Fintech in New Zealand 2024

Fintech in New Zealand 2024

Fintech in New Zealand 2024

FINTECH 2024

NEW ZEALAND

Derek Roth-Biester, Megan Pearce

(Anderson Lloyd)

FINTECH LANDSCAPE AND INITIATIVES

General innovation climate

  1. What is the general state of fintech innovation in your jurisdiction?

Fintech in New Zealand is in a very healthy state, driven largely by New Zealand’s strong start-up ecosystem, broad base of industry participants and a push from both government and industry to develop a stronger technology export sector in New Zealand. The industry association FinTechNZ acts as a focal point for the fintech community in New Zealand, connecting banks, insurers and managers with investors, innovators and regulators and promoting New Zealand fintech to the world. This promotion is made easier because of New Zealand’s excellent international reputation for being a good place to do business, a strong financial system, low corruption and open and approachable regulators.

Government and regulatory support

  1. Do government bodies or regulators provide any support specific to financial innovation? If so, what are the key benefits of such support?

Government departments such as the Ministry of Business and Innovation (MBIE) and regulators such as the Financial Markets Authority (FMA) have demonstrated their strong support of New Zealand fintech, through pro-active engagement with industry participants and with associations such as FinTechNZ and its FinTech Regulatory Roundtable. The Reserve Bank of New Zealand (Reserve Bank), while striking a note of caution on fintech, has nevertheless recognized the efficiencies that it might bring to New Zealand banking and payments systems. Perhaps in recognition of the growth in innovation in this sector, a handful of regulators and government departments, led by the FMA and including MBIE, the Reserve Bank, the Treasury and the Commerce Commission (New Zealand’s competition law authority), together formed the Council of Financial Regulators in 2021 to ensure consistent cooperation and assistance between them. In the fintech arena, this has resulted in the creation of the FinTech forum, an online portal through which fintech innovators can seek regulatory guidance. This means of engagement with the fintech community is an example of the well-deserved reputation that the New Zealand regulators have for being open and approachable to new entrants and new products. So while the regulators have stopped short of creating the sort of regulatory sandboxes seen in other jurisdictions, fintech companies are encouraged to engage with the regulators (and with their professional advisers) early on to inform their thinking about potential routes through the regulatory environment.

FINANCIAL REGULATION

Regulatory bodies

  1. Which bodies regulate the provision of fintech products and services?

There are a number of regulators, depending on the type of products and services being offered. The Financial Markets Authority (FMA) is the securities regulator, which supervises offers of financial products in New Zealand and is responsible for licensing the provision of certain financial services and the enforcement of certain prudential and fair dealing standards. The Reserve Bank is responsible for the supervision and prudential regulation of banks, non-bank deposit takers and insurers as well as generally maintaining the robustness of New Zealand’s financial system. Other regulators include the Department of Internal Affairs (anti-money laundering) and the Commerce Commission.

Regulated activities

  1. Which activities trigger a licensing requirement in your jurisdiction?

Under the Financial Markets Conduct Act 2013 (FMCA) and subsidiary regulations, if you provide to retail investors any financial advice, crowdfunding services, robo-advice, discretionary investment management services or peer-to-peer (P2P) lending services, or if you operate a managed investment scheme for, issue derivatives (such as contract for differences and forex futures) to or take deposits from retail investors, you will need to be licensed by the FMA. Further, any person who carries on ‘insurance business’ in New Zealand must be licensed by the Reserve Bank. The term ‘retail’ generally refers to members of the public. Services provided to ‘wholesale’ investors (of which there are many categories but is the New Zealand equivalent of ‘accredited’ or ‘sophisticated’ investors in other jurisdictions) conversely do not require licensing.

