In 2024, it opined and consulted on what constitutes fairness to consumers, giving rise to some fairly prescriptive statements about what that fairness entails. The FMA has also expressed a keenness to allow freedom for innovation, piloting a regulatory ‘sandbox’ to allow firms to test innovative products, services or business models, albeit with a surprisingly short time frame. 

In 2025, we also expect to see continued growth in influence of the FMA’s new Perimeter and Response team, which is triaging matters regarded as being at the FMA’s regulatory perimeter and deciding which matters ought to be referred to the enforcement team, as well as investigating ‘perimeter’ matters itself. The focus in the past year on the perimeter has had a significant impact, with a number of new investigations launched in addition to fair conduct proceedings, with some resulting in hefty penalties. 

We are also seeing an increasingly litigious regulatory approach from the FMA, as it demonstrates a new willingness to “take the bull by the horns” and seek guidance from the courts in a number of areas on the legislation it administers. Most recently, we have seen the FMA bring a case stated proceeding seeking a determination from the High Court as to who may qualify as an “eligible investor” under clause 41 of schedule 1 of the Financial Markets Conduct Act 2013 (FMCA) and, as such, a “wholesale investor” to whom disclosure under Part 3 is not required.

Regulators will, however, need to take care not to overreach their powers, following the Court of Appeal’s decision in R v Pikia which found that the Serious Fraud Office (SFO) had conducted searches and issued statutory notices unlawfully. Recipients of notices demanding the production of documents should take advice on the legality of those notices. 

All of this activity has been taking place against a backdrop of Andrew Bayly’s priorities, as Minister for Commerce and Consumer Affairs, for the financial sector for 2024/2025, one of which is to “simplify complex financial policy and regulatory settings to remove unnecessary barriers and transactional costs, promote growth objectives and encourage competition” [1]. With the Conduct of Financial Institutions legislation or “CoFI” also coming into force in March, 2025 is set to be another year of change and debate. We discuss these issues in more detail below, as well as the increasing scope of the FMA’s mandate. 

Fair conduct outcomes and what this means for litigation

The FMA’s consultation document on fair outcomes created some confusion in the market when it was first released as to the legal basis and effect of the FMA’s statements about fair conduct. The FMA itself notes that: “submitters also expressed a range of concerns, including that the focus on detailed outcomes statements gave an impression that these would be treated as new rules or compliance obligations for firms and that it was unclear how the FMA would operationalise outcomes focus in practice” [2]. The FMA says it has taken time to consider the industry response, and that it would be beneficial to explain the FMA’s regulatory approach so that financial service providers and other stakeholders understand how it intends to use its outcomes-based focus to prioritise and carry out its work. Interestingly, this kind of confusion was something that in April 2024, Minister Bayly said he wished to avoid. In his letter of expectations to the FMA, he stated that “the FMA should ensure that market participants have a clear understanding of their legal obligations, and the distinction between legal obligations and guidance and that regulatory expectations set by the FMA are properly founded in the law” [3]. Unsurprisingly, shortly before Christmas, Samantha Barrass, the CEO of the FMA, assured the market that “[these] will not be new rules” and a new publication would explain the FMA’s approach in the New Year. 

Despite Minister Bayly’s views about how regulatory guidance should be treated, it is commonplace for courts to use guidance from regulators as interpretive aids. Any guidance from the FMA, while not having legislative effect, could create a de facto standard and have a significant impact on litigation in the future. While a regulator’s views of reasonable conduct are not to be taken as gospel, it often receives deference from courts who see regulators as experts in their fields. 

Learning by play: The regulatory sandbox and litigation risk 

At the other end of the spectrum, the FMA says that it wants the industry to innovate, and a regulatory ‘sandbox’ is being piloted to encourage this. This may be in answer to criticism (sometimes from the market and sometimes from Government circles) that the FMA is slower than it should be to permit innovation, as novelty is harder to regulate. The sandbox will, however, have a surprisingly short time frame, initially from January to July 2025 with a decision being made later in the year as to whether to make this initiative permanent. This may be a good option for firms to test new innovative ideas and reduce the risks of litigation from a novel product or service launch.

