Things to know before starting a lending business in New Zealand

Things to know before starting a lending business in New Zealand

Setting up

The first thing to consider is how you will establish your business presence in New Zealand.  Common ways to do this include:

  • setting up or buying a New Zealand limited liability company;
  • registering an overseas branch company to carry on business in New Zealand; or
  • setting up a limited liability partnership.

There are different benefits and drawbacks to the above options.  The minimum requirements also differ depending on which option you choose.  For a high-level summary of these options, see our guide here.

Registration on Financial Service Providers Register

Broadly, under the Financial Service Providers (Registration and Dispute Resolution) Act 2008 (“FSP Act“), every person in New Zealand who is in the business of providing a financial service (e.g. lending money), whether in New Zealand or to other countries, must be registered on the Financial Service Providers Register (“FSPR“) before they can legally provide financial services.

To be registered on the FSPR, the business will need to submit an application to the FSPR. This includes basic information about the business and the key people behind it.  The FSPR will run a criminal history check of the people behind the business in most cases.

Could my application be rejected? 

 This is a common question we are asked, particularly by overseas clients.  In this regard, we note that recent amendments have been made to the FSP Act (which will largely come into effect on 15 March 2021).  These are generally in response to the influx of registrations on the FSPR by offshore financial service providers for credibility purposes in order to claim that their lending activities were regulated and supervised in New Zealand when in fact no financial services were being provided in New Zealand.  Accordingly, some of the amendments to the FSP Act aim to ensure that people who are registered on the FSPR are actually connected to New Zealand (i.e. are carrying on business in New Zealand and/or have New Zealand customers).  The FSPR is also actively monitoring FSP applications to ensure that offshore providers do not misuse the FSPR.

Under the FSP Act, the FSPR will not reject an application solely because the applicant is an overseas company or a company owned by non-New Zealanders.  Essentially, if your business intends to provide loans in the ordinary course of its business, whether in New Zealand or overseas, the application is likely to be accepted by the FSPR. 

Whether the business’ lending services are “carried on in New Zealand in the ordinary course of business” is a key issue.  Generally, this implies there is a place of business in New Zealand from where the lending activity is directed together with infrastructure and New Zealand staff.

Of course, there may be other reasons why the application could be rejected, including whether the key people behind the business can give the required declaration that they are not disqualified from being a financial service provider.  For example, if a director of an applicant company has a conviction of a money laundering offence in New Zealand or elsewhere, the company will not be able to be FSP registered. 

To assist with the FSPR application process, we recommend obtaining specialist legal advice that applies to the specific nature and circumstances of your business.

Joining a dispute resolution scheme

If your business is successfully registered on the FSPR and intends to provide loans to retail customers, it must join an approved dispute resolution scheme (“DRS”) within 10 working days of its registration (and pay the applicable membership fee as required).  A DRS handles any complaints or disputes a customer may have with the business.

Other key pieces of legislation for lenders

  • Credit Contracts and Consumer Finance Act 2003 (“CCCFA“): Sets out rules lenders must follow when providing consumer credit.  It also protects borrowers from oppressive behaviour in other credit transactions (including business to business transactions). 
  • Anti-Money Laundering and Countering Financing of Terrorism Act 2009: Lending businesses are required to take certain measures to detect and deter money laundering and the financing of terrorism.  This includes putting certain protections and processes in place, reporting obligations and auditing requirements.
  • Privacy Act 1993: This Act provides safeguards and sets out obligations in relation to agencies collecting, retaining and using personal information relating to individuals.
  • Fair Trading Act 1986: This Act protects consumers from being misled or treated unfairly in trade.  It also prohibits misleading and deceptive conduct, unsubstantiated claims, false representations, unfair practices and unfair contract terms.

Upcoming changes to financial service provider laws

As mentioned above, there have been various recent changes to the financial service provider and consumer credit laws in New Zealand by way of the Financial Services Legislation Amendment Act 2019 and the Credit Contracts Legislation Amendment Act 2019.  Regulations setting out the detail of the updated regime are yet to be released – we will keep you informed of developments on this front.

Whether these changes will affect your business will depend on the nature of your business and its customers.  To assess the legal requirements of your business, we recommend obtaining specific legal advice from a New Zealand lawyer.

If you would like any further information about starting a lending business in New Zealand, the upcoming legislative changes or how they may affect your business, please contact the Business Advice Team for assistance.

Disclaimer:  The information contained in this article is current at the date of publishing and is of a general nature.  It should be used as a guide only and not as a substitute for obtaining legal advice.  Specific legal advice should be sought where required.

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Contact the expert team at Hesketh Henry.
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