In relation to advising on investments, the FMCA’s new financial advice regime came fully into force with effect from 17 March 2023. All financial advice providers (FAPs) must hold or operate under a full license from the FMA if they wish to provide regulated financial advice to retail clients. FAPs can either be an individual or other business entity such as a company. The three classes of FAP licenses are Class 1 (sole adviser businesses), Class 2 (businesses that engage more than one adviser) and Class 3 (large organizations that engage ‘nominated representatives’ among their staff). A nominated representative is an individual engaged by a licensed FAP to give regulated financial advice (which advice must be limited in nature and scope) on their behalf and who does not need their own license. FAPs, advisers and nominated representatives face a number of compliance obligations under the regime, including adherence to the Code of professional conduct for financial advice services.

Last, there is a separate requirement for any business that provides ‘financial services’ (whether in New Zealand or from New Zealand to other countries) as required by the Financial Service Providers (Registration and Dispute Resolution) Act 2008 (FSP(RDR)A) to be registered on the Financial Services Provider Register (FSPR).

Consumer lending

  1. Is consumer lending regulated in your jurisdiction?

Consumer lending is regulated primarily under the Credit Contracts and Consumer Finance Act 2003 (CCCFA), which applies to a range of transactions where money is loaned for personal use such as consumer credit contracts, consumer leases and buy-back transactions. Among other things, the CCCFA and its subsidiary regulations provide general rules for credit contracts and require those to whom the CCCFA applies to adhere to certain ‘lender responsibility principles’, including by:

  • acting responsibly when advertising credit or finance as well as before and after providing consumer credit or finance and taking a relevant guarantee; and
  • complying with specific lender responsibilities such as disclosing certain information to borrowers.

The separate Responsible Lending Code elaborates on these principles and provides guidance both on how to comply with them as well as on the information lenders should provide to borrowers before and during the loan term.

The Ministry of Business and Innovation (MBIE) conducted a lengthy review into New Zealand’s consumer credit sector and brought in extensive changes to the CCCFA and the Responsible Lending Code in December 2021. The intent was to ease consumer access to credit while maintaining a strong level of consumer protection. Under the new regulations, lenders were required to make certain types of inquiries before agreeing to lend money to a borrower, or before agreeing to provide further credit under an existing loan, including as to the suitability of the credit product for that consumer and to assess the borrower’s income and expenses to be satisfied that the repayments are not likely to cause substantial hardship to the borrower. These changes were initially somewhat controversial, as they were interpreted as requiring lenders to trawl through applicants’ bank statements and make possibly invasive enquiries into their lifestyle choices. However, many of these changes were softened by further changes to the CCCFA and the Responsible Lending Code in July 2022 and, most recently, May 2023.

One very popular (until recently) form of consumer finance in New Zealand, buy now, pay later (BNPL), is not as of writing regulated under the CCCFA. However, the MBIE has clearly stated its intention to regulate the BNPL sector and invited submissions on an exposure draft of regulations, entitled the Credit Contracts and Consumer Finance (Buy Now Pay Later) Amendment Regulations 2022, which submissions closed on 10 March 2023. Under these new regulations (which are expected to come into force in 2023), most of the requirements of the CCCFA will apply to BNPL as a ‘consumer credit contract’ just like credit cards or personal loans. However, smaller amounts of BNPL credit below a dollar threshold (tentatively set at NZ$600) will be exempt from the CCCFA requirement to assess affordability.

Secondary market loan trading

  1. Are there restrictions on trading loans in the secondary market in your jurisdiction?

There are no specific restrictions on trading loans, other than in relation to P2P lending. Traders of lending books would need to ensure they contractually have the right to assign the loans and would need to comply with applicable data privacy obligations. P2P lending markets must be licensed providers of a P2P lending service.

Collective investment schemes

  1. Describe the regulatory regime for collective investment schemes and whether fintech companies providing alternative finance products or services would fall within its scope.

Such schemes, in which money from a number of investors is pooled together and those investors are reliant on the investment expertise of the scheme manager, are regulated chiefly as ‘managed investment schemes’. The FMCA’s definition of these schemes is broad enough to capture most open- and closed-ended collective investment schemes and those involving participatory securities. Fintech companies providing P2P lending or crowdfunding platforms would not be regulated as a managed investment scheme, but instead would be regulated under the relevant licensing regimes for those platforms.

