COVERSHEET
Minister

Hon Dr David Clark

Portfolio

Commerce and Consumer
Affairs

Title of
Cabinet paper

Implementing the Financial
Sector (Climate-related
Disclosures and Other Matters)
Amendment Act 2021

Date to be
published

27 February 2023

List of documents that have been proactively released
Date
Title
November 2022 Implementing the Financial Sector (Climaterelated Disclosures and Other Matters)
Amendment Act 2021

AuthorOffice of the Minister ofCommerce and Consumer
Affairs

November 2022 Regulatory Impact Statement: Climate-related
disclosures regulations

MBIE

10 November 2022
Cabinet Environment, Energy and Climate
Committee Minute of Decision – ENV-22-MIN0048

Cabinet OfficeInformation redacted

YES

Any information redacted in this document is redacted in accordance with MBIE’s and MFAT’s
policy on Proactive Release and is labelled with the reason for redaction. This may include
information that would be redacted if this information was requested under Official Information Act
1982. Where this is the case, the reasons for withholding information are listed below. Where
information has been withheld, no public interest has been identified that would outweigh thereasons for withholding it.
Some information has been withheld for the reason of Confidential advice entrusted to theGovernment.

© Crown Copyright, Creative Commons Attribution 4.0 International (CC BY 4.0)

In Confidence

Office of the Minister of Commerce and Consumer Affairs
Office of the Minister of Climate Change
Chair, Cabinet Environment, Energy and Climate Committee

Implementing the Financial Sector (Climate-related Disclosures andOther Matters) Amendment Act 2021
Proposal
1.

This paper seeks approval to:
1.1. draft regulations for the new climate-related disclosures regime for public
consultation
1.2. release a consultation document on potential changes to the assurance aspectof the regime.

Relation to government priorities
2.

The proposals in this paper link to the Government’s priority of meeting net-zeroemissions by 2050 as identified in the Climate Change Response Act 2002. The
primary objective of the Financial Sector (Climate-related Disclosures and Other
Matters) Amendment Act 2021 (CRD Act) is to ensure that the effects of climatechange are routinely considered in business and investment decisions. This will help
the market allocate investments in a way that contributes to a low-emissions andclimate-resilient economy.

Executive Summary
3.

The Financial Markets Conduct Act 2013 (FMC Act) as amended by the CRD Act
requires certain entities to report annually on their climate-related risks andopportunities through filing climate statements. The parts of these statements that
relate to greenhouse gas emissions must be assured by an independent third-party.

4.

To support the functioning of this new regime I, the Minister of Commerce andConsumer Affairs, am proposing to recommend to the Governor-General that she
make regulations under section 548 of the FMC Act. These regulations will:4.1. prescribe the format, language, accuracy and accessibility standards for the
climate-related disclosures records the reporting entities must keep;
4.2. prescribe the manner in which those climate-related disclosures records must
be made available for inspection;
4.3. set infringement fees for failure to meet these, and related, requirements.
1

14w6h35tty 2022-11-15 09:00:42

5.

We, the Minister of Commerce and Consumer Affairs and the Minister of Climate
Change, are also proposing to release a consultation document for public
consultation that seeks stakeholder views on whether there should be occupational
licensing of the people who undertake assurance of the climate statements and, if
so, what the nature of that occupational licensing should be.

6.

The consultation document will also seek views on whether expansion of theassurance requirement beyond greenhouse gas emissions is appropriate and, if so,how, and when that expansion should take place.

Background7.

In 2021, Parliament enacted the CRD Act. By amending the FMC Act and the
Financial Reporting Act 2013, the CRD Act imposes obligations on approximately
200 entities to disclose annually their climate-related risks and opportunities.

8.

The entities that are required to report comprise large listed issuers, banks, insurers,
credit unions, building societies and investment scheme managers. These entities
are referred to as “climate reporting entities” (CREs) in the CRD Act.

Regulations to support the regime (Minister of Commerce and Consumer Affairs)
9. I, the Minister of Commerce and Consumer Affairs, seek Cabinet approval torecommend to the Governor-General to make regulations under section 548 of the FMC
Act.
Issue
10.

While the CRD Act introduced a number of high-level obligations into the FMC Act, itleft some matters unaddressed, notably around:10.1. the record-keeping that CREs must undertake throughout the year to support
preparation of their annual climate statements
10.2. the manner in which CREs must make such records available for inspection to
relevant parties
10.3. the infringement fees that will apply to any failure to comply with these andother related obligations.

11.

This has resulted in uncertainty, both for the CREs and for their regulator, theFinancial Markets Authority (FMA).

12.

Section 548 of the FMC Act empowers the Governor-General, on the Minister ofCommerce and Consumer Affairs’ recommendation, to make certain regulations by
Order in Council. To address the uncertainty described above, I propose torecommend regulations prescribing record-keeping requirements, record-inspection
requirements, and setting the infringement fees for minor offences.

13.

The indicative substance of the proposed regulations is detailed in Appendix 1 ofthis Cabinet paper.
2

14w6h35tty 2022-11-15 09:00:42

Record-keeping requirements
14.

Under new section 461V of the FMC Act, CREs must keep “records that will enable
the climate reporting entity to ensure that the climate statements of the climate
reporting entity comply with the climate-related disclosure framework”. These are
known as climate-related disclosure records (CRD records).

15.

The legislation does not specify the information that must be kept in connection with
the CRD records or the format that the records must be kept in. Rather, it empowers
the making of regulations to address this matter. Failure to make such regulations
within this novel reporting regime would mean that CREs would remain uncertain
about what compliance looks like.

16.

In this context, I am proposing to recommend to the Governor-General that she
make regulations under section 548(1)(p) of the FMC Act prescribing the format,
language, accuracy and accessibility of the CRD records.

Record-inspection requirements
17.

Under new section 461Y of the FMC Act, CREs must make their CRD records
available for inspection at all reasonable times and without charge to certain listed
parties: the CRE’s directors; supervisors appointed in relation to a debt security or
managed investment scheme; and the FMA.

18.

The legislation empowers the making of regulations to prescribe the manner in which
CRD records should be made available for inspection. Without such regulations,
there is a risk of inconsistency. For example, one entity might make its records
available only in physical form at its registered office, while another might make its
records available through a file-sharing site. This inconsistency would hamper the
FMA’s ability to efficiently monitor compliance.

19.

In this context, I am proposing to recommend to the Governor-General that she
make regulations prescribing that:
19.1. for inspections by all authorised parties, CRD records must be madeavailable for inspection in written form in English or Te Reo Māori
19.2. for inspections by the FMA, the FMA may additionally prescribe the mannerin which CRD records must be made available for inspection, such as bysetting forms.

Infringement fees for minor offences
20.