Mandate and role of the FMA’s new Perimeter and Response Team 

In 2017, the FMA’s Strategy Risk Outlook identified what it calls its “regulatory perimeter” – meaning the borderline of its formal powers with a focus upon financial services that are unregulated or lightly regulated – and began taking a proactive approach to minimising activities on the so-called ‘perimeter’ that are likely to pose risk or cause harm to the public and erode confidence in the system. This was formalised in 2023, with the FMA establishing the role of Director of Specialist Supervision and Response, and a Perimeter and Response Team (PRT). 

While the FMA Outlook 2023/24 listed one of the FMA’s strategic objectives as “Proactively minimise harmful conduct on the perimeter”, the Outlook for 2024/25 does not refer to conduct on the perimeter at all. Further, we understand that in practice the PRT is essentially triaging matters and deciding whether enforcement action is required, consistent with the FMA’s focus on proportionate engagement with regulated entities. Accordingly, we expect that regulated entities may increasingly hear from the PRT in relation to potential breaches of regulatory obligations, and its engagement with the PRT will be critical to whether potential issues are resolved without formal enforcement action.

R v Pikia: A warning to regulators 

Last year, the Court of Appeal issued a landmark decision in R v Pikia [2024] NZCA 408, finding that the SFO had overreached in its use of its statutory powers when investigating Mr Pikia. 

In an appeal concerning the admissibility of certain evidence gathered by the SFO into his affairs, Mr Pikia argued that more than 200 notices issued by the SFO under section 9 of the Serious Fraud Office Act 1990 in addition to their use of multiple search warrants, in totality, went beyond what was reasonably required and amounted to an unlawful general warrant. He said that the section 9 notices were overly broad or used to obtain information beyond the scope of section 9, that there were insufficient grounds to justify the search warrants and that the SFO’s failure to maintain any record of the investigative searches carried out meant that the Court could not assess whether they were reasonable and proportionate.

The Court of Appeal considered that each of the notices and warrants needed to be assessed individually, and in carrying out that assessment, it agreed that a number of the notices issued and warrants obtained by the SFO were overly broad and thus unlawful. For example, notices to obtain travel records and electronic devices without sufficient specificity were unreasonable. The Court also observed that section 9 only empowers the SFO to compel the production of documents that it has reason to believe may be relevant to the investigation into a particular offence. The Court said that the regulator must pay careful attention to this restriction to ensure that the exercise of its intrusive statutory powers is undertaken in a reasonable and proportionate manner, particularly given that a person or corporation who does not comply with a request may be subject to penal consequences. 

The Court held that section 9 notices must strike a balance between the need for a thorough investigation and respecting individual rights. Specificity is crucial to ensure notices target only documents and information reasonably believed to be relevant to the investigation and avoid becoming a de facto general warrant.

In light of this decision, recipients of notices to produce documents or other warrants should consider and take advice on whether the notice is reasonable and proportionate, and consistent with the statutory power under which it has been issued. It should be noted, however, that the SFO’s use of more than 200 statutory notices in the Pikia case was extreme and most investigations involve many fewer such notices.

Department of Internal Affairs assuming responsibility for AML/CFT 

On 23 October 2024, Nicole McKee, as Associate Minister of Justice, announced that the Department of Internal Affairs (DIA) would assume overall supervisory responsibility for New Zealand’s AML/ CFT regime. This overhaul in supervisory structure will be made to “allow the system to be more responsive to industry and community needs, more agile, and more focused on the real risks posed by money laundering to New Zealand businesses.” [4].

Currently, the AML/CFT regime is supervised by the Reserve Bank, the FMA and the DIA, which are each responsible for different sectors. Their administration, application and enforcement of the AML/CFT regime also involved a large number of other organisations, including the New Zealand Police, Inland Revenue Department, Ministry of Business, Innovation and Employment and Commerce Commission. 