Alternative investment funds

  1. Are managers of alternative investment funds regulated?

Yes, managed investment scheme managers are required both to register on the FSPR as a provider of financial services and (where they will make a regulated offer to retail investors) to be licensed by the FMA. Managers need to meet and maintain certain minimum standards (including fitness and propriety of directors and senior managers) and have obligations relating to financial reporting, fair dealing and anti-money laundering.

Peer-to-peer and marketplace lending

  1. Describe any specific regulation of peer-to-peer or marketplace lending in your jurisdiction.

P2P lending is regulated by the FMA as a financial market service under the FMCA and anyone who wishes to operate such a market must be licensed as a provider of P2P lending services. Borrowers who use a licensed service are exempted from the requirement to issue a product disclosure statement (which they would otherwise be required to do, as it would be seen as the issue of a debt security to the public). Licensed P2P platforms, in addition to meeting certain minimum standards and conditions for their license, have a number of ongoing obligations, such as notification of certain events to the FMA (as well as providing an annual regulatory return), and obligations relating to financial reporting, fair dealing and anti-money laundering.

Crowdfunding

  1. Describe any specific regulation of crowdfunding in your jurisdiction.

The FMCA regulates equity-based crowdfunding (where companies raise money from retail investors through the issue of shares) as a financial market service. Reward-based crowdfunding is not covered, nor is any fundraising for charitable or philanthropic purposes (as long as donors do not receive shares). Under the FMCA, companies may raise up to NZ$2 million in any 12-month period on a licensed crowdfunding service provider’s platform with minimal regulatory hurdles (such as not having to issue a product disclosure statement). Licensed crowdfunding platforms, in addition to meeting certain minimum standards and conditions for their license, have a number of ongoing obligations, such as notification of certain events to the FMA (as well as providing an annual regulatory return), and obligations relating to financial reporting, fair dealing and anti-money laundering.

Invoice trading

  1. Describe any specific regulation of invoice trading in your jurisdiction.

There is no specific regulation of invoice trading, but it will likely constitute a financial service under the FSP(RDR)A (being a creditor under a credit contract) and require the invoice trader to register on the FSPR as a financial services provider under that Act.

Payment services

  1. Are payment services regulated in your jurisdiction?

There currently is no specific regulation of payment services along the lines of Directive (EU) 2015/2366 (revised Payment Services Directive) (PSD2), but such services will constitute financial services under the FSP(RDR)A (as it is issuing and managing a means of payment) and require the payment services provider to register on the FSPR as a financial services provider under that Act.

Open banking

  1. Are there any laws or regulations introduced to promote competition that require financial institutions to make customer or product data available to third parties?

Not yet, as the government has so far preferred to allow the industry to take the lead. The implementation of open banking is being spearheaded by Payments NZ (a company formed by a number of retail banks with the support of the Reserve Bank), which launched its API Centre in May 2019. This is a suite of industry-standardized application programming interfaces (APIs) for payment-related services, which is designed to manage a move to greater openness in banking and payments and to create an API-enabled ecosystem in New Zealand. Payments NZ is responsible for the governance of the API Centre but has delegated it to an API Council comprised of banks, non-bank third parties and independent members. The API Council gets recommendations from a business group and a technical group, and also has an independent sub-committee to handle sensitive issues.

Also relevant to the implementation of open banking is the Consumer Data Right (CDR), which would allow data portability. New Zealand’s Minister of Commerce and Consumer Affairs released a cabinet paper in late 2022 making recommendations on the implementation of a legislative framework for a sector-by-sector rollout of a new CDR. The legislation would introduce basic obligations for those operating within the designated sectors and allow consumers to require data holders (such as banks, utilities and healthcare providers) to securely share their data with trusted third parties. The New Zealand banking sector will be the first to implement a CDR, the details of which will be contained in an exposure draft of a data-sharing bill, which is expected to be released for industry feedback before the end of 2023. The cabinet paper suggests that the bill will provide, among other things, for tiered accreditation of data recipients and that penalties for breach of the CDR will be ranked according to their severity, with criminal penalties applying to deliberate or reckless behavior.

