Are consumers still facing the wild west when it comes to protection from financial service providers? – Diana Clement

Financial regulation in New Zealand still lags behind Australia on key protections. Photo / 123rf

THE FACTS

• Twenty years ago, New Zealand’s financial system was plagued by misconduct and weak consumer protections.
• Despite improvements, the financial sector still faces issues with self-regulation and delayed implementation of safeguards.
• New risks like buy now, pay later and crypto have emerged, creating challenges for regulators.

Twenty years ago, New Zealand’s financial system was riddled with misconduct. Payday lenders thrived, advisers could feather their own nest with impunity and many legal protections for consumers were weak to non-existent.

Fresh back from my OE, I wrapped up an interview one day and muttered: “this is the Wild West.” An article followed, capturing the raw deal New Zealand consumers got at the hands of banks, insurance companies, lenders and more.

A decade later, I wrote a Wild West update article. We’d been through the Global Financial Crisis, finance company failures, the leaky home crisis and more. Regulators had built some fences but enforcement often felt like policing with toy guns.

By then, we had more independent dispute resolution services and the Financial Markets Conduct Act was about to start cleaning up some of the worst excesses in the industry.

The Real Estate Agents Act 2008 was reining in an industry with the ability to cause great financial harm to consumers. The Real Estate Authority was created to keep agents ethical, or punish them for transgressions.

Nonetheless, the second half of the 2010s brought more shocks. The outlaws were still on the range. Australia’s Financial Services Royal Commission into banking and insurance uncovered widespread evidence of fraud, bribery, false documentation and other misconduct. Initially, our regulators suggested there was nothing to see here, even though our banks and insurers were largely the very same companies here that were caught with their snouts in the trough over the Ditch. Ride on, cowboy.

Our financial services companies often get to write their own rules, AKA self-regulate, which is a bit like putting feral cats in charge of Kiwi conservation.

The Financial Markets Authority (FMA) and Reserve Bank of New Zealand (RBNZ) did eventually review both banks and insurers, uncovering a raft of unacceptable practices, especially with insurance company culture, then asking companies to behave better.

In New Zealand, financial services companies often get to write their own rules, which is a bit like putting a stoat in charge of Kiwi conservation. It’s one reason Kiwi banks dragged their heels for seven long years after the UK before finally implementing confirmation of payee systems, which help prevent customers paying money to scammers.

As my colleague Sasha Borissenko pointed out, the New Zealand Banking Association only unveiled plans to upgrade its Code of Banking Practice with tougher scam-prevention measures after receiving “strong words” from the Government.

We’re five years behind Australia in getting a Consumer Data Right, which allows customers to switch banks simply. It’s part of Open Banking. Likewise, we’re not getting protection for our bank deposits until 2026, which Australians have had since 2008.

Good news came wrapped in the Contracts of Insurance Act 2024, which, when it comes into force, will see fewer consumers have claims declined for innocent non-disclosure of things like pre-existing medical conditions. We’ve also seen the Conduct of Financial Institutions (COFI) regime come into force on March 31, 2025, which bans things like bonuses for selling insurance, which can encourage poor behaviour.

The Credit Contracts and Consumer Finance Act [CCCFA], which protects borrowers from themselves and greedy lenders, was given more teeth in 2019, and it’s about to get another update.

New risks have emerged with buy now, pay later (BNPL) schemes, cryptocurrencies and also an explosion in scams creating new whack-a-mole targets for regulators.

BNPL was a free-for-all until September last year, when it came under the CCCFA – albeit with a light touch.

New Zealand does not yet have a crypto-specific regulatory framework equivalent to Australia’s comprehensive system, although consultation is under way.

On the scam front, when Meta, which owns Facebook, Instagram and WhatsApp, was forced by the Australian Government to verify financial advertisers, NZ Herald journalist Chris Keall asked “what about New Zealand”? Meta runs New Zealand from Australia, but the answer was no.

The list goes on and on, with “wholesale investor” loopholes alive and kicking, meaning people who earn over $200,000 a year or own $2 million in net assets are considered not to need the same consumer protections as the rest of us. Doctors don’t necessarily understand derivatives.

Summing up. Consumers are better protected now than they were back when I first thought “Wild West”. But our light touch culture of regulation still often means too little, too late compared to the countries we often compare ourselves with.

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