The CRD Act created five new offences in the FMC Act, of which four are also
infringement offences:
20.1. failure to keep CRD records in the prescribed manner (new section 461W)
20.2. failure to make CRD records available in the prescribed manner for
inspection (new section 461Y)
20.3. failure to lodge a climate statement within the deadline (new section 461ZI)
3

14w6h35tty 2022-11-15 09:00:42

20.4. failure by a company that is a climate reporting entity to disclose in its annual
report that it is a climate reporting entity (new section 461ZJ).
21.

Infringement offences provide an administratively efficient method of encouraging
compliance by imposing a set financial penalty and avoiding the formality and costsof court proceedings for relatively minor breaches of the law.

22.

I am proposing to recommend to the Governor-General that she make regulations
under section 548(1)(m) of the FMC Act setting the infringement fee for these four
offences.

23.

The regulations will set the infringement fee levels for the new offences at the samelevel as those already prescribed for similar financial reporting offences underschedule 22 of the Financial Markets Conduct Regulations 2014. These infringement
fees range from $5,000 to $12,500.

24.

These fee levels are higher than the $1,000 maximum that is recommended in theLegislation and Design Advisory Committee guidelines and by the Ministry of Justice.
The Ministry of Justice recommends this maximum because infringements aredesigned for low-level behaviour that is easily identifiable. If the behaviour is more
complex to identify or requires a penalty of higher than $1,000 for effective
deterrence, the Ministry of Justice generally advises that a different enforcement
mechanism with more oversight should be used.

25.

However, I consider the higher infringement fees in this case are justified due to thenature of the entities under the regime and the potential financial incentives for noncompliance. The CREs required to report include listed issuers with market
capitalisation over $60 million and financial sector entities with assets exceeding $1
billion. The largest CRE has total assets of $180 billion. The $1,000 maximum that isrecommended will not be sufficient to achieve deterrence for these reporting entities.

26.

The need for higher penalties is already reflected in the FMC Act which specifies that
infringement fees may be up to $20,000.

Releasing a consultation document on the assurance aspect of the regime (Ministerof Commerce and Consumer Affairs and Minister of Climate Change)
27.

We, the Minister of Commerce and Consumer Affairs and Minister of Climate
Change, are seeking Cabinet approval to release a consultation document on
potential changes to the assurance aspect of the regime.

Issue
28.

The objective of the new climate-reporting regime is to ensure that businesses, andinvestors in those businesses, take account of climate-related risks and opportunities
when making commercial decisions. This objective can only be achieved if people
trust the information that CREs disclose in their annual climate statements.

29.

One of the key ways of boosting trust in the information disclosed is to require theinformation to be assured by independent third parties. While the current regime
makes some provision for assurance by such parties, we are proposing to consult on
ways that their role can potentially be expanded and enhanced in future.
4

14w6h35tty 2022-11-15 09:00:42

What the current regime requires
30.

CREs must prepare their annual climate statements in accordance with standards
issued by the External Reporting Board (XRB).

31.

Those standards will require that the CREs specify in their statements, amongst
other things:
29.1
29.2
29.3
29.4

Governance - the role of the entity’s governance body in overseeing climaterelated risks and opportunities and the role of management in assessing andmanaging those risks and opportunities.
Strategy - how climate change impacts the entity and how it will position itself
as the global and domestic economy transitions towards a low-emissions,climate-resilient future.
Risk management - how the entity’s climate-related risks are identified,assessed and managed, and how those processes are integrated in existingrisk management processes.
Metrics and targets - how the entity measures and manages its climaterelated risks and opportunities. This includes requirements to disclose scope
1, 2 and 3 greenhouse gas emissions and provide information about
greenhouse gas emission intensity.

32.

As the relevant regulator, the FMA will undertake regular inspections to verify thatclimate statements meet the XRB standards.

33.

As an additional means of enhancing the reliability of the disclosed information, theCRE must also comply with new section 461ZH of the FMC Act. That provision
requires an independent assurance engagement to be undertaken in relation togreenhouse gas emissions disclosures, but none of the other disclosures. The
assurance provider will express an opinion about whether the information disclosed
on greenhouse gas emissions is free from material misstatement.

Potential enhancement of the assurance regime
34.

The person assuring a climate statement (the ‘assurance practitioner’) will, under
new section 461ZHA of the FMC Act, be required to comply with certain standards tobe issued by the XRB. Complying with those standards will be a complex task,
particularly in future if we expand the content within the climate statement that needs
to be assured. This raises the question of whether a form of occupational licensing
would be appropriate.

35.

In this regard, the Bill that became the CRD Act originally contained assurance
practitioner licensing provisions that set out who could carry out the assurance ofclimate statements. However, the Economic Development, Science and Innovation
Committee considered that the licensing regime proposed in the Bill would not beeffective and recommended the sections be removed.

36.

In this context, we are proposing to release a consultation document that seeks
stakeholder views on options for the occupational licensing of assurance
practitioners. The consultation document is attached as Appendix 2.
514w6h35tty 2022-11-15 09:00:42

Potential expansion of the assurance regime
37.

In 2020, Cabinet agreed that independent assurance of climate statements would be
limited to greenhouse gas emissions disclosures [DEV-20-MIN-0151 refers]. This isbecause it was the area where there were well established assurance standards. At
the time, the previous Minister of Commerce and Consumer Affairs neverthelesspointed out to Cabinet that, as international guidance in this area was developing
rapidly, it would be appropriate to reconsider this limitation as part of a future policy
review.

38.

In this context, we are proposing to include in the consultation document referenced
above an examination of whether an expansion of the assurance requirement isappropriate and, if so, how, and when that expansion should take place.

Risks
39.

We have not identified any material risks associated with the drafting of secondary
legislation or with the release of the consultation document.

Consultation
Proposed regulations
40.

In preparing this Cabinet paper and the policy decisions on regulations, the Ministryof Business, Innovation and Employment (MBIE) has consulted with the Ministry for
the Environment, the Ministry of Justice, the FMA, the XRB, the Reserve Bank of
New Zealand, and the Treasury. The Department of Prime Minister and Cabinet was
informed.

41.

MBIE has consulted with a targeted group of stakeholders on the proposals for the
regulations. If Cabinet agrees to the proposals in this paper, MBIE will consult on an
exposure draft of the regulations.

Consultation document
42.

In preparing this Cabinet paper and the accompanying consultation document, MBIE
and the Ministry for the Environment consulted with the FMA, the XRB, the Reserve
Bank of New Zealand and the Treasury. The Department of Prime Minister andCabinet was informed.

Financial Implications
43.

This paper has no financial implications.

Legislative Implications
Proposed regulations
44.

The recommendations contained in this Cabinet paper will lead to the preparation ofan exposure draft of regulations under section 548 of the FMC Act.

614w6h35tty 2022-11-15 09:00:42

45.

The Minister of Commerce and Consumer Affairs has consulted with the FMA as
required by section 549 of the FMC Act.