Robo-advice

  1. Describe any specific regulation of robo-advisers or other companies that provide retail customers with automated access to investment products in your jurisdiction.

New Zealand has no specific regulation of robo-adviser. Since the new financial advice provider regime fully came into force in March 2023, the new rules treat advice given by an online digital assistant as being subject to the same rules as advice delivered in person.

Insurance products

  1. Do fintech companies that sell or market insurance products in your jurisdiction need to be regulated?

Fintech companies that carry on ‘insurance business’ in New Zealand are subject to the supervision of the Reserve Bank and must be licensed. Whether or not this applies to an insurtech entity will depend on its business activities – under section 8(1) of the Insurance (Prudential Supervision) Act 2010 (IPSA)) it will be held to be carrying on insurance business if it acts as an insurer either within or outside of New Zealand or is otherwise liable as an insurer under a contract of insurance to a New Zealand policyholder. Regulation takes the form of a risk-based supervisory regime established under IPSA, requiring the licensee to meet certain criteria relating to governance, the fitness and propriety of their officers and managers, capital adequacy and liquidity.

Credit references

  1. Are there any restrictions on providing credit references or credit information services in your jurisdiction?

Credit reporting has implications under the Privacy Act 2020 (Privacy Act), New Zealand’s principal data privacy legislation. In December 2020, after public consultation, the Office of the Privacy Commissioner (OPC) overhauled the Credit Reporting Privacy Code, ostensibly to align the code with the Privacy Act that was being revised at the same time. The code applies specific privacy rules to credit reporters who sell personal credit information. The intent behind this Code is broadly to grant individuals enhanced rights in relation to the use of their personal credit information by these credit reporting agencies. These rights include, among others, imposing time limits on keeping and reporting information, limiting the use of that information to defined circumstances (and in any event requiring consent in most situations), entitling individuals to a free credit score (if the credit reporter has a practice of releasing such scores to subscribers), requiring access to credit information within 10 working days and giving reporters the right to charge for expedited access requests (namely, within three working days), entitling individuals to apply to suppress credit information if they think they have been a victim of fraud and entitling individuals to dispute inaccurate information. Individuals can also complain to the OPC if they think the code has been breached.

CROSS-BORDER REGULATION

Passporting

  1. Can regulated activities be passported into your jurisdiction?

Overseas issuers of financial products wishing to extend the offer into New Zealand will need to do so under an official recognition scheme or under an exemption from the Financial Markets Authority (FMA). To date, there are two such schemes in place, namely:

  • the Trans-Tasman Mutual Recognition Scheme with Australia, which allows an Australian issuer to extend its offers into New Zealand provided they comply with Australian laws and certain reporting and filing obligations in New Zealand; and
  • the Asia Region Funds Passport or ARFP, under which a managed fund in the participating countries (Australia, Japan, South Korea and Thailand) may extend the offer to New Zealand provided they:
  • register in their home jurisdiction as a passport fund;
  • apply to the FMA for authorization; and
  • comply with certain initial and ongoing requirements (including registering on the Financial Services Provider Register, joining a dispute resolution scheme and appointing an agent for service in New Zealand).

Requirement for a local presence

  1. Can fintech companies obtain a license to provide financial services in your jurisdiction without establishing a local presence?

Any fintech company that provides financial services into New Zealand from overseas is required to register on the Financial Services Provider Register. If its activities in New Zealand constituted ‘carrying on business’ within the meaning of section 332 of the Companies Act 1993, then it would be required to register with New Zealand’s Registrar of Companies as an ‘overseas company’ (effectively a New Zealand branch of the foreign company). Registration imposes obligations on the company to submit annual financial statements to the Companies Office and may bring it within the remit of New Zealand’s anti-money laundering laws.

