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• 11. The Co-Regulatory Model

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194. Legislation will also set in statute the co-regulatory framework, by setting the objectives of the co-regulatory model, and by defining the roles of the approved professional bodies, the Securities Commission and the Minister.

195. Cabinet agreed to the co-regulatory framework because:

• approved professional bodies have the industry knowledge, experience, reputation and incentive to monitor sector effectively and to act as a frontline regulator; and
• the Securities Commission already has a key role in monitoring the market and will ensure appropriate checks and balances for approved professional bodies.

196. The suggested objective of the co-regulatory model is:

• a relationship which recognises that:
  • approved professional bodies have the industry knowledge and experience and reputational incentives to effectively design the rules that govern their sector and to act as the front-line supervisor; and
  • that the Securities Commission will monitor the market and approved professional bodies to ensure there is public accountability and the objectives of the legislation are being met.

197. This objective, as well as the objectives for the regulation of financial intermediaries,⁶¹ will assist approved professional bodies, Securities Commission and the Minister to achieve clarity about their respective responsibilities and roles.

198. The co-regulatory model also requires approved professional bodies and the Securities Commission to have sufficient resources to carry out their functions and to have sufficient time to create good working relationships.

199. Legislation will create and set the roles and responsibilities for approved professional bodies, the Securities Commission and the Minister.

200. Clear role descriptions in legislation will help address possible tensions between the views of industry and the Minister and the Securities Commission, particularly the risks that:

• the Securities Commission is seen as "second guessing" approved professional body administrative decisions, or placing high standards on industry
• that public regulatory oversight may be limited to "rubber stamping" or
• that the structure implies a higher level of government assurance than is actually delivered.