46.

The Parliamentary Counsel Office has been consulted on the drafting of the
proposed regulations.

Consultation document
47.

The publication of the assurance consultation document has no immediate legislative
implications. However, officials will analyse submissions on the consultation
document and may subsequently recommend legislative change to the Minister ofCommerce and Consumer Affairs and the Minister of Climate Change.

Impact Analysis
Proposed regulations
48.

A Regulatory Impact Statement (RIS) has been completed and is attached inAppendix 3.

49.

The Treasury's Regulatory Impact Analysis team determined that quality assurance
should be undertaken by a panel from MBIE’s Regulatory Impact Analysis team (RIAteam). A panel from MBIE’s RIA team has reviewed the attached RIS prepared by
MBIE. The panel considers that the information and analysis summarised in the RIS
partially meets the criteria necessary for ministers to make informed decisions on the
proposals in this paper.

50.

The Climate Implications of Policy Assessment (CIPA) team has been consulted andconfirms that the CIPA requirements do not apply to this proposal as the thresholdfor significance is not met. The potential emissions impact is indirect and unable tobe accurately quantified.

Consultation document
51.

The Treasury's Regulatory Impact Analysis team has determined that the release of
the consultation document on regulating assurance providers and expanding theassurance requirement is exempt from the requirement to provide a RIS. The
exemption is based on advice that the consultation document includes the key
features of an interim RIS.

52.

A panel from MBIE’s RIA team has reviewed the consultation document andconsiders that it partially meets these requirements. Some RIS features (problem
definition and cost and benefit analysis) appear only at a very high level in the
consultation document. However, the necessary data to complete theserequirements are likely to be obtained during the consultation process. Therefore, thepanel confirms that the consultation document is able to act as an interim RIS for the
purposes of consultation. The data gathered during the consultation process will beable to support the delivery of a Regulatory Impact Analysis and inform subsequentdecisions.

53.

A full RIS will be completed at a later date to inform Cabinet's final decisions on
regulatory proposals.
7

14w6h35tty 2022-11-15 09:00:42

54.

The CIPA team has been consulted and confirms that the CIPA requirements do not
apply to this proposal as the threshold for significance is not met. The potential
emissions impact is indirect and unable to be accurately quantified.

Population Implications
55.

There are no material population group implications.

Human Rights
56.

This paper raises no material human rights, gender, or disability issues.

Publicity
57.

The proposal to release a consultation document is likely to be reported on by thepress. We intend to issue a media statement providing context for the release.

Proactive Release58.

We propose to release this paper proactively, subject to any appropriate redactions,
within 30 business days.

Recommendations
The Minister of Commerce and Consumer Affairs and the Minister of Climate Change
recommends that the Committee:
1.

note that the Financial Sector (Climate-related Disclosures and Other Matters)
Amendment Act 2021 introduced a requirement into the Financial Markets Conduct
Act 2013 (FMC Act) that certain listed issuers and financial institutions – known as‘climate reporting entities’ – publish annual climate statements disclosing information
about the entity’s climate-related risks and opportunities;

Secondary legislation
Record-keeping
2.

note that, under new section 461V of the FMC Act, climate reporting entities must
keep “records that will enable the climate reporting entity to ensure that the climate
statements of the climate reporting entity comply with the climate-related disclosure
framework” (CRD records);

3.

note that, under new section 461Y of the FMC Act, climate reporting entities must
make CRD records available for inspection at all reasonable times and withoutcharge to certain listed parties, including the Financial Markets Authority (FMA);

4.

agree that the Minister of Commerce and Consumer Affairs should recommend to
the Governor-General that she make regulations under section 548(1)(p) of the FMC
Act prescribing, in respect of the CRD records referred to in recommendations 2 and3:8
14w6h35tty 2022-11-15 09:00:42

4.1. requirements in terms of their format, accuracy, language, accessibility,
inspection, and location, including when the CRD records are owned or
maintained by a third-party pursuant to a contract or a licensing agreement; and4.2. that the FMA may prescribe additional requirements relating to the manner inwhich the CRD records must be made available to the FMA for inspection;
Infringement fees5.

note that new sections 461W, 461Y, 461ZI and 461ZJ of the FMC Act establish new
infringement offences for failure by a climate reporting entity to keep CRD records inthe prescribed manner, to make CRD records available in the prescribed manner, tolodge a climate statement on time, and to disclose in an annual report that it is areporting entity;

6.

agree that the Minister of Commerce and Consumer Affairs should recommend to
the Governor-General that she make regulations under section 548(1)(m) of the FMC
Act setting the infringement fee for these four offences;7.

agree that the regulations should set the infringement fee levels for the new offencesat the same level as those already prescribed for similar ‘financial reporting’ offences
under schedule 22 of the Financial Markets Conduct Regulations 2014, which range
from $5,000 to $12,500;

Next steps
8.

invite the Minister of Commerce and Consumer Affairs to:
8.1. issue drafting instructions to the Parliamentary Counsel Office to give effect tothe recommendations above;
8.2. release an exposure draft of the regulations for public consultation;
8.3. make decisions that are consistent with the policy decisions in this paper, on any
minor or technical matters that may arise during the drafting process or as aresult of consultation on an exposure draft of the regulations;8.4. report back to Cabinet with a finalised version of the regulations ready forsubmission to the Executive Council.

Release of consultation document
9.

note that, in 2020, Cabinet:
9.1. agreed that independent assurance of climate statements would be limited togreenhouse gas emissions disclosures [DEV-20-MIN-0151 refers]; but
9.2. was informed that, as international guidance in this area was developing rapidly,
it would be appropriate to reconsider this limitation as part of a future policy
review;914w6h35tty 2022-11-15 09:00:42

10.

note that, in this context, officials at the Ministry of Business, Innovation and
Employment and the Ministry for the Environment have prepared a consultation
document that seeks stakeholder views on:
10.1. whether there should be occupational licensing of those people who
undertake assurance of climate statements and, if so, what the nature of thatoccupational licensing should be; and10.2. whether expansion of the assurance requirement is appropriate and, if so,
how and when that expansion should take place;11.

agree to the release of the consultation document for public consultation;

12.

authorise the Minister of Commerce and Consumer Affairs and the Minister of
Climate Change to determine the precise dates for the consultation period and to
make any minor or technical amendments to the consultation document prior torelease; and13.

invite the Minister of Commerce and Consumers Affairs and the Minister of Climate
Change to report back to Cabinet with the results of the consultation and proposed
policy decisions.

