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Initial Approval Process for Approved Professional Body

302. There will be a set process that will apply to entities applying to be an approved professional body. Ministry officials have provided outlines of one possible process. Your submissions are sought on this, and all alternate processes.

One Possible Approval Process

• Potential approved professional bodies will decide on the approved professional body structure and draft rules (described at paragraph 235).
• Before the applicant approved professional body structure and rules are finalised, there will be a process of consultation between the applicant approved professional body and the Securities Commission on the content of the rules. This consultation process will be triggered by the applicant approved professional body contacting the Securities Commission to express its interest in being considered as an approved professional body.
• When the applicant approved professional body is satisfied that the consultation period is over, the applicant approved professional body will then provide its final report and application to the Minister outlining its structure and rules. The content, and the timing of the delivery of this final report is determined by the applicant approved professional body - it is for the applicant approved professional body to decide when it wants to present its rules to the Minister for formal consideration.
• The Minister will refer the rules to the Securities Commission to seek its opinion.
• The Securities Commission then assesses the applicant approved professional body's structure and rules against the objectives of the Act, and the objectives of the co-regulatory model.
• Once the Securities Commission has completed its assessment and made its recommendations, the Securities Commission has the responsibility to pass its recommendations to the Minister.
• The Minister then must consider applicant approved professional body's structure and rules in light of the recommendation of the Securities Commission, the objectives of the Act and the objectives of the co-regulatory model and decide whether or not to approve the applicant as an approved professional body.
• Once the Minister has decided whether or not to approve the applicant approved professional body, the Minister has the responsibility to pass this information to the Securities Commission and the approved professional body in writing, and perhaps also to issue a notice in the Gazette.
• The Ministry would then enter the approved professional body into a register run by a public body. The approved professional body rules would then be publicly available through that same register (note that the conduct rules of the NZX are publicly available⁶⁸).
• If the Minister does not approve the applicant approved professional body's application, then the applicant approved professional body can start the process at the consultation level with the Securities Commission to amend its structure / rules.

303. Ministry officials have provided this outline to raise a number of process issues which will have to be spelled out in legislation. For example, to provide certainty to the market, Ministry officials consider that it may be appropriate to set time limits on the assessment and recommendation process. This discussion document seeks your views on appropriate time limits.

304. Your submissions are sought on this, and alternate processes.

Change of Rules Process

305. Approved professional bodies may wish to amend their rules after they have been approved by the Minister. It is possible that not all rule changes would require fresh approval from the Minister.

306. As above, Ministry officials have provided the outline of one possible process. Your submissions are sought on this, and alternate processes.

• An approved professional body provides details of the rules that it wishes to change to the Minister.
• The Minister will refer the rules to the Securities Commission to seek its opinion.
• From the date of receipt, the Securities Commission has a set time period in which to pass to the Minister its recommendation on whether the proposed change is minor or technical in nature and does not require Ministerial approval, or whether the proposed change is sufficiently serious to require Ministerial approval.
• The Securities Commission must pass its recommendation to the approved professional body at the same time.
• The Minister then considers whether or not the proposed change requires Ministerial approval in light of the Securities Commission recommendation and the objectives of the Act and the co-regulatory model. To provide certainty to the market, the Ministry considers that it is appropriate to set time limits on this consideration process. The timing will start from the date that the Minister receives the Securities Commission recommendation.
• If the proposed change does require Ministerial approval, then the Minister considers the content and substance to the proposed change, and decides whether or not to approve the change within a set time period.
• If the proposed change does not require Ministerial approval, then the Minister must advise the approved professional body / Securities Commission within a set time period, so that either the approved professional body can amend the rules itself or the Securities Commission can approve the rule amendment.⁶⁹

Prompts to Change Rules

307. It has been suggested to Ministry officials that it may be useful for the Securities Commission to direct approved professional bodies to change their rules. In the International Monetary Fund report on New Zealand, it was suggested that, in relation to registered stock exchanges, that:

Securities legislation should be amended to authorize: (1) the Securities Commission to direct on public interest grounds, or recommend to the Minister that the Minister direct, a recognized securities exchange to amend some or all of its conduct rules; and (2) authorize the Minister to make such a direction on the Securities Commission's advice and on public interest grounds.⁷⁰

308. Such a recommendation should be based on a concern by the Securities Commission that the approved professional body's rules are not meeting the objectives of the Act. The Ministry seeks your views on whether this is appropriate.

Issuing Directions

309. It could be useful for the Securities Commission to issue directions to approved professional bodies to require them to comply with their rules, or with the Act. This would only apply in the situation where the Securities Commission is satisfied that the approved professional body is not meeting the objectives of Act.

De-Registering Approved Professional Bodies

310. If an approved professional body does not comply with directions, then the Minister could de-register an approved professional body by revoking the "approved" status of the approved professional body.

311. One possible process for this could require the Minister to be satisfied that:

• the approved professional body has breached its obligations; that the approved professional body has failed to comply with directions, with legislation and with the objectives of the co-regulatory model;
• the Securities Commission has already issued directions to the approved professional body and that these have been ignored;
• the Securities Commission has already raised the matter of compliance with the approved professional body in writing;
• the Commission has allowed sufficient time for the approved professional body to remedy the situation;
• the Minister has obtained the recommendation of the Securities Commission on any proposed de-registration;
• the Minister has advised the approved professional body of the proposed de-registration

all prior to actually de-registering the approved professional body.

312. The Minister's decision would be open to judicial review.

313. There would also need to be some way to deal with the transition period between registration and de-registration of an approved professional body to ensure that the day to day practice of financial intermediaries is not affected. This would involve consideration of "default" options, discussed at paragraph 317.