FSQ Bulletin: New rules for financial sector

Thursday 21 June 2007

The Ministers of Finance and Commerce announced new rules this week that will have a significant impact on the operations of finance companies and financial advisers in New Zealand.

Bell Gully has tracked and reported on the progress of two separate but related reviews that were commenced in 2004 and 2005 - the Review of Financial Intermediaries and the Review of Financial Products and Providers.

Changes arising from the reviews will result in comprehensive changes to New Zealand's regulation of all non-bank financial institutions, financial advisers and financial products.

Summary of changes

Non-bank deposit takers

Finance companies, building societies and credit unions (known as non-bank deposit takers or NBDTs) will be subject to a new framework that will require them to:

• be licensed by the Reserve Bank, which will become the prudential regulator for all banks, NBDTs and insurers;

• obtain and publicly disclose a credit rating; and

• belong to a dispute resolution scheme.

Financial advisers

Financial advisers (previously described as financial intermediaries) will be:

• regulated by a co-regulatory model involving Approved Professional Bodies overseen by the Securities Commission; and

• required to be registered on a publicly searchable database.

Implementation

Implementation of the new regime will be carried out in two phases.

Phase one will include:

• registration of all non-bank financial institutions;

• strengthening of the current model of trustee supervision;

• strengthening of the prudential regulation of NBDTs;

• provision for more comprehensive regulatory oversight of financial advisers; and

• provision for effective consumer dispute resolution and redress.

Bills for implementation of phase one are expected to be introduced later this year and passed in 2008.

Phase two, to be reported back by the end of November this year, will include:

• enhancement of the trustee supervision model for collective investment schemes and debt issuers;

• simplification of disclosure requirements for issuers of securities;

• modernisation of the regulation of insurers;

• improvement of the governance of mutual entities; and

• regulation of "platforms", which are computerised services that act as financial adviser, custodian and administrator, and of "portfolio management services", that act as financial adviser and custodian for investors.

For further information please contact:

David Craig
Partner

Murray King
Partner

Hugh Kettle
Partner

Rachel Gowing
Senior Associate