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The Regulation of Financial Intermediaries in NZ Implications of The Task Force Recommendations

The Regulation of Financial Intermediaries in NZ Implications of The Task Force Recommendations. Ross Kent Task Force Member General Manager Alliance Capital New Zealand. What We Set Out To Do. Suggest options for reform that will enhance the quality of financial information and advice

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The Regulation of Financial Intermediaries in NZ Implications of The Task Force Recommendations

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  1. The Regulation of Financial Intermediaries in NZImplications of The Task Force Recommendations Ross Kent Task Force Member General Manager Alliance Capital New Zealand

  2. What We Set Out To Do • Suggest options for reform that will • enhance the quality of financial information and advice • assist New Zealanders to make the most of their savings • Regulation should be proportionate • Structural change outcomes should be explicit • Take into account international developments

  3. Key Issues We Found: No Crisis But . . . • Lack of financially capable consumers • Opaque and inconsistent charges, complex conflicts of interest • Adviser inadequacies and variable quality standards • Incentives do not directly reward cost-effective, quality advice • Incomplete dispute resolution and complaints coverage • Difficulties removing intermediaries for misconduct • Inconsistent redress mechanisms for consumers = • Reducing confidence in financial intermediaries

  4. Reform Recommendations • Enhanced standards • Enhanced redress, sanctions and enforcement • Enhanced disclosure and financial literacy

  5. Minister Advice Regulator Approve Monitoring Approved Professional Body Membership Disclosure Personal Financial Adviser Information & Execution Only Product Marketer Disputes Resolution Body Disciplinary Body Complaints Recommended Co-Regulatory Framework

  6. Recommended Product Scope Tangible property Any product or security with an investment, risk or credit component Home, contents, motor and travel insurance Commercial general insurance Investment property Owner-occupied property

  7. Promotes financial products More than factual information Does not advise on suitability for customer’s personal circumstances May promote products; or Broad financial advice Implicitly or explicitly advises on suitability for customer’s personal circumstances Member of APB and subject to APB rules On register of Personal Financial Advisers Personal Financial Adviser Product Marketer Am I a Broker or Not?

  8. Not to engage in conduct that is misleading or deceptive Not to engage in conduct that is misleading or deceptive To exercise reasonable skill, care and diligence Remunerated on a basis agreed with consumer in writing Have appropriate qualifications Standards addressing conflicts so client’s interests have priority Personal Financial Adviser Product Marketer Difference In Statutory Standards Apply to both individuals and businesses

  9. Disclosure Obligations For Marketers and Advisers • Nature and level of fee charged (if any) • Nature and extent of any interest or relationship that a reasonable person would find reasonably likely to influence the intermediary • Amount or rate of any remuneration, excluding salary or fixed wages • Account for difference between gross and net returns for investments • The role being undertaken, i.e. for whose interests? • Product marketers: “Health warning” of information limitations

  10. Established by statute Can make binding decisions on any consumer complaint relating to ANY intermediary Complaints based on breach of a statutory duty or APB rules relating to a statutory duty Award compensation up to a maximum amount Established by statute Covers ALL intermediaries Can impose orders to: Ban Supervise a business Correct information Reimburse fees to consumers Fine Redress Sanctions and Enforcement Disputes Resolution Body Disciplinary Body

  11. Implications : Industry Bodies • Functus Officio • Co-regulation has a chequered history • Success of APB-model requires: • Mature central regulator careful to keep industry reputation in tact • Mature industry ready to confront vested interests • APB not the same as an Industry Body • APB role limited to statutory functions • APB governance could include consumer representation

  12. Implications : Compliance Challenges • Should our business seek to become an APB? • Businesses can carry out all intermediary functions • Process needed to comply with APB rules and statutory standards • Statutory standards for PFAs are tricky: • Priority to clients’ interests • Reasonable skill, care and diligence for function undertaken • Disclosure requirements: • Periodic reporting of difference between gross and net returns • Role undertaken / health warning • Remuneration

  13. Implications : Challenging Implementation Schedule • 2008 implies full speed ahead • Contrast with Australian FSR • CLERP6 1998 – Implementation March 2004 • Contrast Securities Legislation Bill • Sec. Comm. Paper August 2001 – Implementation 1H2006 • Inter-dependent with Non-Bank Review, eg. • Statutory Regulator • Broader product disclosure requirements • Broader Single Economic Market developments

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