SALES AND MARKETING

Restrictions

  1. What restrictions apply to the sales and marketing of financial services and products in your jurisdiction?

Part 2 of the Financial Markets Conduct Act 2013 contains a number of fair dealing requirements that will apply to such sales and marketing. Financial service providers must not engage in misleading conduct or make any false, deceptive or unsubstantiated statements about the financial product or service, irrespective of the type of investor they are offering to, or where they are located. Further, New Zealand’s Fair Trading Act 1986 (FTA) also prohibits misleading and deceptive conduct in trade and applies to the trading of assets, commodities and other goods and services. Obligations under the FTA are enforced by the Commerce Commission. There are other general consumer laws that may be relevant that prohibit fraudulent conduct such as obtaining money by deception.

CRYPTOASSETS AND TOKENS

Distributed ledger technology

  1. Are there rules or regulations governing the use of distributed ledger technology or blockchains?

Not currently, although in its November 2022 paper ‘The future of business for Aotearoa New Zealand’, the Ministry of Business and Innovation consulted on blockchain as one of two trends that will affect future business, and influence productivity and well-being, in New Zealand. The paper identifies that blockchain technology has its benefits and challenges and that robust regulatory development and governance could cause more widespread adoption of the technology, driving innovation in web3, decentralized finance and alternative business structures such as decentralized autonomous organizations. We expect further developments in this space.

Cryptoassets

  1. Are there rules or regulations governing the promotion or use of cryptoassets, including digital currencies, stablecoins, utility tokens and non-fungible tokens (NFTs)?

To date, there are no specific rules or regulations applying to the promotion or use of such cryptoassets. The Financial Markets Authority (FMA) has issued guidance on cryptocurrencies and takes the view that any provision of a financial service relating to cryptocurrencies in New Zealand will require compliance with the ‘fair dealing’ requirements under the Financial Markets Conduct Act 2013 (FMCA) and (potentially) with obligations under the Financial Service Providers (Registration and Dispute Resolution) Act 2008 (FSP(RDR)A) and the Anti-Money Laundering and Countering Financing of Terrorism Act 2009. The guidance states that wallet providers who store cryptocurrency or money on behalf of others, or who facilitate exchanges between cryptocurrencies or between fiat and crypto, will be operating a value transfer service. This is a type of financial service within the meaning of the FSP(RDR)A and requires the provider to register under that Act. Further, if you hold money for depositors you may be offering debt securities (which are financial products regulated under the FMCA), although if those funds are held in trust the wallets may not be debt securities.

Given the extensive public consultations done by the New Zealand government in 2022 around cryptocurrencies generally and the future of money in the context of the possible introduction of a central bank digital currency, we expect this area to develop rapidly going forward.

Token issuance

  1. Are there rules or regulations governing the issuance of tokens, including security token offerings (STOs), initial coin offerings (ICOs) and other token generation events?

There are currently no sector-specific rules or regulations applying to such issuances of tokens. The FMA’s commentary to date indicates that it considers the existing regulatory framework contained within the FMCA and subsidiary regulations to be sufficiently technology-neutral to accommodate these new types of capital raises. The FMA also indicates that the specific characteristics and economic substance of an ICO will determine if it is regulated as a financial product (and, if so, how) and recommends engagement during the development phase of any ICO to discuss the regulatory implications.

ARTIFICIAL INTELLIGENCE

Artificial intelligence

  1. Are there rules or regulations governing the use of artificial intelligence, including in relation to robo-advice?

With the arrival of large language models such as ChatGPT, much public and academic debate in recent months has been focused on the impact of artificial intelligence (AI) on New Zealand society, whether or not it should be regulated and, if so, how. In the meantime, there is no specific regulation of AI in New Zealand. Based on comments from the Department of Internal Affairs and other government departments, it is anticipated that Parliament will look to address the use of AI and the use of algorithms in automated decision-making processes by amending existing regulations or legislation on a case-by-case basis, possibly through cross-border efforts with bodies in other jurisdictions such as the OECD AI Policy Observatory.