Authorised for lodgement
Hon Dr David Clark
Minister of Commerce and Consumer Affairs

Hon James Shaw
Minister of Climate Change

1014w6h35tty 2022-11-15 09:00:42

Confidential information entrusted to the Government

11
14w6h35tty 2022-11-15 09:00:42

Confidential information entrusted to the Government

1214w6h35tty 2022-11-15 09:00:42

Appendix 2: Regulatory Impact Statement for Regulations

13
14w6h35tty 2022-11-15 09:00:42

goal is to ensure that the effects of climate change are routinely considered in businessand investment decisions. This will lead to more efficient allocation of capital and help
smooth the transition to a more sustainable, low-emissions economy.
As part of these reforms, the reporting entities will be required to keep proper records thatwill enable them to ensure that their disclosures comply with the climate-related disclosure
framework set by the XRB. Reporting entities must also make these records available forinspection to three types of person: the reporting entity’s directors; the reporting entity’s‘supervisor’ (such as Guardian Trust or Public Trust); and the Financial Markets Authority(FMA) as the independent regulator. Where they fail to do so, they will commit
infringement offences.
Three implementation problems
This impact assessment considers three problems in relation to the effective
implementation of the regime. Reporting will commence for financial years commencing on
or after 1 January 2023, which means the climate statements will be lodged in 2024.
The first two problems relate to record-keeping:a) Climate reporting entities are uncertain about how to comply with the recordkeeping obligations given the novelty of the new regime (Problem 1). This
uncertainty risks unnecessary compliance costs for reporting entities, inadequate
record-keeping, and enforcement difficulties for the regulator.
b) The legislation does not specify the manner in which the records must be madeavailable for inspection to the three types of authorised record-inspectors: reporting
entities’ directors; reporting entities’ supervisors; and the FMA (Problem 2). This
uncertainty risks creating enforcement difficulties for the FMA in particular, as it
must monitor all 200 or so entities e.g. one entity might make its records available
only in physical form at its registered office, while another might make its records
available through a file-sharing site.
The third problem relates to infringement fees. The FMC Act is designed so that
infringement fee levels are set in secondary legislation. This means the four new offence
provisions introduced by the CRD Act do not yet have associated fees set and theregulator is not able to issue an infringement notice for these offences (Problem 3). This
will make minor offences difficult to enforce, which means that they will likely go
unenforced due to the disproportionate costs of pursing court action. This will risk
undermining the integrity of the regime.
Options to address the record-keeping problem (Problem 1)
For Problem 1, this impact assessment evaluates the status quo against three options.
The first option involves making regulations that prescribe that the FMA may determine themanner in which records must be kept. The second option involves making regulations that
directly prescribe the record-keeping obligations. The third option involves making mixed
regulations i.e. regulations that, for some matters, empower the FMA to determine themanner in which records must be kept and, for other matters, directly prescribe the mannerin which records must be kept.

14w6h35tty 2022-11-15 09:03:16

Regulatory Impact Statement | 2

Section 1: Diagnosing the policy problem
What is the context behind the policy problem and how is the status quo
expected to develop ?
1.

The potentially disastrous effects of climate change for biodiversity and humanity are
well documented. In 2018, the Intergovernmental Panel on Climate Change noted thathuman activities have already caused global warming of 1°C above pre-industrial
conditions and are on track to cause at least 1.5°C warming between 2030 and 2052.
Greenhouse gas concentration will continue to increase via positive feedbacks, such as
melting permafrost and the release of stored methane, resulting in further delay of
temperature-reducing responses.

2.

Financial markets globally can play a major part in shifting investment away fromemission-intensive activities and towards low-emission, resilient development
pathways. However, this unprecedented economic transformation will require thedisclosure of consistent, comparable, reliable, and clear information about climaterelated risks and opportunities that are, for the most part, not being made available toinvestors at present.

3.

In this context, the Financial Sector (Climate-related Disclosures and Other Matters)
Amendment Act 2021 (the CRD Act) introduced mandatory climate-related disclosures
for approximately 200 entities (referred to as climate-reporting entities or ‘CREs’) thatparticipate in New Zealand’s financial markets. The CRD Act amends the Financial
Markets Conduct Act 2013 (the FMC Act), the Financial Reporting Act 2013 and the
Public Audit Act 2001.

4.

The disclosures will focus on the impact that climate change has on the reporting
entity, not the other way around. This is consistent with the approach taken by the Task
Force on Climate-related Financial Disclosures, whose recommendations are
acknowledged to be international best practice. Since the reporting regime is designed
for financial market participants, the purpose is to ensure that investors have adequate
information available to appropriately price climate risks and opportunities. The overall
objective is to ensure that the effects of climate change are routinely considered inbusiness and investment decisions.

5.

The External Reporting Board (XRB) has been tasked with developing and issuingnational standards for climate-related disclosures for New Zealand and the Financial
Markets Authority (FMA) will monitor and enforce the regime.

6.

Section 2 of the CRD Act provides for almost all of the Act to come into force on theearlier of:

7.

(i)

a date or dates set by Order in Council or(ii)

the first anniversary of the Royal Assent (assent having been given on 27
October 2021).

However, the XRB will determine when the climate-related disclosure requirements will
come into force because there is nothing to comply with until the XRB issues at least
one climate standard. In this regard, the XRB is aiming to complete its consultation on
an exposure draft of the climate standards during 2022, with a view to issuing it inDecember 2022. Its current timeline provides for the standards to come into force forfinancial years commencing on or after 1 January 2023.1

1 This would mean, for example, that a CRE with a balance date of 31 March, will be required to prepare its first climate-related
disclosures in accordance with the XRB’s standard(s) for the year ending 31 March 2024 and lodge them on the Disclose
Register no later than four months after that date, i.e. by 31 July 2024.

14w6h35tty 2022-11-15 09:03:16

Regulatory Impact Statement | 5

What is the policy problem or opportunity?
8.

This impact assessment concerns three policy problems generated by the recent
climate-related disclosure reforms.

Problem 1: Reporting entities must keep proper CRD records
Status quo
9.
Under new section 461V of the FMC Act, CREs must keep “records that will enable theclimate reporting entity to ensure that the climate statements of the climate reporting
entity comply with the climate-related disclosure framework”. These are known asclimate-related disclosure records (CRD records).
10.

The legislation does not specify the information that must be kept in connection withthe records or the format that the records must be kept in. The lack of legislative
guidance within this novel reporting regime means that CREs are uncertain about what
records they will need to keep to be compliant. It also creates enforcement difficulties
for the regulator if there is ambiguity about the precise legal requirements.

Problem definition
11. The uncertainty regarding the CRD record-keeping obligations creates the following
risks:a.

unnecessary compliance costs on CREs due to an overly cautious approach of
keeping excess amounts of information to ensure complianceb.

inadequate record-keeping due to an overly lax approach which could undermine
the robustness of the reporting regime, andc.

enforcement difficulties for the FMA as regulator if the specific expectations ofcompliance are not clear to CREs.

12.

