidential, but we have highlighted some examples which are now public. These include:

MinterEllisonRuddWatts presentation on Climate-related Disclosures

Early in March, our experts Lloyd Kavanagh (Partner) and Maria Collett-Bevan (Senior Associate) delivered a session to clients looking into the climate-related disclosures (CRD) regime under the Financial Markets Conduct Act 2013 (as amended by the Financial Sector (Climate-related Disclosures and Other Matters) (FMCA).

In the session, they summarised the CRD regime, explained the application and implications of the CRD regime on registered banks, fund managers, and licensed insurers, and explored other related issues under the FMCA (e.g. greenwashing, interaction with existing disclosure requirements).

Soon after, the External Reporting Board (XRB) launched its consultation on the Strategy, Metrics and Targets section of the draft New Zealand Climate Standards. See here for our news alert.  On 30 March 2022, the XRB announced that submissions will now be due by 9am on Monday, 2 May 2022 instead of Wednesday, 13 April 2022.

Advising banks and fund managers on Russia sanctions and AML

We have been advising numerous banks and fund managers on the implications of the Russia Sanctions Act 2022 and the Russia Sanctions Regulations 2022 on their practices and business, including in respect to AML/CFT. The Regulations are of significance to any businesses or persons that may be dealing with sanctioned entities or individuals. The Act is framed around using regulations to target sanctions, so these play an important role in giving effect to its autonomous sanctions regime.

Financial services M&A

We are currently acting on a confidential basis for several bidders for New Zealand financial services businesses alongside our M&A colleagues. There is currently significant interest in New Zealand businesses from foreign investors, and we hope to showcase successful deals we have acted on later on in the year.

Origin Capital Fund #2

We are acting for Origin Capital Partners in launching its second wholesale kiwifruit orchard fund. This comes less than a year after Origin Capital Partners closed its first fund at $85 million, which we also helped establish. The first fund is already fully invested and has paid its first distributions (which totalled $3 million). Fund 2 is again a private equity style limited partnership, and will be investing in building new orchards planted with Zespri Green and RubyRed varieties, as well as buying established SunGold orchards, and buying Zespri shares.

Maker Capital

We are currently acting for Maker Capital in setting up a New Zealand domiciled venture capital fund to be known as Maker Capital Fund l. The fund is seeking to make pre-seed and seed investments in purpose-driven New Zealand companies, growing and helping them from their very first capital raise.

Altered State Machine

We advised Altered State Machine Limited on the regulation of its ASTO tokens, a governance token that will be used in tandem with the non-fungible tokens (NFTs) it has created and sold (and will create and sell).  Led by Bryan Ventura, we also assisted the company with its equity capital raise and sale of ASTO tokens to notable investors including TCG World, Warner Music, AirTree, Coinbase and more.

Project Trove completion

We assisted Macquarie Asset Management (part of Macquarie Group Limited) with the completion of its purchase of AMP Capital’s Global Equity and Fixed Income business.  As part of the sale, approximately A$47 billion of assets under management will transfer from AMP Capital to Macquarie Asset Management, subject to unitholder approvals.

The Golden Ticket programme

We are a founding partner of The Golden Ticket programme, an industry driven programme put together in conjunction with FinTech NZ that aims to support New Zealand FinTechs who are embarking on their scale up journey. Recently, we have been assisting Taxoshi, a New Zealand startup which has launched a cryptocurrency tax calculator focused on helping New Zealanders understand their tax position in relation to cryptocurrency transactions. Taxoshi’s vision is to bring deeper compliance to the blockchain ecosystem globally.

To find out more about Taxoshi, click here.

Looking forward

Ongoing impact of Russia sanctions

With no clear end to the ongoing invasion of Ukraine by Russia, the corresponding impact of the conflict on global and domestic financial markets, as well the impact of the implemented sanctions, will likely be felt for at least the next couple of months. In respect of the Russia Sanctions Act 2022 and the Russia Sanctions Regulations 2022, the nature of the restrictions imposed by them are broad, and financial institutions will want to be careful that their activities stay well clear of them. In particular, the specific references to shares and securities in the asset-dealing restriction may have more relevance to them than to other businesses more generally. The RBNZ, FMA and the Department of Internal Affairs, being the AML/CFT supervisors, have released joint guidance on the Regulations, and participants in the financial services sector will want to be aware of their expectations as they move forward. To read the guidance, please click here.

To read more about the impact of the Russia sanctions on the financial services sector, please read our news alerts found here, here and here.

If you would like to know more about the Russia sanctions and how it may affect your business, please contact one of our experts.

