Government to review regulation of financial intermediaries

Appointment of task force

On 26 August, the Government announced its intention to appoint a task force to review the regulation of financial intermediaries in New Zealand. The role of the task force will be to assess the existing regulatory framework for financial intermediaries (such as share brokers, mortgage brokers, insurance brokers and financial advisers) and to recommend options for reform.

The Government’s securities law reform programme

The task force’s review is part of the final stage of the Government’s four-stage securities law reform programme. The first three stages are:

• the enactment of a Takeovers Code;
  
  
• the enactment of a Securities Markets and Institutions Bill (dealing with matters such as insider trading, continuous disclosure by issuers and the supervision of securities and futures exchanges); and
  
  
• the enactment of a Securities Trading Law Reform Bill (dealing with matters such as market manipulation and the application of securities trading laws to specific financial products and entities).

The first two stages have been completed. The third stage is expected to result in the introduction of a Bill into Parliament by the end of this year.

What could we expect?

While it is far too early to try to predict the regulatory model that will result from this review, it is unlikely that this industry would become less regulated than it is now. Currently, the regulation of financial intermediaries in New Zealand could best be described as piecemeal, light-handed, disclosure-based and largely self-regulated. In particular, with few exceptions, there is no requirement for financial intermediaries in New Zealand to be licensed.

This is in complete contrast to the comprehensive and more uniform regulatory regime in Australia under the Financial Services Reform Act. While few market participants in New Zealand would wish to see the Australian model adopted here in its entirety, the Government has indicated that compatibility with Australia is important. Given the stated intention of the governments of both countries to work towards a single economic market, it would come as no surprise to see a new regulatory regime in New Zealand that is a compromise between the current model and the Australian FSRA.

The case for more regulation of financial intermediaries in New Zealand can only have strengthened with the collapse in early September of Access Brokerage Limited, a discount share broker.

Timing

The Government expects the task force to report back with its recommendations within six months of appointment and anticipates announcing its decisions on reform by the middle of next year.

Enquiries and information

For more information on any of the cases, articles and features in Financial Services Quarterly, please email Rachel Gowing or call on 64 9 916 8825.