Statutory Regulator
23. The Task Force recommended that the statutory regulator in the co-regulatory framework should have a market overview role including:
- providing advice to the Minister on the approval/disapproval of APBs and APB rules;
- providing advice to the Minister on the rules of the disciplinary and disputes resolution body;
- the power to impose temporary orders (for example stop order or temporary banning orders) in relation to businesses and individuals; and
- to have stop, banning and rectification powers in relation to the new financial intermediary statutory disclosure requirements recommended by the Task Force (similar to the powers provided to the Securities Commission under the Securities Legislation Bill).
Why Is a Regulator Needed?
24. A regulator is required to balance the enhanced role of the industry-based APBs by monitoring industry activity, approving industry-developed rules, and stepping in where it considers that the industry has not effectively regulated itself.
Cabinet Approval Sought for Securities Commission to Be the Regulator
25. I suggest that the Securities Commission is best placed to be the statutory regulator in the co-regulatory model proposed by the Task Force on the basis that:
- the Securities Commission is already carrying out most of the suggested regulatory functions for investment advisers and brokers, both of which groups are included in the broader class of financial intermediaries.
- there is a low risk of conflict between the existing roles of the Securities Commission (already being the "main regulator of investments"10) and the role of the statutory regulator envisaged by the Task Force.
- related work on the Review of Financial Products and Providers and Domestic Institutional Arrangements (see paragraphs 48 and 51 below) suggests that the Securities Commission is best placed to be the regulator for market conduct ("market conduct" includes work on financial intermediaries, as well as financial product and providers) while the Reserve Bank is likely to be best placed to take on the role of the prudential regulator.
26. I ask Cabinet to recognise the Securities Commission as the statutory regulator under the co-regulatory framework. This decision would create greater certainty for industry stakeholders and would enable more design work on the relationship between the regulator, APBs, the Minister, financial intermediaries and consumers, as well as the exact role and powers of the regulator, and whether this could extend to carrying out high level disciplinary functions (see paragraph 40 below).
27. The Task Force recommended that a Minister have the power to approve or disapprove APBs and their rules. This would be the Minister of Commerce, who would carry out these functions under the co-regulatory model to help balance potential tension between the industry-based approved professional bodies and the Securities Commission. For example, both industry and the Securities Commission would have input on the content of the rules for approved professional bodies, prior to the Minister making the final decision.
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