XRB’s development of the Climate-related Disclosures standard

The Financial Sector (Climate-related Disclosures and Other Matters) Amendment Bill was enacted into law in October last year. Coming into force via amendments to the FMCA, the Financial Reporting Act 2013, and the Public Audit Act 2001, the regime 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). These entities will be required to make disclosures in accordance with climate standards to be issued by the XRB alongside wider year end reporting in 2023 at the earliest.

The XRB has released the second discussion document in relation to their development of the climate standards. This second document focuses on Strategy, as well as Metrics and Targets. On 30 March, the XRB announced that submissions will now be due by 9am on Monday 2 May, instead of Wednesday 13 April.

Furthermore, the XRB has announced that they are working towards a formal exposure draft of the full climate standards by July.

For more information about the XRB’s role in developing the climate standards, please click here. To read our news alert on the topic, please click here.

If you would like to know more about the new climate standards and how it may affect your business, please contact one of our experts.

Class 3 FAP licence applications due soon

Applications for Class 3 Financial Advice Provider Licences, the broadest type of FAP Licence which enables a FAP to engage both Financial Advisers and Nominated Representatives, should be filed by the FMA’s target application date of Thursday, 30 June. This will be of significance to anyone that currently holds a FAP Transitional Licence, or anyone who is expecting to give financial advice in the future, and is looking to apply for a Class 3 FAP Full Licence.

The FMA has been clear, that in contrast to the granting of the Transitional Licences, Full Licence applications are likely to receive more scrutiny. So FAP Licence holders who have not started their preparations already, would be well advised to start now.

If you would like to know more about obtaining a Full FAP Licence and would like assistance in doing so, please contact one of our experts.

MinterEllisonRuddWatts presentation on the RBNZ’s proposed ‘Central Bank Digital Currency’

Please join Jeremy Muir for an insightful seminar on the RBNZ’s proposed ‘Central Bank Digital Currency’ (CBDC) on Monday, 9 May from 1-2pm.

Invitations to the seminar in May will be sent approximately 1–2 weeks prior to the event. If you would like to receive an invitation, please contact Rachael Saunders.

In September 2021, the RBNZ published a consultation on the ‘Future of Money’, which included questions relating to how the RBNZ should assess whether to offer central bank money in a digital form alongside cash. In the RBNZ’s view, the declining use, acceptance and availability of cash in New Zealand, and emerging innovations in private money, namely stablecoins, make this an opportune time to consider broadening central bank money to include a widely available digital form, a CBDC.

The RBNZ believes that the introduction of a CBDC would be a helpful development for central bank money, as it would support their role as steward of money and cash. It would support both the value anchor role of central bank money, and the ability of central bank money to act as a fair and equal way to pay and save.

The consultation period closed in December 2021, and the RBNZ plans to publish a summary of submissions received and an outline of next steps by the end of April.

For more information on the RBNZ’s proposed new CBDC, please click here. To read our news alerts on the topic, please click here and here.

If you would like to know more about the RBNZ’s proposal for a CBDC and what it means for your business, please contact one of our experts.

Likely introduction of the Deposit Takers Bill

The Deposit Takers Bill, which plans to make some of the most profound changes to banking regulation in a generation, creating a new regime for the prudential regulation of all deposit takers, is likely to be introduced to Parliament in the coming months. An exposure draft of the Deposit Takers Bill was released for consultation in December 2021, with submissions due by 21 February. Currently, the RBNZ is considering the feedback received from the consultation and is revising the Bill as appropriate before it is introduced to Parliament.

The Bill will repeal the Banking (Prudential Supervision) Act 1989 (the new name for the prudential supervision related parts of the Reserve Bank of New Zealand Act 1989) and the Non-bank Deposit Takers Act 2013, and therefore affect all current registered banks and licensed non-bank deposit takers. The Bill also makes changes to the ‘regulatory perimeter’ and may capture entities that provide call accounts for wholesale investors. It allows the RBNZ to declare certain persons to be deposit takers within the scope of the regime. There is also an ability to impose standards related to lending by non-deposit taking lenders.

For more information about the Deposit Takers Bill, please click here. To read our news alert on the topic, please click here.

If you would like to know more about the Deposit Takers Bill and what it means for your business, please contact one of our experts.

Insurance law reforms

The long-awaited Insurance Contracts Bill has been released by MBIE for consultation. The Bill reforms and updates New Zealand’s insurance contract law – the Bill proposes fundamental changes to the duty of disclosure, introduces regulation of unfair contract terms and the presentation of consumer insurance contracts, and is intended to roll up New Zealand’s disparate insurance legislative regime. The Bill follows a public consultation on how to reform insurance contract law in late 2019.  The Bill aims to address shortcomings in insurance contract regulation identified in MBIE’s 2019 consultation.

The current consultation focuses on whether the Bill appropriately addresses these shortcomings.  Submissions on the consultation close Wednesday, 4 May.

