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201. Legislation will set the powers of the Securities Commission and the Minister.

202. The Securities Commission has the role of market oversight regulator, required to balance the enhanced role of the industry-based approved professional bodies by monitoring industry activity, approving industry-developed rules, and stepping in where it considers that the industry has not effectively regulated itself. The Securities Commission needs powers to:

• monitor and enforce statutory obligations on financial intermediaries
• carry out its proposed role under co-regulatory model

203. The Minister will make final decisions on the basis of recommendations provided by the Securities Commission.

Monitoring and Enforcing Statutory Obligations on Financial Intermediaries

204. Under the legislation, financial intermediaries are likely to have to meet statutory standards, and be subject to offences if they fail to comply with the statutory standards. In addition, high level intermediaries will be obliged to meet the approved professional body rules, which will be backed by statute.⁶²

205. To monitor and enforce intermediary obligations, the Taskforce had originally suggested that there would be a separate disciplinary body.

206. Ministry officials suggest that to avoid additional costs and the need to set up another financial sector regulator, the role of the disciplinary body could be carried out by the approved professional body (perhaps an independent board of the approved professional body) for low level breaches of approved professional body rules and the Securities Commission for breaches of the statutory standards and high-level breaches of approved professional body rules.

207. This section deals with discipline for breaches of statutory standards. The role of the Securities Commission and the approved professional body in relation to non-statutory breaches is discussed at paragraph 279.

208. The table below sets down the circumstances for breach of statutory standards, and the suggested roles and responsibilities. To explain the table:

• It would be the responsibility of approved professional bodies to pass to the Securities Commission complaints from consumers and other intermediaries regarding any allegations of breaches of the statutory standards for members, and any breaches that the approved professional body itself becomes aware of;
• The Securities Commission would rely on approved professional body reporting mechanisms to provide it with information regarding breaches of statutory standards by financial intermediaries;
• Any of the Commission's decisions could be judicially reviewed. The Commission would be able to apply to Court for all of the Court orders. Other appropriate people will also be able to apply to the Court for orders, this may include approved professional bodies, as well as other aggrieved parties;
• Not all approved professional body decisions could be appealed to the Securities Commission, on the basis that this could involve considerable cost and time. Instead, it is suggested that only those approved professional body decisions which reach a certain threshold (e.g.) resulting in an approved professional body instructing an intermediary to make certain disclosures, or correct certain behaviour, that could be appealed to the Securities Commission.

209. The Securities Commission could have the ability to make any, all or none of the following orders:

• Prohibition orders - which may prohibit or restrict intermediaries making or distributing statements or information;
• Correctives orders - which may require an intermediary to publish or distributing statements or information;
• Disclosure orders - which may require an intermediary to disclose certain information; and
• Temporary banning orders - which can restrict an intermediary from acting as an intermediary temporarily.

210. Courts could have the power to impose injunctions, corrective powers, disclosure orders. The Securities Legislation Bill has these remedies as well as the following remedies:

• Civil remedy order - under which an intermediary has to pay a set amount to an entitled person (being someone who had received advice or services from the intermediary);
• Imposing criminal penalties (if an intermediary fails to comply with statutory obligations or Securities Commission orders); and
• Permanent banning orders - which can prevent an adviser from acting as an adviser for up to ten years.⁶³

211. Ministry officials are keen to hear your views on the suggested sharing of responsibilities in relation to breaches of statutory standards.

Securities Commission's Proposed Role under Co-Regulatory Model

212. The Securities Commission will require specific powers to carry out its role under the co-regulatory model.

213. It is proposed that the Securities Commission will be responsible for:

• considering and providing recommendations on whether approved professional bodies meet the entry requirements and functions required of approved professional bodies and whether the rules of the body are consistent with the objectives of the Act;
• providing recommendations to any changes to the rules of an approved professional body to the Minister about whether any amendments to the rules are consistent with the objectives of the Act;
• providing recommendations to approved professional bodies and the Minister and (possibly) directions to an approved professional body that an approved professional body may need to make changes to its rules or functions if the approved professional body fails to meet the objectives of the Act through its rules, the exercise of its rules, or performance of its functions; and
• recommending removal of an approved professional body if it fails to meet the objectives and functions of the Act, its breaches are serious and it has failed to make changes as a result of directions from the Commission.

(The exact process for applying to be an approved professional body is discussed at detail at paragraph 302 and beyond).

Powers of the Minister

214. The Minister will be responsible for:

• considering whether an approved professional body meets the entry standards, functions and objectives of the Act and approving or rejecting the approved professional body;
• approving changes to an approved professional body's rules;
• removing an approved professional body if its breaches are serious, if it fails to meet the requirements of the Act and the objectives of the Act, and it has failed to make changes as a result of directions from the Commission;
• considering the recommendations of the Securities Commission; and
• directing amendments to approved professional bodies.

215. The obligation to consider the recommendations of the Securities Commission will be in statute. Ministry officials are keen to hear your views on the Minister's powers.

216. Ministry officials have prepared the following table as a possible illustration of the different roles of the approved professional bodies and the Securities Commission under certain circumstances.