Progress on non-bank finance sector review

The Government will soon develop options for reform as part of a wide-ranging review of how non-bank financial products and providers are regulated.

Scope and purpose

Our last edition of FSQ covered the Government's announcement of a review of non-bank financial products and providers, including superannuation, insurance, managed fund products, and securities offerings, and the regulation of non-bank providers generally.

The Ministry of Economic Development (the MED) has explained that the aim of the review is to promote confidence and participation in financial markets by investors and institutions. Essentially, a stock-take of current regulation and an evaluation of the need for improvements is in progress. Treasury will also be considering whether any changes are needed to the administration of such regulation, including potential changes to the framework of domestic regulatory bodies.

Relationship with other reviews

The review will be informed by a number of separate reviews already planned or being carried out, as well as looking to identify other areas for appraisal. In particular, it is expected that the MED will take note of the recent report of the Task Force on the Regulation of Financial Intermediaries, and will work alongside moves towards greater trans-Tasman harmonisation (such as the proposed mutual recognition of securities offerings).

Direction of reforms

The MED has now completed a preliminary review of the current regulatory arrangements for the non-bank financial sector. From that review, early indications are that the following reforms will be considered by the Government:

1. Non-bank deposit-taking institutions
   Additional supervision or licensing of non-bank deposit-taking institutions (NBDTIs), being financial institutions that take deposits from, or issue deposit-like debt securities to, the public, or which provide some form of transaction-making capacity to the public. A distinction is drawn, however, between NBDTIs and financial institutions issuing debt securities to the public that do not fall into the "deposit-taking" category.
   
   
2. Insurance providers
   Additional supervision or licensing of insurance providers (potentially by a Government regulator where long-term or complex products are involved).
   
   
3. Trustee corporations and statutory supervisors
   Greater oversight of trustee corporations and statutory supervisors in the performance of their functions, minimum requirements for people who wish to undertake the role currently performed by trustee corporations, a more standardised approach to trust deeds and trustee practices, and greater transparency and accountability for trustees and statutory supervisors.
   
   
4. Registration and entry requirements
   A more comprehensive registration framework for, and increased monitoring of, financial providers (including financial institutions and intermediaries) and the imposition of further "fit and proper" requirements on financial providers.
   
   
5. Securities offerings and collective investment schemes
   Re-consideration of the scope of the legislation and changes to the current disclosure requirements, possibly including re-visiting the effectiveness of the two-document disclosure system, considering whether the disclosure requirements for securities should be prescriptive or principle-based, and/or introducing new provisions in relation to credit ratings, continuous disclosure and other investor-education requirements.

MED target dates 

By end of 2005	Develop draft options for reform in conjunction with advisory groups
Jan to June 2006	Release discussion paper on options for reform Consult publicly with industry sector for feedback
By late 2006	Develop policy proposals in conjunction with advisory groups
2008	Legislation to be passed

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.