Today, the Ministry of Business, Innovation and Employment (MBIE) has released an exposure draft of regulations for the climate-related disclosures (CRD) regime and an accompanying consultation document. The regulations address record-keeping obligations, transitional provisions, and infringement fees for the CRD regime (together, the Draft Regulations).
Who should read this? Why?
All climate reporting entities (CREs) should read the Draft Regulations and consultation document.
The Draft Regulations set out the expected requirements for a CRE’s climate records. As the first climate reporting period has already commenced for many CREs, they will want to be clear as to what records they should be keeping.
What does it cover?
The Draft Regulations plan to amend the Financial Markets Conduct Regulations 2014 (FMC Regulations) to support the CRD requirements in the Financial Markets Conduct Act 2013 (FMCA).
- Keep climate records that enable CREs to ensure their climate statements are compliant with the regime (CRD records). CREs will be required to ensure CRD records are readily accessible so that they can be provided within a reasonable timeframe, and reasonably enable requesting persons to determine they are compliant.
- Make CRD records available for inspection at all reasonable times to the Financial Markets Authority (FMA), the directors of CREs, supervisors (in relation to debt securities or managed investment schemes), assurance practitioners (only from October 2024), and any other persons legally authorised to inspect (together, Requesting Persons) upon their request. However, if it is unreasonable to meet the requested timeframe or form, the CRE must make the records available “as soon as practicable and in a reasonable manner”.
- Keep CRD records in writing in either English or te reo Māori, but may be held in another form provided they are easily accessible and convertible into written form English or te reo Māori.
- If a CRE’s CRD records are kept by a third party, ensure that the third party is providing its services in a way that means the CRE is complying with its record-keeping obligations. There are transitional provisions that apply to this requirement.
- Keep CRD records, or copies of them, for at least 7 years.
For the requirement related to third party record-keeping arrangements, the Draft Regulations allow CREs up to two years to ensure that these arrangements are compliant. If a contract or arrangement is varied or renewed before two years, it is from that date forward that the CRE must comply.
This is the only transitional relief to the requirements the MBIE is proposing at this stage – all other provisions in the Draft Regulations as finally promulgated must be complied with from the commencement of the Draft Regulations.
Where records are to be kept
The Draft Regulations do not prescribe where a CRE’s CRD records should be kept, instead proposing two options:
- Option one: Require CRD records to be kept in New Zealand; or
- Option two: Require CRD records to be kept in a country listed in the regulations.
These options, to be consulted on, propose a different approach to accounting records under the FMCA which only requires documents related to preparing financial statements to be kept in New Zealand.
The Draft Regulations set out the infringement fee levels for four new offences under the CRD regime, taking the same approach as the financial reporting offences in the FMC Regulations. The proposed fees are as follows:
|Failure to keep CRD records in the prescribed manner||$7,500|
|Failure to make CRD records available in the prescribed manner for inspection||$12,500|
|Failure to lodge a climate statement within the deadline||$7,500|
|Failure by a CRE to disclose that it is a CRE in its annual report and to include climate statements (and a link to those statements) in its annual report||$5,000|
CREs will be pleased to at last have greater clarity as to what record-keeping requirements they are likely to be subject to, even though they are not yet in final form (this is expected by the end of September 2023).
To date, CREs have only had FMA guidance as to its expectations and a Cabinet Paper which spoke in general terms. However, it is regrettable that CREs do not yet have final certainty – as at least in theory, the final form of the Regulations could differ from the Draft Regulations as a result of feedback from CREs and others.
The Draft Regulations address the two issues related to CRD record-keeping that MBIE previously identified in its Regulatory Impact Statement. The Draft Regulations help to reduce the uncertainty surrounding how to comply with the record-keeping obligations, and secondly the way in which records must be made available for inspection – both of which are currently absent from primary legislation.
Given infringement fees for FMCA offences are set in regulations, the proposed fees are a necessary addition. Not only will this allow the FMA to fulfil its regulatory role, but CREs now know what to expect if they breach one of these four CRD offences.
Submissions on the consultation document and Draft Regulations close on 12 July 2023. CREs will want to ensure they are as useful as possible, and MBIE is welcoming feedback on any or all of the Draft Regulations.
The MBIE says it intends to finalise and formally promulgate the Regulations in final form before the election in September this year, but noted it was aware of the tight timeframe to achieve this.
The FMA is expected to publish guidance for record-keeping, which will support the Regulations, on 23 June 2023. The finalised record-keeping guidance is intended to be published in September 2023.
If you have any questions about the Draft Regulations or about the CRD regime generally, please contact one of our experts.
This article was co-authored by Hannah Cross, a law clerk in our Banking and Financial Services team.
Read more of our related insights.View all insights