In relation to robo-advice, any applicant for a financial advice provider that proposes to use a robo-advice tool with its clients will need to describe their digital advice service as part of their application, including any use of artificial intelligence, so that the FMA can assess the service against certain minimum standards around functionality and cyber-resilience.

CHANGE OF CONTROL

Notification and consent

  1. Describe any rules relating to notification or consent requirements if a regulated business changes control.

A regulated business holding a market service license issued under the Financial Markets Conduct Act 2013 (FMCA) must notify and report to the Financial Markets Authority (FMA) on the occurrence of ‘a material change in circumstances’. This is defined under the FMCA as including any change in the licensee’s directors and senior managers or the fulfillment of the eligibility criteria in respect of which the license was originally granted. Holders of a market service license must report to the FMA as soon as is practical if the relevant licensee proposes to (among other things):

  • change its legal structure;
  • enter into any major transaction; or
  • enter into a transaction that has the effect of a person obtaining or losing control of the licensee.

On receipt of such reporting, the FMA may suspend, vary or revoke the licensee’s market services license if it considers that, in light of the relevant change, the licensee can no longer meet its license conditions or any of the minimum criteria in respect of which the original license was granted.

FINANCIAL CRIME

Anti-bribery and anti-money laundering procedures

  1. Are fintech companies required by law or regulation to have procedures to combat bribery or money laundering?

Yes, if the fintech company carries on one of the many specified activities (including issuing or managing means of payment such as electronic money), which would bring it within the definition of a ‘financial institution’ under New Zealand’s Anti-Money Laundering and Countering Financing of Terrorism Act 2009 (AMLCFTA). If it is a financial institution, the fintech company has certain obligations under the AMLCFTA, including conducting a review and assessment of the risk of money laundering specific to its business, implementing a compliance program, undertaking due diligence on its customers (which could be simplified, standard or enhanced), monitoring transactions and filing suspicious activity reports.

Guidance

  1. Is there regulatory or industry anti-financial crime guidance for fintech companies?

Not specifically for fintech companies. However, the three supervisors (the Department of Internal Affairs, the Financial Markets Authority and the RBNZ) to whom the AMLCFTA gives responsibility for providing industry guidance have already given general guidance on a number of anti-money laundering topics, including risk assessment, enhanced customer due diligence, beneficial ownership and suspicious activity reporting. Other guidelines published by the New Zealand Police Financial Intelligence Unit may also be relevant.

DATA PROTECTION AND CYBERSECURITY

Data protection

  1. What rules and regulations govern the processing and transfer (domestic and cross-border) of data relating to fintech products and services?

Under the Privacy Act 2020, agencies may only disclose personally identifiable information (PII) to an overseas person if the individual concerned authorized the disclosure, the overseas person was a prescribed country or the agency believed on reasonable grounds that the overseas person was required to protect the PII in a manner comparable to the required by the agency under New Zealand law. The Privacy Bill would also provide that the proposed restriction against disclosure of PII to overseas persons should not apply to transfers to cloud storage providers or other overseas processors.

Cybersecurity

  1. What cybersecurity regulations or standards apply to fintech businesses?

The Crimes Act 1961 provides for a number of cybersecurity regulations that apply to all businesses operating in New Zealand. These include the criminal offenses of accessing a computer system for a dishonest purpose or without authorization, damaging or interfering with a computer system, making, selling, distributing or possessing software for committing a crime and using an interception device. Further, a 2019 report from the Financial Markets Authority contained guidance for regulated entities, recommending that market participants make use of a recognized cybersecurity framework to assist in planning, prioritizing and managing their cyber-resilience.

OUTSOURCING AND CLOUD COMPUTING

Outsourcing

  1. Are there legal requirements or regulatory guidance with respect to the outsourcing by a financial services company of a material aspect of its business?

