Stage One: Framework, Problem Identification and General Directions for Reform
Contents
Report on Framework, Problem Identification and General Directions for Reform
The Government announced in May 2005 that it was undertaking a review of the regulation of financial products and providers. The key objective for the review is to develop an effective and consistent framework for the regulation of non-bank financial institutions, financial intermediaries and financial products. The aim of the framework is to promote confidence and participation in financial markets by investors and institutions, and which results in a sound and efficient financial sector. The review was initiated by the government in recognition that some elements of financial sector regulation have not been reviewed for many years and that some aspects are out of step with international standards and codes, and with accepted best practice.
The review is being led by the Ministry of Economic Development in conjunction with an inter-departmental working group of officials, which includes Treasury, the Reserve Bank, the Securities Commission and the Ministry of Consumer Affairs.
You can read more about the process and scope of the review in the Report to Minister of Commerce.
This report completes the first step in that review. The report:
- Outlines a framework for the review;
- Assesses the current regulatory regime for the non-bank financial sector against the framework for the review, including identifying any issues; and
- Provides the preliminary views of officials on the general directions for reform of the non-bank financial sector. These preliminary views will be used to inform the later stages of the review and the work being led by Treasury on reviewing the domestic institutional arrangements for financial sector regulation that is due to report back to Ministers in October 2005 with preliminary conclusions.
The report was informed by information that the government had received through previous consultation in the non-bank financial sector, international assessments of New Zealand's regulatory regime, analysis undertaken by officials, and additional input from key stakeholders.
Overall, officials concluded that the current regulation of the financial sector is not fundamentally flawed. However, some areas of improvement have been identified within the regulatory framework. There is scope to make a number of changes that will help strengthen the financial sector, improve the effectiveness of regulation, reduce compliance burdens in some areas, and provide a greater basis for public confidence in the financial system.
Any changes to the regulation of the financial sector will be designed to reinforce, and not undermine, competition, innovation and diversity in the financial sector. Therefore, while the review aims to develop an effective, coherent and consistent framework for the regulation of the non-bank financial sector, this will not mean that a "one size fits all" regulatory regime would be appropriate. The regulatory arrangements will be tailored to the needs and circumstances of different categories of financial service providers and users.
These changes will also assist in bringing New Zealand closer into line with international best practice, into closer compliance with international standards and codes, and provide a basis for closer coordination with Australia.
However, any changes made will be appropriate for New Zealand conditions. While considering Australia is an important part of the review, establishing APRA-style regulation in New Zealand is not the objective of the review.
Where to from Here?
Both the issues identified and the directions for reform represent the preliminary thinking of officials. A considerable amount of work and consultation with the financial sector still needs to be undertaken.
The next stage of the review is to develop options for reform. These options for reform will be developed following consultation with advisory groups, made up of people from key industry organisations, industry participants, professional organisations and government bodies.
A consultation paper, setting out proposed reforms, will be released for wide public consultation in the first half of 2006, with a view to having a final set of recommendations for Cabinet towards the end of 2006.
Documents
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Report to Minister of Commerce
[ Published 06 September 2005 ]
This report represents the outcomes of Stage One of the Review of Non-Bank Financial Products and Providers (RFPP). It outlines a framework for the review, an assessment of the current regulatory regime against the framework and some initial thinking.
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Background Questions and Answers
[ Published 13 May 2005 ]
Background questions and answers pertaining to stage one of the review of Non-Bank Financial Products and Providers.
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