New Zealand grants exemption for overseas banks and insurers on climate reporting

New Zealand grants exemption for overseas banks and insurers on climate reporting | Insurance Business New Zealand

Insurance News

New Zealand grants exemption for overseas banks and insurers on climate reporting

Modifications aim to reduce cost of compliance

Insurance News

By
Jonalyn Cueto

New Zealand’s Financial Markets Authority (FMA) has announced an exemption for overseas banks and insurers from certain climate-related disclosure requirements under the country’s updated climate reporting regime. This decision aims to alleviate compliance burdens for these entities while ensuring transparency in climate-related financial disclosures.

The Financial Sector (Climate-related Disclosures and Other Matters) Amendment Act 2021 mandates that large financial institutions make climate-related disclosures. This includes banks, credit unions, building societies, investment managers, insurers, and listed entities with substantial financial metrics. The law requires these climate reporting entities (CREs) to submit annual climate statements detailing their governance, risk management, strategies, and performance metrics related to climate change.

However, the FMA’s recent decision introduces a significant modification for overseas entities. Previously, these entities were required to have their climate statements signed by two directors. The new exemption allows these entities to have their climate statements signed by their New Zealand chief executive officer instead. This adjustment aims to streamline compliance, recognizing the logistical challenges faced by overseas firms in meeting the dual-director signature requirement.

Exemption to the rules

The Regulatory Impact Statement (RIS) prepared by the FMA outlines the rationale for this exemption. It highlights the difficulties faced by overseas banks and insurers, including coordinating the schedules of international directors and navigating differing global regulatory standards. According to the RIS, the previous requirement was seen as cumbersome and inefficient, particularly when overseas directors are not familiar with local requirements.

The FMA said its decision is also driven by the need to balance regulatory stringency with practical considerations. The new exemption is designed to reduce unnecessary compliance costs, which can be substantial. One overseas bank estimated that obtaining the signatures of two directors could cost around NZ$55,000 plus GST. By allowing the New Zealand CEO to sign, the FMA aims to mitigate these costs while maintaining robust oversight and governance.

Despite the exemption, overseas banks and insurers will still need to comply with other climate reporting requirements. They must prepare their climate statements in accordance with New Zealand’s climate standards and ensure that these statements are publicly lodged with the Companies Office. The exemption does not alter the entities’ responsibility for accurate and comprehensive climate disclosures nor their potential liability for any breaches.

The FMA’s decision follows targeted consultations with stakeholders, including the External Reporting Board (XRB), the Reserve Bank of New Zealand, and various financial and climate action groups. There was widespread support for the exemption, though opinions varied on the duration and specific details of the relief. The FMA has decided that the exemption will be in place for 2.5 years, with a review scheduled before the expiry of the current exemption notice in November 2026.

This measure is intended to provide flexibility and reduce compliance costs for international financial institutions while ensuring that New Zealand investors continue to receive relevant climate-related information to support their decision-making processes.

Do you have anything in mind about this update? Let us know in the comments below.