The Reserve Bank of New Zealand has published an outsourcing policy (last revised in September 2017), which requires large banks (namely, those incorporated as a company in New Zealand with net liabilities exceeding NZ$10 billion) to comply with the policy as a condition of their registration. The objective is to ensure the outsourcing does not compromise the bank’s ability to be effectively administered and operated, to facilitate the carrying on of basic banking services by the new owner of all or part of the bank and to address the impact that the failure of an outsourced service provider may have on the bank’s ability to carry on all or part of the business of the bank. The Financial Markets Authority (FMA) also has certain rules around outsourcing, for example, by requiring certain licensees to ensure their outsourced functions are adequate, effective and comply with their license obligations.

Cloud computing

  1. Are there legal requirements or regulatory guidance with respect to the use of cloud computing in the financial services industry?

Outsourcing arrangements that implement cloud computing would need to comply with the RNBZ’s policy and any requirements imposed by the FMA. Cyber risk generally (such as that arising from the use of cloud computing) was one of the issues arising from fintech that was identified by the Financial Stability Board as meriting closer attention. The FMA has also published guidance on cyber-resilience in FMA-regulated financial services, among other things strongly encouraging market participants to use a recognized cybersecurity framework to assist with planning, prioritizing and managing their cyber-resilience.

INTELLECTUAL PROPERTY RIGHTS

IP protection for software

  1. Which intellectual property rights are available to protect software, and how do you obtain those rights?

Software is principally protected by New Zealand’s copyright laws. Under the Copyright Act 1994, a computer program is a ‘literary work’ and protected as such upon creation. Subject to special rules for authors who are employees or contractors, the person who is the author of the work is the first owner of the copyright in that work and may freely license or assign that copyright. The duration of copyright protection is 50 years from the end of the calendar year in which the author dies.

Under the Patents Act 2013, computer programs as such are not patentable in New Zealand. However, if a claim in an application implements software within the invention then it may be patentable. The issue will hinge largely on whether the actual contribution made to the invention lies solely in it being a computer program – if so, then no patent can be granted.

IP developed by employees and contractors

  1. Who owns new intellectual property developed by an employee during the course of employment? Do the same rules apply to new intellectual property developed by contractors or consultants?

Under section 21(2) of the Copyright Act, if an employee creates any works in the course of their employment, then their employer is the first owner of the copyright in that work. A similar but narrower provision is contained in section 21(3) in relation to contractors and consultants. This section provides that if a person commissions and pays or agrees to pay for one of the artistic works specified in that section (namely, a computer program, photograph, painting, drawing, diagram, map, chart, plan, engraving, model, sculpture, film or sound recording) and the work is made in pursuance of that commission, then the commissioner is the first owner of the copyright in that work. For any other kind of work capable of copyright protection, a provision regarding IP ownership would need to be made in the applicable consulting agreement.

Joint ownership

  1. Are there any restrictions on a joint owner of intellectual property’s right to use, license, charge or assign its right in intellectual property?

This will depend on the type of intellectual property in question. For example, under the Copyright Act, an exclusive license of a copyrighted work is required to be in writing signed by or on behalf of all joint owners, but otherwise, the joint owners are free to use, license, charge or assign their rights in that work. Under section 24 of the Patents Act 2013, absent any agreement to the contrary, co-owners of patents are each entitled to exercise the exclusive rights given by the patent for their own benefit without accounting to the others, but cannot assign or grant a license of the patent without the consent of all co-owners.

Trade secrets

  1. How are trade secrets protected? Are trade secrets kept confidential during court proceedings?

Trade secrets are protected not by statute but under common law principles of breach of confidence and the laws of contract (including under contracts of employment). Owners of trade secrets do not need to, and indeed cannot, register their trade secrets for them to be protected – instead, they would bring an action for breach of contract (where the infringement of the trade secret constituted a breach of that contract) and/or for the tort of breach of confidence. The courts recognize an obligation on a person who unlawfully receives confidential information not to take unfair advantage of it and are able to grant injunctions to give effect to these obligations.

