The Finance and Expenditure Select Committee (the Committee) has published its final report on the Financial Markets Conduct Amendment Bill (the Bill), following on from its report on the other two related financial services bills.
The Bill is an omnibus bill making amendments to the Financial Markets Conduct Act 2013 (FMC Act) and the Financial Markets Authority Act 2011 (FMA Act). Amongst other amendments the Bill will:
- Adjust requirements for fair conduct programmes under the conduct of financial institutions regime
- Amend Part 6 licensing requirements under the FMC Act
- Provide for Financial Markets Authority (FMA) approval requirements for significant transactions or changes of significant influence of market services licensees
- Introduce powers for the FMA to conduct without-notice on-site inspections on all entities regulated under Part 2 of the FMC Act.
In addition, recently announced changes to the climate-related disclosures (CRD) regime in the FMC Act have now been inserted into the Bill, with some minor changes recommended by the Committee.
We have previously detailed the overall effect of this Bill in our article: Amendments to support the next phase of financial services reform introduced to Parliament.
What are the key changes recommended by the Committee that market participants should be aware of?
- Expansion of FMA on-site inspection powers: The Committee has recommended wording to clarify that FMA's new without-notice, warrantless, on-site inspection powers will cover all entities subject to Part 2 of the FMC Act (whether or not they are licensed by the FMA). The example used in the report is wholesale offerors of financial products, but these powers will also apply in respect of non-licensed providers of financial services such as payment service providers, Fintechs and other non-licensed entities.
- FMA approval requirements: The Bill inserts new FMA approval requirements in relation to market services licensees and authorised bodies in respect of the gaining of significant influence, significant transactions or amalgamations. The Committee has recommended changes to clarify these provisions and adjust related procedural steps including:
- amending these provisions to clarify that FMA approval is required only in respect of businesses holding market services licences
- removing the ability of the FMA to arrange for an independent expert report on proposed actions on the basis that the FMA has requisite expertise to assess proposed changes itself
- clarifying that the FMA is required to provide approval if it is satisfied that the licensee will continue to meet licensing requirements, including after considering conditions the FMA might impose
- requiring greater certainty around conditions the FMA may impose, to focus on conditions relevant to licensing, and clarifying that the imposition of conditions is subject to relevant procedural requirements in the FMC Act
- including the right to appeal to the court on refusals or conditions imposed by the FMA
- amending the power for the Governor-General to make exemptions by regulation so that exemptions can cover any class of person (not just licensees) as well as any class of transactions.
- Fair conduct programme minimum requirements: The Committee has recommended changing the requirements relating to supervision and training of employees to clarify that these requirements only apply to the extent an employee's work is relevant to supporting compliance with the fair conduct principle.
- CRD Regime: Having considered the CRD regime the Committee recommended:
- inserting a new section into the FMC Act to clarify that the unsubstantiated representations prohibition under section 23 will not apply to any representations in any climate statements prepared by a climate reporting entity (CRE) that comply with applicable climate standards in all material respects
- removing the current exemption for issuers listed on growth markets from preparing climate statements, on the basis this is no longer necessary where the reporting threshold is raised to $1b
- removing the requirement for directors of CREs to sign climate statements, because there is no additional benefit to these requirements as they don't affect potential liability or accountability of directors
- clarifying that if an entity ceases to be a CRE during an accounting period, it is not required to prepare and lodge climate statements for that period.
Our view on the amendments to the Financial Markets Conduct Amendment Bill
The changes proposed by the Committee largely represent sensible clarificatory or process changes to ensure the appropriate scope and application of the Bill. In particular, the narrowing of and additional procedural requirements for FMA approval of relevant actions will be welcomed by market participants.
However, the proposed extension of the FMA's warrantless on-site inspection powers is more controversial. The changes clarify that the FMA's on-site inspection powers will cover a broader range of entities, including those that it does not directly oversee as licensees, such as wholesale offerors, fintechs, money remitters, payment service providers and financial services businesses that Parliament has previously determined are not subject to direct FMA licensing oversight. While the proposal may be understood within the context of recent high-profile wholesale offeror failures, unlicensed financial market participants will now need to join with licensed market participants in considering the potential implications for their businesses.
How can financial markets businesses prepare?
The Committee has recommended unanimously that the Amendment Bill be passed. This bill is currently awaiting its second reading. If you are a financial services business (including a non-licensed entity) you should familiarise yourself with the provisions of the Bill, as amended, and consider their impacts on your business.
If you would like assistance with understanding the proposed changes or implications for your business, please get in touch with our financial services regulation team.