In the absence of government intervention, we expect the FMA would prepare andissue guidelines on the record-keeping requirements in 2023, to provide further clarity
2
on what is required to comply with the legal obligations. FMA guidelines explain how
the FMA interprets the law, describe the principles underlying its approach, givepractical examples about how to meet obligations, and explain when and how they will
exercise specific powers under legislation. FMA guidelines are not binding, but they
help market participants to be confident they understand the FMA’s approach and how
the FMA interprets, and intends to apply, the law relating to its responsibilities.

13.

Although guidelines will help reporting entities have more certainty about how tocomply, they will not alleviate the enforcement difficulties for the FMA if a reporting
entity does not follow the guidelines as the guidelines will not be legally enforceable.

14.

We have included the expectation of future FMA guidance within the status quo whenassessing the best option to address the problem.

15.

It is difficult to quantify the scale of the problem, except to note that submissions during
our targeted consultation with CREs picked up on the risks described. What we cansay is that, in the absence of intervention, it is likely that there will be a material numberof (unintentional) breaches in the early years of the new regime, as CREs adapt to the
new rules.

2 Under section 9(1)(a) of the Financial Markets Authority Act 2011, the functions of the FMA include “issuing … guidelines …
about any matter relating to financial markets”.

14w6h35tty 2022-11-15 09:03:16

Regulatory Impact Statement | 6

Problem 2: CRD records need to be available for inspection
Status quo
16. Under new section 461Y of the FMC Act, CREs must make their CRD records
available for inspection at all reasonable times and without charge to certain listed
parties, including the FMA.
17.

The legislation does not specify the manner in which the records must be madeavailable for inspection.

Problem definition
18. As with Problem 1, it is possible that, faced with doubt about how they must arrange forclimate records to be inspected, CREs will over-comply. However, the costs of overcompliance would appear to be small and would mostly involve staff time ensuring that
documents could, if requested, be transmitted electronically (as opposed to, say, madeavailable at their headquarters in physical form).
19.

The main issue for Problem 2 is – rather – one for the regulator. As part of its
regulatory role, the FMA will be monitoring if the disclosures made by entities comply
with the applicable climate standards. This monitoring may involve exercising powers
under section 461Y of the FMC Act to request inspection of the records because the
CRD records will be crucial for this assessment. If it is left up to each CRE to makeavailable its climate records for inspection in the manner it chooses, then that would
likely create inconsistency and hamper the FMA’s ability to efficiently monitor
compliance. For example, if some entities only make their records available in hard
copy to be inspected at their offices, this could require unreasonable resourcing fromthe FMA to obtain the relevant information if it needs to be analysed using specificsoftware.

20.

As above, in the absence of government intervention, we expect the FMA would likely
prepare and issue guidelines on the record-keeping requirements in 2023, to provide
further clarity on how records should be made available for inspection.3 However, theFMA would not be able to enforce its guidelines as they would not have the force oflaw. This again risks undermining the overall integrity of the regime as the independent
monitoring and enforcement is a key reason for its robustness, which means theinformation disclosed can be trusted and relied upon by investors.

Problem 3: Setting infringement fees for new offences
Status quo
21. Among the changes introduced by the CRD Act is the creation of four new infringement
offences under the FMC Act for certain minor breaches. These relate to:a.

failure to keep CRD records in the prescribed manner (new section 461W(3))

b.

failure to make CRD records available in the prescribed manner for inspection(new section 461Y(3))

c.

failure to lodge a climate statement within the deadline (new section 461ZI(4))

d.

failure by a company that is a CRE to disclose in its annual report that it is a CRE(new section 461ZJ(4)).

Problem definition
22. Under section 513 of the FMC Act, if a person is alleged to have committed an
infringement offence, the FMA may proceed in one of two ways: either it can file acharging document under section 14 of the Criminal Procedure Act 2011, or it can

3 Under section 9(1)(a) of the Financial Markets Authority Act 2011, the functions of the FMA include “issuing … guidelines …
about any matter relating to [financial] markets”.

14w6h35tty 2022-11-15 09:03:16

Regulatory Impact Statement | 7

serve the person with an infringement notice. The recipient of the notice has the option
to pay the fee or request a court hearing to decide the issue.
23.

However, under section 515, to be valid an infringement notice must contain “theamount of the infringement fee”. The FMC Act is designed so that certain matters ofdetail or prescription, like fees, are set out in the associated regulations rather than the
primary legislation. Given this is a new fee, neither the FMC Act nor the Financial
Market Conduct Regulations 2014 currently prescribe the fee for these infringement
offences.4

24.

The result is that, until such time as regulations prescribe the amount of theinfringement fee, the FMA will, in the event of a breach of any of the four new
infringement offences, only be able to take one type of enforcement action, namely
filing a charging document.

25.

This will mean that minor offences will be difficult to enforce as they will require
remedies to be sought by the FMA through the courts. In most cases prosecution will
be disproportionate to the harm caused by the offence and will incur fiscal costs on the
taxpayer that significantly outweigh the benefits of prosecution.

26.

It is difficult to quantify the scale of this problem. This will depend in part on what sort oflevel of compliance eventuates.

What objectives are sought in relation to th e policy problems?
27.

The objective of the new climate-related disclosures regime is to encourage entities toroutinely consider the effects of climate change in business and investment decisions.
In order to achieve this, the information disclosed on climate change must be reliable tobe useful to investors to inform their decision-making. This reliability is created by goodrecord-keeping (to verify the disclosures) and a robust enforcement regime (toencourage compliance and penalise non-compliance).

28.

More specifically:a.

the objective in respect of new section 461V of the FMC Act is to ensure that the
CRD records kept, and the way they are kept, enable the CRE to ensure that its
climate disclosures comply with the climate-related disclosure framework;b.

the objective in respect of new section 461Y of the FMC Act is to ensure that theaccess third parties (for example, the FMA) have to the CRD records enables
them to verify that a CRE’s climate disclosures comply with the climate-related
disclosure framework; andc.

the objective in respect of the four new infringement offences is to ensure thatthey deter the type of conduct they are designed to deter, including conduct thatis of low seriousness and that does not justify the full imposition of the criminallaw.

4 Schedule 22 of the Financial Market Conduct Regulations 2014 sets out the amount of the infringement fees for a number ofother infringement offences under the FMC Act: see

14w6h35tty 2022-11-15 09:03:16

Regulatory Impact Statement | 8

Section 2(1): Deciding upon an option to address policy
problem 1
What criteria will be used to compare options to the status quo?
29.

For problem 1, we will assess the options against the (future course of the) status quo
using the following criteria:a.

Effectiveness: how well does the option address the problem described in the
problem definition?

b.

Timeliness: how soon could the option be put in place and begin addressing the
problems described in the problem definition?

c.

Efficiency: what are the costs imposed by the option on relevant parties, such as
the regulator and the CREs?