Branding

  1. What intellectual property rights are available to protect branding and how do you obtain those rights? How can fintech businesses ensure they do not infringe existing brands?

New Zealand’s Trade Marks Act 2002 provides for a system of registration of trademarks. These are not limited to just words or logos, but can include symbols, phrases, shapes or sounds. There is no requirement to register a mark – indeed unregistered marks can be protected using the common law tort of passing off. However, registration gives the owner the exclusive right to use the mark in New Zealand in the class in which it is registered, as well as giving it a defense against infringement claims. Fintech companies looking not to infringe an existing brand can do an online search of the trade mark register maintained by the Intellectual Property Office of New Zealand (IPONZ) either by themselves, or ask IPONZ to conduct a clearance search before registering their own trade mark. Domain name searches and searches of the Companies Office register can also be done to determine if the desired domain and company name are available for registration.

Remedies for infringement of IP

  1. What remedies are available to individuals or companies whose intellectual property rights have been infringed?

The usual civil remedies are available including monetary damages, summary judgment, injunctive relief (including ex parte), specific performance (such as delivery up of infringing articles as well as corrective advertising) and civil search and seizure orders. The rights holder may also plead misleading and deceptive conduct in trade in breach of the Fair Trading Act 1986. The Copyright Act also provides for criminal liability for infringement of copyright works for commercial gain.

COMPETITION 

Sector-specific issues

  1. Are there any specific competition issues that exist with respect to fintech companies in your jurisdiction?

There is no fintech-specific competition regulation in New Zealand. However, one has to assume that if fintech and open banking take off in New Zealand it will have competition law implications that will be of interest to New Zealand’s competition regulator, the Commerce Commission. Competition law in New Zealand is governed by the Commerce Act 1986 and its subsidiary regulations, and is already being applied by the Commerce Commission to regulate behavior in the sector.

TAX

Incentives

  1. Are there any tax incentives available for fintech companies and investors to encourage innovation and investment in the fintech sector in your jurisdiction?

Fintech businesses can take advantage of the research and development (R&D) tax incentive. This is a tax credit equal to 15 percent of eligible R&D spending up to NZ$120 million. To be eligible, the business has to spend NZ$50,000 or more per year on ‘eligible R&D’, although spending under this level may still be eligible if the R&D is done through an approved research provider on your behalf. The eligible R&D must be carried out in New Zealand, subject to a 10 percent cap on total eligible R&D spending being carried out outside of New Zealand.

Increased tax burden

  1. Are there any new or proposed tax laws or guidance that could significantly increase tax or administrative costs for fintech companies in your jurisdiction?

In February 2019, the coalition government outlined a draft implementation of a new ‘digital services tax’ intended to capture what is thought to be lost revenue from online platforms, social networks and content-sharing platforms. One of the suggestions was a flat 3 percent tax on the gross turnover of such digital businesses, but the final form will only become uncertain if or when the tax comes into force.

IMMIGRATION

Sector-specific schemes

  1. What immigration schemes are available for fintech businesses to recruit skilled staff from abroad? Are there any special regimes specific to the technology or financial sectors?

Immigration New Zealand maintains lists of skill shortages and there are many technology-related jobs on those lists. Depending on the particular role and your age, qualifications and post-graduate work experience, immigrants may be able to enter New Zealand on a Skilled Migrant Category Resident Visa (which is points-based and allows an indefinite length of stay) or under the Long Term Skill Shortage List Work Visa (which is a temporary work to residence visa valid for up to 30 months and requires that the applicant have an existing offer of one of the jobs on the list). If the job is not on the list, then there may still be other visas available.

UPDATE AND TRENDS IN FINTECH IN NEW ZEALAND

Current developments

  1. Are there any other current developments or emerging trends to note?

The legislative and regulatory environment in New Zealand is constantly changing through initiatives such as the future of money and central bank digital currency consultation and design, the Digital Identity Program and Consumer Data Right. We expect all of these developments and others to have flow-on implications for fintech in New Zealand.

* The information in this chapter was accurate as of June 2023.

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