The proposed overhaul aligns New Zealand more closely with the more efficient AML/ CFT regulatory approaches seen in many other jurisdictions. For example, Australia currently operates on a single supervisory model overseen by the Australian Transaction Reports and Analysis Centre, a specialist agency set up for AML/CFT purposes. However, other jurisdictions do have multiple supervisors, such as the United Kingdom which has 25 anti-money laundering supervisors, including three statutory supervisors and 22 professional body supervisors.

There is a question as to whether the governance arrangements for the DIA’s AML/CFT function will be sufficiently robust, as it is a core government department with many functions. By contrast, the FMA and Reserve Bank have a corporate-style board governance, with the FMA in particular having arguably more experience in regulatory litigation than the DIA. 

Notwithstanding the above, once the DIA’s capability and resourcing is established, there should be clear efficiency and effectiveness benefits to having a single regulator. For example, the DIA should be able to release more timely guidance, given that guidance will no longer need to be agreed by multiple entities that may have differed in their approach.

Commerce Commission’s priorities for the year ahead

Specific priorities for 2025 

The Commission has announced seven specific enforcement priorities for the upcoming year: 

1. Bid-rigging cartels: The Commission will be particularly focussed on the procurement of public services and public infrastructure contracts. In December 2024, we saw the first sentencing in a criminal cartel case in New Zealand, in relation to bid-rigging on two major public infrastructure projects. A second construction company and its director are due to face trial in October 2025. 
2. Non-compete agreements: Whether in arrangements between competitors or other types of anti-competitive arrangements. 
3. Illegal online sales conduct: Fake reviews, misleading scarcity claims, ‘drip’ pricing and subscription traps. 
4. The grocery sector. This was also a focus in 2024, with the Commission issuing proceedings against Foodstuffs for lodging anti-competitive land covenants, resulting in a $3.25 million penalty. 
5. Telecommunications sector: Particularly misleading marketing, sales or billing practices of telecommunication providers. 
6. Motor vehicle finance: The Commission will prioritise matters where vulnerable consumers are impacted. 
7. Unconscionable conduct: The Commission is seeking opportunities to test this relatively new prohibition under the Fair Trading Act before the courts. 

This list of priorities is not exhaustive, and the Commission will monitor other areas as necessary. For example, while the Commission has not identified ‘greenwashing’ as a specific enforcement priority, it has said it is prepared to take enforcement action if businesses who engage in greenwashing breach the Fair Trading Act, and it is working with other agencies around greenwashing issues. 

Enduring priorities 

In addition to its specific enforcement priorities, the Commission has also updated its enduring priorities. The Commission’s enduring priorities are:

• Cartel conduct 
• Anti-competitive conduct
• Product safety 
• Vulnerable consumers
• Actions that support the Commission’s market and economic regulation functions 

These priorities are key areas that pose significant harm to New Zealand consumers, businesses and markets, alongside areas which are core to the Commission’s regulatory role.

Key takeaways for the year ahead 

We expect to see more enforcement action from the Commission over the coming year, including under the Commerce Act. 

The Commission has advised that it intends to be a more active enforcer and has budgeted to overspend its litigation fund by $2–3 million. The Commission’s update of its enforcement priorities is a good opportunity for businesses to reflect on their compliance with relevant competition and consumer laws and identify any practices that may pose compliance risks, particularly those related to the Commission’s updated priorities.

Footnotes:

[1] https://www.fma.govt.nz/assets/Minister/Letter-of-expectations/Annual-letter-of-expectation-from-Hon.-Andrew-Bayly.pdf
[2] https://www.fma.govt.nz/business/focus-areas/consultation/proposed-fair-outcomes-for-consumers-and-markets/
[3] https://www.fma.govt.nz/assets/Minister/Letter-of-expectations/Annual-letter-of-expectation-from-Hon.-Andrew-Bayly.pdf
[4] Government to overhaul anti-money laundering regime | Beehive.govt.nz