What scope will the options be considered within?
Primary legislation options
30. Details regarding record-keeping are more appropriately dealt with at the level ofsecondary legislation. We have therefore not considered amending the provisions of
the primary legislation dealing with record-keeping and establishing the new
infringement offences. Those provisions were drafted on the basis of Cabinet policy
decisions and it was anticipated by Cabinet that secondary legislation may be required
to implement aspects of the new regime.
Non-regulatory options
31. The most obvious non-regulatory option to address problems 1 is for the FMA to issue
non-binding guidelines under section 9(1)(a) of the Financial Markets Authority Act
2011. As noted in Section 1, we anticipate this will occur as the status quo develops inany case and we have therefore included it in our analysis of the status quo against theother options.
Consultation with stakeholders
32. For problem 1, the options considered against the status quo all involve the making of
regulations under section 548(1)(p) of the FMC Act. Such regulations can only bemade on the recommendation of the Minister of Commerce and Consumer Affairs after
consultation with the FMA. Officials have therefore worked closely with the FMA in
considering the pros and cons of different types of regulations.
33.

We also consulted with a targeted group of CREs (including banks and insurers) andlaw firms. We contacted a total of 18 stakeholders comprising: four banks; five listed
issuers from the energy, health, and primary sectors; four managed investment
schemes; four consulting firms; and one legal firm. We received responses from 11 outof the 18 stakeholders contacted, which included eight written responses. Feedback
from this consultation helped shape the options compared against the status quo.

Overseas experience
34. As has been noted in news headlines worldwide, the reforms introduced by the CRD
5
Act are world leading. As such, there is limited overseas experience to draw on, andwhat there is, is of limited value. For example, Australia’s CRD regime is dissimilar to
New Zealand’s, and we understand at this stage it is largely voluntary.

5 See, for example, https://www.sciencealert.com/new-zealand-just-passed-a-climate-change-law-no-other-country-s-dared-totackle

14w6h35tty 2022-11-15 09:03:16

Regulatory Impact Statement | 9

What options are being considered?
35.

New section 461W(1) of the FMC Act provides that every CRE “must keep the CRD
records in the prescribed manner (if any)”.

36.

In this regard, under section 548(1)(p) of the FMC Act, the Governor-General may, by
Order in Council, on the recommendation of the Minister in accordance with section
549, make regulations “prescribing, for the purposes of any provision of this Act that
requires a thing to be done in a prescribed manner …, the manner in which the thing
6
must be done”.

37.

This includes the possibility of prescribing (i) by whom, when, where, and how the thing
must be done: (ii) the form that must be used in connection with doing the thing; (iii)what information or other evidence or documents must be provided in connection withthe thing; (iv) requirements with which information, evidence, or documents that areprovided in connection with the thing must comply; (v) that fees or charges must be
paid in connection with doing the thing; (vi) that the FMA may determine or prescribe
any of the matters under subparagraphs (i) to (iv).

38.

In this context, we have identified three options for record-keeping rules, as follows:

Status quo
39. No regulations are introduced and non-regulatory options like the FMA issuing
guidelines will be the main source of clarifying the manner in which CRD records must
be kept.
40.

In this regard, under section 9(1)(a) of the Financial Markets Authority Act 2011, thefunctions of the FMA include “issuing … guidelines … about any matter relating to[financial] markets”. FMA guidelines are not binding, but they help market participants
to be confident they understand the FMA’s approach and how they interpret, and intend
to apply, the law relating to their responsibilities.

Option 1 – Delegation
41. Under this option, regulations would be made under section 548(1)(p) prescribing that
the FMA may determine the manner in which CRD records must be kept, for the
purposes of new section 461W.
42.

These FMA determinations would enforceable against CREs and, as they would not
7
qualify as secondary legislation, they would not need to be presented to Parliament.

43.

Under this option, the FMA could potentially require that the CRD records the CRE
keeps be kept, for example, in a particular language, in a particular jurisdiction, or for aparticular length of time.

44.

The FMA could be granted authority to set these requirements just for situations where
the FMA is undertaking the inspection, or for situations where any authorised party(directors, supervisors, or the FMA) is undertaking the inspection.

45.

For context, the power to make ‘delegation’ regulations of this type (relating to themanner in which a thing must be done) exists in only four statutes: the FMC Act; theIncorporated Societies Act 2022; the Legislation Act 2019; and the Credit Contracts
and Consumer Finance Act 2003. No such regulations have yet been made, so there
are no templates for us to follow.

6 Section 549 requires that the Minister first consult with the FMA.
7 Section 548(5) of the FMC Act specifies only that the regulations made by the Governor-General qualify as secondary
legislation.

14w6h35tty 2022-11-15 09:03:16

Regulatory Impact Statement | 10

Option 2 – Direct regulation
46. Under this option, regulations would be made under section 548(1)(p) directly
prescribing the manner in which CRD records must be kept, for the purposes of new
section 461W.
47.

48.

49.

There are three main variations of this option, according to how prescriptive theregulations are.
Variation 1: principles-based rules
Under this variation, regulations would be made under section 548(1)(p) prescribing themanner in which CRD records must be kept, for the purposes of new section 461W,
using high-level principles.
For example, the regulations might prescribe that:
Every CRE must keep appropriate CRD records that include information that can beused to verify the relevance, completeness, consistency, verifiability, and accuracy ofreported data.

50.

As another example, the regulations might prescribe that:
Every CRE must keep CRD records in a jurisdiction that has data-protection rules
comparable to those in place in New Zealand.

51.

52.

53.

It would be up to each CRE to decide for itself what specific actions to take in order tomeet these high-level requirements. For instance, one CRE might – out of anabundance of caution – decide to keep its CRD records on servers based in New
Zealand, while another might decide that the principle allows it to keep its records onservers based in Australia.
Variation 2: prescriptive rules
Under this variation, regulations would be made under section 548(1)(p) prescribing themanner in which CRD records must be kept, for the purposes of new section 461W,
using a set of prescriptive requirements.
For example, the regulations might prescribe that:
Every CRE must keep all CRD records in New Zealand or Australia.

54.

As another example, the regulations might prescribe that:
Every CRE must keep all CRD records in English or Te Reo.

55.

56.

57.

This option would leave little if any discretion to CREs in terms of determining how they
can meet their record-keeping obligations.
Variation 3 : principles + prescriptive rules
Under this variation, regulations would be made under section 548(1)(p) prescribing themanner in which CRD records must be kept, for the purposes of new section 461W,
using a mixture of principles and prescriptive requirements. This approach would
combine the principles-based and prescriptive requirements for the record-keeping
rules to take into account where flexibility is desirable, and where certainty is needed toenable compliance.
For example, the regulations might require (using a prescriptive approach) that:
Every CRE must keep all CRD records in English or Te Reo.

58.

However, they might also require (using a principles-approach) that:
Every CRE must keep CRD records in a jurisdiction that has data-protection rules
comparable to those in place in New Zealand.

