The era of separate regulation of lawyers' nominee companies providing mortgage finance draws to a close on 30 September 2016 when the exemption of lawyers and law firms who act as contributory mortgage brokers from compliance with the Securities Act (Contributory Mortgage) Regulations 1988 ceases.
From 1 October 2016, lawyers who carry out contributory mortgage lending will be required to comply with Financial Market Authority (FMA) requirements.
On that date the FMA takes over from the New Zealand Law Society responsibility for supervising lawyers who act as contributory mortgage brokers. There is a transition period between 1 October and 30 November, during which contributory mortgages can be offered in accordance with the 1988 Regulations (or the Financial Markets Conduct Act 2013).
New offers of contributory mortgages must be made under the Financial Markets Conduct Act from 1 December 2016. The Act does not contain specific provisions for dealing with contributory mortgages. The FMA says that instead, brokers will need to develop equivalent offers of financial products or services under the Act.
The 1988 regulations - which were revoked on 1 December 2014 - prescribe the general requirements relating to the offer and management of contributory mortgages by market participants.
Solicitors and incorporated law firms were exempted from the regulations by the Securities Act (Contributory Mortgage - Solicitors and Incorporated Law Firms) Exemption Notice 2013, which replaced regulations made in 1996 and earlier.
The 2013 exemption notice provided lawyers with a separate compliance regime under Law Society rules and regulations. Its expiry on 30 September 2016 means that the New Zealand Law Society will no longer supervise lawyers acting as contributory mortgage brokers.
All lawyers and incorporated law firms acting under the exemption notice have been required to register as a financial services provider on the financial service providers register since 1 July 2014. All lawyers offering contributory mortgages have been able since 1 December 2014 to operate under the Financial Markets Conduct Act 2013, under the Law Society regime, or under the Regulations.
The Law Society has worked closely with the FMA in relation to the transition and has provided regular updates to lawyers and law firms which are affected. Most law firms have wound up or are in the process of winding up their nominee company/contributory mortgage operations, although some remain active under the new supervisory requirements.