Disclosure
28. The Task Force recommended that disclosure of information by financial intermediaries should be clear, concise and effective; enable comparisons across intermediaries; and be standardised where possible. Importantly, the Task Force recommended that there should be research into what consumers would consider useful information and in what form, before the final content and form of disclosure is set.
Why Is Enhanced Disclosure Needed?
29. Increasing the quality of consumer information through enhanced disclosure obligations on financial intermediaries will, according to the Task Force:
- enable an individual consumer to make better decisions about an intermediary or a financial product (for example, whether to deal with that intermediary, whether the intermediary's fees are negotiable etc);
- enable a consumer to make comparisons across intermediaries and financial products;
- encourage greater competition between intermediaries and between product generators (for example, competition on fee structures and fee amounts);
- contribute to poor performing intermediaries and/or product generators exiting the market, and good quality intermediaries and/or product generators increasing their business, with the overall effect of increasing levels of performance; and
- address the problem of information asymmetry (see paragraphs 11-14 above).
30. The Task Force also recommended that different disclosure standards (and also other standards, such as registration requirements) apply to the different classes of financial intermediaries, described in the Task Force report as those financial intermediaries who undertake information only or execution only roles; those financial intermediaries who are product marketers; and those financial intermediaries who are "personal financial advisers". The exact definition of these different classes would impact on the responsibilities for each class with the result that some intermediaries would be subject to higher levels of regulation than others, with the divisions to be based, broadly, on the regulatory risk posed by each function (further work would be done on where lines should be drawn between the classes).
Cabinet Approval on Disclosure
31. The form and content of disclosure requirements to be placed on investment advisers and brokers are already contained in the Securities Legislation Bill, which has been reported back by the Commerce Select Committee and is awaiting its second reading. Many of the Task Force's recommendations either reflect requirements contained in this Bill, or it is anticipated that regulations under the Bill, which are currently being designed, would incorporate any remaining recommendations. The disclosure requirements for investment advisers and brokers are proceeding ahead of the rest of the Task Force recommendations, as it was thought important not to put these important disclosure requirements on hold until 2007/2008, when the rest of the regime is anticipated to be completed. In addition, as part of the Review of Financial Products and Providers, the Ministry is assessing the effectiveness of product disclosure, prudential regulation and supervision, including disclosure on institutional soundness, and merit regulation in protecting consumers and promoting the efficient functioning of financial markets.
32. I ask Cabinet to approve that all financial intermediaries will be subject to enhanced disclosure obligations when providing financial advice. This would allow the Ministry to undertake further design work into the most effective content and form of disclosure for different classes of financial intermediaries, financial providers and financial product generators.
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