Option 3 – Mixed approach
59. Under this option, some matters would be delegated to the FMA for determination,
while other matters would be prescribed directly in regulations.

14w6h35tty 2022-11-15 09:03:16

Regulatory Impact Statement | 11

68.

With this stakeholder feedback in mind, we note that:a.

Under Option 2a (principle-based rules):i.

CREs may remain confused about what records to keep due to high-level
nature of principles, potentially resulting in over- or under-compliance.

ii.

On the other hand, when circumstances suggest a change in what records
should be kept is appropriate (say, when new international guidance
emerges), this very vagueness may mean that CREs have the flexibility toadapt their record-keeping, without waiting for a regulatory amendment.

b.

Under Option 2b (prescriptive rules):i.

CREs will know precisely what records to keep;ii.

However, when circumstances suggest a change in what records should be
kept is appropriate, CREs will not have the flexibility to adapt their recordkeeping, and will have to wait for a regulatory amendment.

c.

69.

Under Option 2c (combined approach):i.

for matters unlikely to change over time, CREs could enjoy certainty; andii.

for matters more likely to change over time, CREs could enjoy flexibility.

We conclude that Option 2c (a combination of principle-based rules and prescriptive
rules) would be the most appropriate variation of Option 2.

14w6h35tty 2022-11-15 09:03:16

Regulatory Impact Statement | 14

Section 2(2): Deciding upon an option to address policy
problem 2
What criteria will be used to compare options to the status quo?
70.

For problem 2, we will assess the options against the (future course of the) status quo
using the same criteria as for problem 1:a.

Effectiveness: how well does the option address the problem described in the
problem definition?

b.

Timeliness: how soon could the option be put in place and begin addressing the
problems described in the problem definition?

c.

Efficiency: what are the costs imposed by the option on relevant parties, such as
the regulator and the CREs?

What scope will the options be considered within?
Primary legislation options
71. Details regarding how CRD records should be made available to inspecting parties are
more appropriately dealt with at the level of secondary legislation. We have therefore
not considered amending the provisions of the primary legislation dealing with recordkeeping and establishing the new infringement offences. Those provisions were draftedon the basis of Cabinet policy decisions and it was anticipated by Cabinet that
secondary legislation may be required to implement aspects of the new regime.
Non-regulatory options
72. As for problem 1, the most obvious non-regulatory option to address problem 2 is for
the FMA to issue non-binding guidelines under section 9(1)(a) of the Financial Markets
Authority Act 2011. As noted in Section 1, we anticipate this will occur as the status
quo develops in any case and we have therefore included it in our analysis of thestatus quo against the other options.
Consultation with stakeholders
73. As for problem 1, the options considered against the status quo all involve the makingof regulations under section 548(1)(p) of the FMC Act. Such regulations can only bemade on the recommendation of the Minister of Commerce and Consumer Affairs after
consultation with the FMA. Officials have therefore worked closely with the FMA in
considering the pros and cons of different types of regulations.
74.

We also consulted with a targeted group of CREs (including banks and insurers) andlaw firms. We contacted a total of 18 stakeholders comprising: four banks; five listed
issuers from the energy, health, and primary sectors; four managed investment
schemes; four consulting firms; and one legal firm. We received responses from 11 outof the 18 stakeholders contacted, which included eight written responses. Feedback
from this consultation helped shape the options compared against the status quo.

Overseas experience
75. As has been noted in news headlines worldwide, the reforms introduced by the CRD
Act are world leading.9 As such, there is limited overseas experience to draw on, andwhat there is, is of limited value. For example, Australia’s CRD regime is dissimilar to
New Zealand’s, and we understand at this stage it is largely voluntary.

9 See, for example, https://www.sciencealert.com/new-zealand-just-passed-a-climate-change-law-no-other-country-s-dared-totackle

14w6h35tty 2022-11-15 09:03:16

Regulatory Impact Statement | 16

What options are being considered?
76.

New section 461Y(1) provides that every CRE “must make the CRD records available,in the prescribed manner at all reasonable times for inspection without charge”.

77.

In this regard, under section 548(1)(p) of the FMC Act, the Governor-General may, by
Order in Council, on the recommendation of the Minister in accordance with section
549, make regulations “prescribing, for the purposes of any provision of this Act that
requires a thing to be done in a prescribed manner …, the manner in which the thing
must be done”.

78.

Once again, this includes the possibility of prescribing (i) by whom, when, where, andhow the thing must be done: (ii) the form that must be used in connection with doing
the thing; (iii) what information or other evidence or documents must be provided inconnection with the thing; (iv) requirements with which information, evidence, or
documents that are provided in connection with the thing must comply; (v) that fees or
charges must be paid in connection with doing the thing; (vi) that the FMA may
determine or prescribe any of the matters under subparagraphs (i) to (iv).

79.

In this context, we have identified four options for record-keeping rules, as follows:80.

Status quo
No regulations are made and non-regulatory options like the FMA issuing guidance willbe the main source of clarifying how records need to be made available for inspection.

81.

Option 1 – Delegation
Under this option, regulations would be made under section 548(1)(p) prescribing that
the FMA may determine the manner in which CRD records are made available, for the
purposes of new section 461Y.

82.

Under this option, the FMA could potentially require that the CRD records the CRE
keeps be made available, for example, in a particular form and/or in a particularlanguage.

83.

The FMA could be granted authority to set these requirements just for situations where
the FMA is undertaking the inspection, or for situations where any authorised party(directors, supervisors, or the FMA) is undertaking the inspection.

84.

85.

86.

Option 2 – Direct regulation
Under this option, regulations would be made under section 548(1)(p) directly
prescribing the manner in which CRD records must be made available, for the
purposes of new section 461Y.
As was the case for problem 1, there are three main variations of this option, according
to how prescriptive the regulations are.
Variation 1: Principles-based rules
Under this option, regulations would be made under section 548(1)(p) prescribing themanner in which CRD records must be made available, for the purposes of new section
461Y, using high-level principles. For example, the regulations might prescribe that:
Every CRE must ensure that all CRD records are, at all reasonable times, madeavailable for inspection in an efficient manner to any authorised person

87.

88.

It would be up to each CRE to decide for itself what specific actions to take in order tomeet these high-level requirements. For instance, one CRE might decide that, to meetthe ‘efficiency requirement’, it needs to set up systems enabling it to transmit its CRD
records through an electronic file-sharing service, while another might decide that the
principle allows it to send paper copies of documents by courier.
Variation 2: prescriptive rules
Under this option, regulations would be made under section 548(1)(p) prescribing themanner in which CRD records must be made available, for the purposes of new section

14w6h35tty 2022-11-15 09:03:16

Regulatory Impact Statement | 17

461Y, using a set of prescriptive requirements. For example, the regulations mightprescribe that:
Every CRE must ensure that all CRD records are available for inspection by any
person authorised or permitted by an enactment to do so:i. through a file sharing service,
ii. on any business day, andiii. between the hours of 9am and 5pm.

