Links to Other Reviews
47. I am aware that the upcoming design work on the regulation of financial intermediaries would need to be considered against the context of three existing projects: the Review of Financial Products and Providers, Domestic Institutional Arrangements and the Financial Action Task Force 40 Recommendations on Anti-Terrorism and Money Laundering. The Ministry Financial Sector team is either leading or participating in these projects, so would be best placed to efficiently make the necessary links and share information.
Review of Financial Products and Providers
48. The RFPP will consider the regulation of insurance (health, life and general), superannuation, collective investment schemes (unit trusts, participatory securities, group managed investment schemes, contributory mortgages) non-bank financial institutions (friendly societies, credit unions, building societies, finance companies, industrial and provident societies), futures and derivatives and offerings of securities.
49. There are close links between the work on financial intermediaries and the RFPP as both deal with financial sector market conduct, and because financial intermediaries (which also includes financial institutions) provide advice on financial products, including advice from product providers.
50. The financial intermediary work is proceeding separately to that of the RFPP on the basis that the research and consultation undertaken by the Task Force, and the resulting Task Force recommendations for a co-regulatory model, mean that the work on financial intermediaries is more advanced than the work on each of the areas of the RFPP. There are similar time frames planned for both reviews however, as it is anticipated that policy decisions would be made in mid/late 2006 with the intention of legislation being introduced in 2007/2008.
Domestic Institutional Arrangements
51. I note that there is a separate Cabinet paper on Domestic Institutional Arrangements that accompanies this paper and that recommends that the Securities Commission be the regulator of market conduct. The recommendations in this report are consistent with that paper.
Financial Action Task Force 40 Recommendations on Anti-Terrorism and Money Laundering
52. The Ministry of Justice is leading a government review to ensure that New Zealand is complying with its obligations under the Financial Action Task Force 40 Recommendations on Anti-Terrorism and Money Laundering on preventing anti-money laundering and countering the financing of terrorism. To comply with the recommendations, it is likely that some additional requirements would be placed upon some financial intermediaries. The Ministry is working closely with the Ministry of Justice on this work to ensure that these requirements are aligned as much as possible with the work on financial intermediaries work to minimise compliance costs. The Ministry of Justice also notes that financial intermediaries who handle client moneys could also fall under the Financial Transactions Reporting Act 1996.
53. The Task Force recommended a review of the Secret Commissions Act 1910 (which seeks to prohibit secret rewards and inducements in agency, principal and third party relationships). The Ministry of Justice has noted that Cabinet agreed on 8 June 2005 (ERD Min 05 4/4) to an increase of penalty levels under the Secret Commissions Act to bring it in line with the Crimes Act, and also directed that Ministry to review the necessity of having a separate Secret Commissions Act during 2006.
Trans-Tasman Implications
54. The Memorandum of Understanding on Business Law coordination between Australia and New Zealand (MOU) and the Trans-Tasman Mutual Recognition Arrangement (TTMRA) are both relevant to this work. The MOU signed in 2000 between the two governments is based on the presumption that we should coordinate our business laws with Australia unless there is a good reason for the law to be different. The TTMRA, which came into effect in 1998, is an arrangement between New Zealand and Australia, whose strategic objective is to remove regulatory barriers to trans-Tasman trade in goods and the movement of registered professionals either through mutual recognition of our respective regulatory regimes or through harmonisation. It is implemented by way of overarching legislation which provides that mutual recognition in relation to the sale of goods and registration of occupations will apply between all participating jurisdictions, unless specifically excluded.
55. The Task Force in developing its recommendations, paid careful consideration to the Australian regime in this area, and consulted with Australian agencies and intermediaries. In this case it was determined that because of New Zealand conditions, and some concerns raised with the Australian regime, that the laws between Australia and New Zealand should be different and the co-regulatory model proposed does not adopt the Australian regime. However, in thinking about the detail of the regime, we will need to continue to consider aspects of the Australian regime and to ensure that equivalent objectives and outcomes to the Australian regime are obtained so that there is the potential to utilise (at least for some intermediaries) the TTMRA. This would enable intermediaries to operate in both jurisdictions, remove impediments to cross border activity and move us further towards a single economic market.
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