New Zealand is home to an active FinTech community, with the primary legislation in the sector, the Financial Markets Conduct Act 2013 (FMCA), having as one of its purposes the promotion of innovation and flexibility in the financial markets. The principal regulator, the Financial Markets Authority (FMA) has been receptive to the increase in activity across all aspects of the intersection between financial services and technology, including the crypto assets space.
The Council of Financial Regulators (CoFR) – Kaunihera Kaiwhakarite Ahumoni – provides a key single point of regulatory support and information for the FinTech sector, which can consider regulatory enquiries directed at the member agencies through a single website.[1]
COFR is made up of FMA, Reserve Bank of New Zealand (RBNZ), Commerce Commission New Zealand, Ministry of Business, Innovation and Employment and the Treasury. CoFR’s FinTech work is coordinated by the FMA as the lead agency, and also works with the Department of Internal Affairs (DIA).
In terms of investment for FinTech start-ups, New Zealand also has a strong early-stage angel investment community and a developing venture capital industry. FinTech in New Zealand is rapidly growing, which is reflected in the 2022 FinTech Insights report boasting a five year compound annual growth rate of 32% in FinTech revenue - three times higher than the growth of technology alone in New Zealand. In 2019, tax incentives of up to 15% were introduced for amounts spent on R&D, which has undoubtedly helped the speedy growth of FinTech in New Zealand with NZD374.6 million invested in 2022 alone (up 36.9% from the previous year).
Current regulatory framework for fintech businesses in New Zealand
FinTech businesses in New Zealand are all likely to be providing a financial service and will need to meet regulatory and compliance requirements. These can be onerous depending on the type of service offered or, more particularly, whether the service is provided to retail customers in New Zealand. All financial services businesses will need to register as a financial service provider under the Financial Services Providers (Registration and Dispute Resolution) Act 2008, and must join an approved dispute resolution scheme if services are provided to retail clients.
Specific licensing requirements also apply, but are not comprehensive, instead targeting particular services offered to retail customers in New Zealand such as funds management, discretionary investment management services, peer-to-peer lending, equity crowd funding, derivatives issuance, and provision of financial advice (all of which come under the FMCA).
Other legislation also provides for licensing, authorisation or registration regimes in connection with the provision of banking, deposit-taking (other than banks), insurance and trustee company services, including:
- The Reserve Bank of New Zealand Act 1989.
- The Non-Bank Deposit Takers Act 2013.
- The Insurance (Prudential Supervision) Act 2010.
- The Financial Markets Supervisors Act 2011.
Some retail activities do not require licences eg custody services, but are subject to duties and obligations.
Wholesale activities (eg the provision of financial services to customers who are themselves financial businesses, or who have net assets over NZD5 million, or who are experienced in investing, among other categories) are generally lightly regulated and subject to basic duties only. AML obligations (see below), however, apply equally to retail and wholesale markets.
FinTech businesses established overseas will, therefore generally find it straightforward and easy to enter into the New Zealand market if they deal exclusively with wholesale clients. However, accessing retail customers will mean more compliance.
Companies who wish to make offers of financial products (rather than financial services) to retail investors in New Zealand must create and lodge a Product Disclosure Statement (PDS), which must also be provided to each potential investor, and must maintain an online offer entry on the Disclose register. For offers of debt securities or managed investment products (ie funds), governance, licensing and registration requirements also apply. It is generally worth checking, however, whether there are any relevant exemptions for cross-border offers. There is also a mutual recognition regime for regulated offers between New Zealand and Australia, and both countries are part of the new Asia Pacific Funds Passport regime although, as yet, this is little used.
AML/CFT
In New Zealand, ‘reporting entities’, which include financial institutions, are required under the Anti-Money Laundering and Countering Financing of Terrorism Act 2009 (AML/CFT) to register with a supervisor (FMA, RBNZ or DIA, depending on the nature of the business), appoint a compliance officer, carry out a risk assessment in relation to the company’s business and risk of money laundering, and put in place an AML/CFT compliance programme. Reporting entities will need to carry out customer due diligence in relation to their customers which requires obtaining customer information, and in some circumstances, source of funds or wealth. They must also actively monitor transactions and report any activity or transactions which may be suspicious.
Recent trends and developments
New Zealand continues to update its legislation with a focus on protecting consumers and promoting competence and confidence in the financial services industry.
FSLAA
In 2019, changes were made to the financial advice regime, the Financial Services Legislation Amendment Act 2019 (FSLAA) repealed the Financial Advisers Act 2008 and amended the FMCA to now cover the financial advice regime. The change resulted in the removal of regulatory boundaries such as adviser classifications, distinctions between types of advice and categories of products[2]. As a result of the amendment anyone who gives financial advice to retail clients must now hold a Financial Advice Provider (FAP) licence or be engaged to operate under a FAP licence as a financial adviser or a nominated representative. The changes also allow for ‘robo-advice’ to be given more easily than prior to the amendment.
CoFI
On 29 June 2022, the Financial Markets (Conduct of Institutions) Amendment Act 2022 (CoFI) was passed and is to take effect on 31 March 2025. The amendment is intended to protect consumers by putting them first in the decision making of relevant institutions. CoFI introduces a new regulatory regime for banks, insurers and non-bank deposit takers to be licensed by the FMA in respect of conduct with consumers and requiring them to comply with a fair conduct principle.[3]
Crypto assets
The FMCA regulates four types of ‘financial products’ – debt securities, equity securities, managed investment products and derivatives. These are given clear definitions and the FMA has released guidance[4] on when crypto assets may fall within each class. It is usually possible, therefore, to give a firm opinion on whether a particular crypto asset should be treated as a financial product, although the FMA does retain (but has not used in this context) a residual ‘call in’ power to regulate products which do not fit the definitions but are yet substantially investments.
Notable fintech start-ups
Sharesies is a digital investment platform created in 2016 and is one of the most successful start-ups in New Zealand, growing to over 550,000 users with, most recently, plans to expand further into Kiwisaver – New Zealand’s retirement savings programme for private fund managers. The company in 2021 raised NZD50 million on a NZD500 million valuation.
Dosh was created in 2021 and is New Zealand’s first digital wallet along with a debit card that offers cashback rewards which challenge traditional credit card companies. In 2021, it raised NZD5 million in seed funding and is believed to be a record for a New Zealand seed investment round.
There are many other great examples of thriving FinTech start-ups in New Zealand’s busy market.
Footnotes
[1] https://fintech.govt.nz
[2] https://www.fma.govt.nz/business/legislation/new-financial-advice-regime
[3] https://www.fma.govt.nz/business/legislation/conduct-of-financial-institutions-cofi-legislation
[4] https://www.fma.govt.nz/business/services/cryptocurrencies
This article was co-authored by William Ma, a Law Clerk in our Financial Services Team, and was first published by IFC Review - a leading global wealth management and international finance centre publication.