89.

As another example, the regulations might prescribe that:
Every CRE must ensure that all CRD records are made available for inspection in
written form in English or Te Reo.

90.

91.

92.

This option would leave little if any discretion to CREs in terms of determining how they
can meet their obligation to make CRD records available for inspection.
Variation 3 : principles + prescriptive rules
Under this option, regulations would be made under section 548(1)(p) prescribing themanner in which CRD records must be made available, for the purposes of new section
461Y, using a mixture of principles and prescriptive requirements.
For example, the regulations might require (using a prescriptive approach) that:
Every CRE must ensure that all CRD records are made available for inspection in
written form in English or Te Reo.

93.

However, they might also require (using a principles-approach) that:
Every CRE must ensure that all CRD records are, at all reasonable times, madeavailable for inspection in an efficient manner to any authorised person

94.

Option 3 – Mixed approach
Under this option, some matters would be delegated to the FMA for determination,
while other matters would be prescribed directly in regulations.

95.

In other words, regulations would be made under section 548(1)(p):a.

directly prescribing the manner in which CRD records must be made available,
for the purposes of new section 461Y but also

b.
96.
97.

empowering the FMA to set additional requirements for how CRD records must
be made available, for the purposes of new section 461Y.
As for option 2, there would be a choice between different levels of prescriptiveness forthe matters set directly by the regulations.
For example, the regulations might directly prescribe that:
Every CRE must ensure that all CRD records are made available for inspection in
written form in English or Te Reo; orEvery CRE must ensure that all CRD records are made available for inspection in areadily understood form

98.

There would also be a choice around the scope of the FMA’s delegated power.

99.

For example, the regulations might prescribe that, in addition to the rules set out
directly in the regulations:
The FMA may additionally prescribe the manner in which the records must be madeavailable to any authorised person; or
The FMA may additionally prescribe the manner in which the records must be madeavailable to the FMA [but not to directors or supervisors].

14w6h35tty 2022-11-15 09:03:16

Regulatory Impact Statement | 18

Section 2(3): Deciding upon an option to address thepolicy problem 3
What criteria will be used to compare options to the status quo?
103. For problem 3, we need to take a more graduated approach to reflect the fact that (forreasons set out below) the only options we are comparing against the status quo both
involve setting infringement fees. This means we must consider the Ministry ofJustice’s Policy Framework for New Infringement Schemes – approved by Cabinet –which states that:11“[i]n setting infringement fees consideration must be given to the level of harm
involved in the offending, the affordability and appropriateness of the penalty for thetarget group, and the proportionality of the proposed fee with the infringement fees forother comparable infringement offences.”

104. We therefore take a two-step approach involving two different sets of criteria.
105. First, we will assess the broad option of ‘setting infringement fees’ against the status
quo using the same criteria as for problems 1 and 2, that is:a.

Effectiveness: how well does the option address the problems described in the
problem definition?

b.

Timeliness: how soon could the option be put in place and begin addressing the
problems described in the problem definition?

c.

Efficiency: what are the costs imposed by the option on relevant parties, such as
the regulator and the CREs?

106. Second, if the broad option of ‘setting infringement fees’ is assessed as morefavourable than the status quo, we will assess two sub-options (with different
infringement fee levels) against each other. For this second step, we will use thefollowing criteria:a.

Level of harm involved in the offending – how well does the infringement fee
reflect the seriousness of the offending?

b.

Affordability and appropriateness of penalty – is the infringement fee set at alevel which is fair, taking into account the target group’s ability to pay, but also
renders an appropriate deterrence effect to incentivise compliance?

c.

Proportionality – is the infringement fee consistent with other fees for offencesof comparable degrees of seriousness?

What scope will the opt ions be considered within?
Primary legislation options
107. Details regarding infringement fee levels are more appropriately dealt with at the levelof secondary legislation. We have therefore not considered amending the primarylegislation dealing with record-keeping and establishing the new infringement offences.
These new sections were drafted on the basis of Cabinet policy decisions. Further it
was anticipated by Cabinet that secondary legislation may be required to implement
aspects of the new regime.
Non-regulatory options
108. The most obvious non-regulatory option to address problem 2 is for the FMA to issue
non-binding guidelines under section 9(1)(a) of the Financial Markets Authority Act

11 Available at APPENDIX: POLICY FRAMEWORK FOR NEW INFRINGEMENT SCHEMES (justice.govt.nz)

14w6h35tty 2022-11-15 09:03:16

Regulatory Impact Statement | 22

2011. As noted in Section 1, we anticipate this will occur as the status quo develops inany case and we have therefore included it in our analysis of the status quo against theother options.
109. For problem 2, we also briefly considered:a.

b.

The non-regulatory option of increasing FMA funding, so that the regulator has
the means to file charges for all breaches of infringement offence provisions.
However, we discarded this option because:i.

it would promote (or at least appear to promote) the filing of charges (andso a higher financial penalty) when the conduct in question does notwarrant itii.

it does not address the concern that this would unnecessarily put pressure
on the courts for minor offences, andiii.

we are unaware of any precedent in New Zealand where such an approachhas been taken as an alternative to setting infringement fees.
Moral suasion – effectively, imploring CREs to meet their obligations under new
sections 461W(3), 461Y(3), 461ZI(4) and 461ZJ(4). However, if the only ‘fall-back
option’ for the FMA (where a CRE does not respond positively to the use of moral
suasion) is the filing of charges in court, this would be unlikely to amount to acredible regulatory threat, especially where the CRE knew that the breach inquestion did not warrant court action (for example, because it was an inadvertent
breach which was quickly remedied).

Consultation with stakeholders
110. We consulted with the FMA as well as with a targeted group of CREs (including banks
and insurers) and law firms. We contacted a total of 18 stakeholders comprising: fourbanks; five listed issuers from the energy, health, and primary sectors; four managed
investment schemes; four consulting firms; and one legal firm. We received responses
from 11 out of the 18 stakeholders contacted, which included eight written responses.
Feedback from this consultation helped shape the options compared against the status
quo.
Overseas experience
111. As has been noted in news headlines worldwide, the reforms introduced by the CRD
Act are world leading.12 As such, there is limited overseas experience to draw on, andwhat there is, is of limited value. For example, Australia’s CRD regime is dissimilar to
New Zealand’s, and we understand at this stage it is largely voluntary.

12 See for example: New Zealand Just Passed a Climate Change Law No Other Country's Dared to Tackle : ScienceAlert

14w6h35tty 2022-11-15 09:03:16

Regulatory Impact Statement | 23

Total monetised benefitsn/aNon-monetised benefits

Medium (cumulation of several low benefits)

14w6h35tty 2022-11-15 09:03:16

Regulatory Impact Statement | 27