Terms of Reference for Advisory Groups for the Review of Financial Products and Providers

Context

The Government is undertaking a review of financial products and providers (the Review). The Review is being led by the Ministry of Economic Development, in conjunction with an inter-departmental working group comprising officials from Treasury, Reserve Bank, Securities Commission and the Ministry of Consumer Affairs.

The Review's key objective is to develop an effective and consistent framework for the regulation of the non-bank financial sector that promotes confidence and participation by investors and institutions, and results in a sound and efficient financial sector - in summary, a better framework for both investors and industry.

The Review will consider the regulation of:

• Superannuation schemes;
• Insurance (health, life and general);
• Offerings of securities and collective investment schemes; and
• Non-bank deposit taking institutions (credit unions, building societies and finance companies).

The Review will take into account developments in global financial regulation and will assess the opportunities to further coordinate and harmonise New Zealand's financial regulation with that in Australia, where appropriate.

The Review will also incorporate work already underway, done on or by, or planned on the Law Commission report on life insurance, the review of credit unions, the findings of the financial capability survey, Cabinet decisions on ratings and deposits for insurance and the review of the Securities Act 1978.

Review Phases

The Review is divided into four phases.

In the first phase (now completed), MED officials, through consultation with key stakeholders, identified and defined the problems in the current regulatory regime arrangements for financial products and providers. This information is now available in a report at Report to Minister of Commerce. In summary, the report:

• Outlines a framework for the Review;
• Assesses the current regulatory regime for the non-bank financial sector against the framework for the Review, including identifying any issues; and
• Provides the preliminary views of MED officials on the general directions for reform of the non-bank financial sector (these views have been agreed to by the Minister of Commerce).

In phase two of the Review, MED officials will be responsible for developing proposed options for reform through further research, consultation, and design, taking into account the feedback and work already contributed. MED will invite advisory groups (as detailed in these terms of reference) to act as industry and consumer expert sounding boards against which MED officials will test the options for reform.

In phase three of the Review, MED will release for consultation a discussion paper on the proposed reforms. This is scheduled for the first half of 2006. A series of consultation meetings on the paper will also be held in the first half of 2006.

Finally, in phase four of the Review, following this consultation and using the feedback received, MED will develop policy proposals, again, in conjunction with the advisory groups. It is intended that policy proposals will be sent to Cabinet in late 2006, with legislation planned to be passed in 2008.

Advisory Groups - Focus and Membership

The purpose of the advisory groups is to bring together industry and expert perspectives to ensure that policy proposals best meet the needs and circumstances of New Zealand industry and consumers.

There will be six advisory groups held in Wellington, each focussing on one of the following areas of the Review:

• Superannuation
• Insurance
• Non bank deposit taking institutions (including friendly societies, credit unions, building societies, co-operative companies, industrial and provident societies, and some finance companies)
• Product and issuer disclosure issues generally
• Debt and equity
• Managed funds/collective investment schemes (including unit trusts, group managed funds, participatory securities, contributory mortgages)

In addition, there will be two advisory groups held in Auckland, focussing on the following areas of the Review:

• Superannuation and insurance
• Collective investment schemes and debt and equity

Representatives from key industry and consumer organisations, industry participants, professional organisations and government bodies are being asked to participate in advisory groups.

Advisory group members will provide valuable industry expertise and knowledge, test the policy options and provide advice on the costs and benefits of various proposals and any implementation issues. Members will be appointed in their individual capacity rather than as representatives of a particular group or industry group.

Each advisory group will have a maximum of eight members (plus officials). Eight members will allow for a sufficiently broad representation across the range of financial sector interests, while being sufficiently small to allow practical and useful conversations to take place in the groups.

Restricting the size of advisory groups will mean that some stakeholders may not be on the advisory groups. Those who wish to, can contribute to the Review either by making direct contact with MED, and/or commenting on the discussion document and/or making submissions during the legislative process (refer phases three and four of the Review, outlined above).

Role of Advisory Groups

The role of each advisory group will be to provide specialist, practical and independent advice and feedback (on request) on any of the following matters:

• the workings of the financial sector
• potential options for reform which will address the problems identified with financial products and providers in New Zealand
• how people view the options
• the costs and benefits of various options
• any implementation and design issues around the options
• any other matter on which MED considers it appropriate for the advisory groups to provide advice.

MED seeks and welcomes the views of advisory group members, but advisory groups will not be responsible for any conclusions or decisions on the Review, nor will advisory groups be expected to produce a report or any other documentation or to make any formal recommendations.

Process for Meetings

MED officials will consult with advisory group members on the most effective way to conduct meetings, but at a minimum, members will receive an agenda prior to meetings, together with discussion papers (if any).

There will be no formal minute taking, but an MED official may take notes in order to inform policy development. The discussion will be taken into account as part of the Review's overall process of policy design.

Free and Frank Discussions in Meetings

MED officials want advisory group members to have free and frank discussions about the regulation of financial products and providers in New Zealand.

To encourage this, MED officials will apply Chatham House Rules to advisory group meetings. This means that officials may use the information and views discussed at the meetings, but the identity or the affiliation of any speaker will not be revealed outside the meeting.

This also means that advisory group members will be asked to keep advisory group discussions confidential. Hence, while advisory group members may provide information on the timing and progress of the Review back to their industry groups, members will be asked not to repeat advisory group conversations outside the meeting.

Media

MED officials will be providing regular updates to the media and parties who have expressed an interest in the Review.

Again, to encourage free and frank discussion, officials will ask advisory group members not to provide comment to the media on actual discussions in the advisory groups.

Conflicts of Interests

Members of the advisory groups will not be asked to give formal advice, or to produce any formal report. This should reduce the risk of any conflicts of interest arising between the role of an advisory group member, and their ordinary employment/obligations.

Time Commitment

The time commitment for advisory group members is estimated at a few hours per month. The commitment should be small as the advisory groups will not be expected to produce any set document. Instead, as noted above, advisory group discussion will feed into policy development.

No Remuneration

Advisory group members will not receive remuneration. Advisory groups are not statutory boards for the purposes of the Fees and Travelling Allowance Act 1951 and travelling expenses and sitting fees will not be paid.

Location

Advisory group meetings will be held in Auckland (coordinated through MED's Auckland office) and in Wellington. MED officials will talk to advisory group members to determine the most appropriate arrangements.

Contact with MED

MED welcomes contact and contributions from all parties interested in the Review at all phases of the Review.

If you would like to send in comments or to arrange meetings with officials, please contact MED by email at fppreview@med.govt.nz or by post at:

FPP Review
Financial Sector Team
Ministry of Economic Development
33 Bowen Street
PO Box 1473
Wellington

Or:

FPP Review
Financial Sector Team
Ministry of Economic Development
Government Economic and Urban Development Office
Level 6, Tower Centre
45 Queen Street
PO Box 106-483
Auckland

For full details of the Review, including updates and media releases, please refer to Review of Financial Products and Providers. As well, you can also be involved throughout the process through discussion documents and/or submissions, as detailed in the Review phases above.

Timetable

Expressions of interest for the advisory groups will close on 30 September 2005. Officials will contact all people who have expressed an interest in being part of advisory groups by 21 October to confirm the membership of the advisory groups. While MED officials will determine the most appropriate timetabling for advisory group meetings in conjunction with advisory group members, the first advisory group meetings are tentatively scheduled for November 2005.

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