For more information on MBIE’s consultation on the Insurance Contacts Bill, please click here. To read our news alerts on the topic, please click here and here.

If you would like to know more about what the proposed reforms in the Insurance Contracts Bill mean for your business, or if you would like assistance in drafting a submission to MBIE, please contact one of our experts.

Furthermore, the RBNZ is currently consulting on whether the penalties and enforcement tools available to it when supervising insurers, and its powers to manage distressed insurers, should be expanded. The consultation is the third consultation (of the proposed five) in relation to the review of the Insurance (Prudential Supervision) Act 2010 (IPSA). The RBNZ has asked for submissions by Friday, 20 May.

For more information on the RBNZ’s consultation on the IPSA, please click here. To read our news alert on the topic, please click here.

If you would like to know more about what the proposed IPSA reforms mean for your business, or if you would like assistance in drafting a submission to the RBNZ, please contact one of our experts.

Introducing the team

In this issue, we introduce to you our wonderful Team. They are the stars who work hard on the stage and behind the scenes to deliver quality services and legal advice to our clients.

The Team is co-led by Lloyd Kavanagh and Jeremy Muir, who between them have more than 45 years’ experience working in financial services regulation. Lloyd is an internationally acclaimed financial services lawyer and deal maker. He is also a sought-after adviser on investment funds, insurance, banking, FinTech, financial services regulation, and corporate governance. Lloyd is the founder of MinterEllisonRuddWatts’ highly acclaimed Financial Services Team and is also a former Chair of the firm. Jeremy is a specialist financial services, funds and investment lawyer, and is widely recognised as New Zealand’s leading lawyer for cryptocurrencies, digital tokens and coins, non-fungible tokens, and other blockchain projects.  Jeremy helped to develop the first NZD stablecoin and is one of two special advisers to the Finance & Expenditure Select Committee inquiry on cryptocurrencies.

Alistair Robertson is a Special Counsel in the Team and re-joined us in March 2020, having previously been Head of Compliance at ANZ. Maria-Collett-Bevan, Bryan Ventura, and Zena Razoki are all Senior Associates in the Team. Maria joined us in August 2016, having previously been an Associate at the Guernsey law firm Babbé; Bryan joined us in July 2019 from Lowndes Jordan, where he was an Associate; and Zena joined us in September 2020, having previously been an Investment Funds Associate at Bryan Cave Leighton Paisner LLP in London.

The Team is also ably supported by Vivien Liu, who is a Senior Solicitor in the Team, and Lana Ou, Sam Short, Sarah Jones, Shaanil Senarath-Dassanayake, and Scott Yang, who are all Solicitors in the Team.

Fiona Brown and Milly Jeffries are our Team’s Secretaries, and they work hard behind the scenes to ensure that the Team is ably supported from an administrative point of view.

Finally, we are delighted to welcome Elise Plunket, our new Law Clerk, who will be joining the Team in mid-April after she finishes her Professionals Course.

Our Team is the most experienced in New Zealand when it comes to financial services regulation, with more than 90 years combined experience working in the sector.

Team from left to right: Vivien Liu, Lana Ou, Scott Yang, Shaanil Senarath-Dassanayake, Bryan Ventura, Jeremy Muir, Sam Short, Hannah Cross, Lloyd Kavanagh, Sarah Jones, Alistair Robertson 

Alumni spotlight – Samantha Zhang

Alumni spotlight – Samantha Zhang

In this issue of Tirohanga: Financial Services Quarterly Outlook, we shine a light on our alum Samantha Zhang. Samantha summer-clerked in the Team in Auckland over 2013 and 2014, and then joined fulltime between June 2015 and December 2017. During that time, she was involved in a wide range of work helping fund managers adapt to the new FMCA regime. That included co-authoring with Lloyd an influential article titled ‘Delegating Directors’ Duty to Review Disclosure Materials: Due Diligence for Continuously Offered Financial Products under the Financial Markets Conduct Act,¹ which has shaped industry practice.

Samantha moved to London in early 2018, joining the Global Transactions Group at Freshfields Bruckhaus Deringer where she specialised in investment funds and financial regulation, advising clients on structuring and advisory matters as well as regulatory aspects of complex M&A transactions. Since October 2021, Samantha has been an inhouse Solicitor at Rothschild & Co, one of the world’s largest independent financial advisory groups in London. A typical Kiwi in London, Samantha enjoys travelling and is very much looking forward to being able to explore more of Europe this year.

¹ New Zealand Business Law Quarterly – Volume 21 September 1, 2015

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.

Enforcement

FMA

Climate change and finance

Insurance

Russia

Cryptocurrencies and cryptoassets

Reform

Who can help