New Zealand Legislation: Bills
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190—1
This Bill contributes to the aim of the Government’s review of financial products and providers, which is to promote confidence and participation in financial markets by investors and institutions, and to promote a sound and efficient non-bank financial sector.
The Bill sets up a registration system for financial service providers that will—
identify financial service providers:
allow more effective monitoring and evaluation of financial service providers:
provide easy access to information about financial service providers:
assist in meeting New Zealand’s anti-money-laundering obligations under the Financial Action Task Force (FATF) Recommendations:
ensure that the controlling owners, directors, and senior managers of financial service providers do not have certain criminal convictions, are not bankrupt, and are not the subject of a management ban under companies, securities, or consumer legislation.
The Bill requires providers of defined financial services and financial adviser services to be registered. The Registrar of Financial Service Providers will undertake enforcement functions in relation to breaches of the registration requirements, and will have the power to share information with the Securities Commission, the Reserve Bank of New Zealand, and other prescribed agencies that carry out supervisory and enforcement functions relating to money laundering or terrorist financing (for example, the police).
The Bill also establishes a comprehensive, industry-based dispute resolution system to improve consumer access to redress in the financial sector. Key features are that—
the relevant Minister may approve a dispute resolution scheme if the scheme meets the criteria of accessibility, independence, fairness, accountability, efficiency, and effectiveness; and
membership of an approved dispute resolution scheme will be mandatory for financial service providers who transact with consumers.
It is anticipated that more than 1 scheme will be approved, and financial service providers will have the freedom to choose which scheme they join. The reserve scheme will be the default scheme for financial service providers who are not members of an approved scheme.
The purpose of the dispute resolution system is to provide a simple and low-cost avenue for consumers to seek redress. The dispute resolution system will be fully funded by industry, except for the reserve scheme, which will be funded by a levy on members. Government involvement will be limited to approving schemes (including periodic renewal), receiving periodic reports, and having powers to request information.
Clause 1 provides for the Title of the Act.
Clause 2 sets out the commencement of the Act. The commencement of Part 2 and clause 44 is by Order in Council. This is to enable regulations to be prepared. These regulations will prescribe the mechanics of implementing the Bill by providing the details of the requirements for registration and for dispute resolution schemes.
Part 1 contains preliminary provisions that give an overview of the Bill (clause 3), defines certain terms used in the Bill (clauses 4 and 5), and provides that the Bill binds the Crown (clause 7). Key definitions are those of—
financial adviser service, which has the meaning given by clause 5 of the Financial Advisers Bill; and
financial service, which means 1 of a list of services that are not provided in the context of a financial adviser service.
Clause 6 sets out the application of the Bill. The Bill applies to people who are in the business of providing a financial service or a financial adviser service. It does not apply to any of the following people:
a lawyer in the course of that person’s professional practice as a lawyer:
a chartered accountant in the course of that person’s professional practice as a chartered accountant:
a prescribed Crown agency:
an employee of the above persons:
an employee of a financial service provider.
The Bill does not apply with respect to financial services provided between related companies.
Clause 8 sets out the purpose of Part 2. This is to—
establish a compulsory public register of financial service providers and financial advisers to enable the public to access information about them, and to enable their regulation:
prohibit certain people from being involved in the management or direction of registered financial service providers:
conform with New Zealand’s obligations under the FATF Recommendations.
Clause 9 provides the meanings of registration and deregistration. Registration under the Bill continues until the registered person is deregistered. A person is deregistered when the Registrar enters on the register that the person is deregistered.
Clause 10(1) prohibits a person from providing a financial service in the course of business unless that person is registered under Part 2. Clause 10(2) prohibits a person from providing a licensed service in the course of business unless that person is registered under Part 2 as a licensed provider in relation to that particular service. It is an offence to knowingly breach these 2 prohibitions. The penalty is, in the case of an individual, imprisonment for a term not exceeding 2 years or a fine not exceeding $100,000 (or both); and, in the case of a body corporate, a fine not exceeding $300,000.
Clause 11 prohibits a person from holding out (whether directly or indirectly) in the course of business that the person is entitled to provide a financial service unless that person is registered under Part 2. It is an offence to knowingly breach this prohibition. The penalty is, in the case of an individual, imprisonment for a term not exceeding 12 months or a fine not exceeding $100,000 (or both); and, in the case of a body corporate, a fine not exceeding $300,000.
Clause 12 sets out the qualifications for registration as a financial service provider. A person is qualified to be registered as a financial service provider if—
the person is not disqualified under clause 13; and
the person is a member of an approved dispute resolution scheme if required by clause 44; and
the person has a licence to provide any licensed services the person provides or offers to provide.
Clause 13 provides that a person is disqualified if the person is an individual who is disqualified under subclause (2), or if the person is not an individual and the person has a controlling owner, director, or senior manager who is disqualified under subclause (2). Subclause (2) provides a list of the types of persons who are disqualified. A member of a local authority must be treated as if he or she is not a disqualified person.
Clauses 14 and 15 set out what is required in an application to be registered as a financial service provider, and what is to happen when the Registrar accepts an application.
Clause 16 creates a duty for the following persons to notify the Registrar of the following relevant changes relating to a financial service provider:
a financial service provider, if the provider knows that the provider is no longer qualified for registration in accordance with clause 12:
the licensing authority in relation to a licensed provider that has been licensed by that licensing authority, if the provider is no longer licensed:
the person responsible for an approved dispute resolution scheme of which a financial service provider was a member, if the person knows the provider is no longer a member of that scheme.
A financial service provider who breaches the provider’s obligation commits an offence and is liable on summary conviction to a fine not exceeding $10,000. A person responsible for an approved dispute resolution scheme who breaches that person’s obligation commits an offence and is liable on summary conviction to a fine not exceeding $10,000.
Clauses 17 to 20 deal with how and why the Registrar must deregister a financial service provider. The provider may object to the proposed deregistration.
Clause 17(2) provides that the Registrar must deregister a financial service provider if the provider so requests, with effect from the date requested by the provider.
Clause 21 provides that if an approved professional body notifies the Registrar, under clause 51 of the Financial Advisers Bill 2007, of the details of a provider of a financial adviser service, the Registrar must register that provider.
Clause 22 provides that a provider of a financial adviser service must be deregistered if that provider ceases to be a member of an approved professional body.
Clause 23 provides that the Registrar must establish and maintain a register of financial service providers and financial advisers.
Clause 24 provides for the operation of and access to the register, which may be kept electronically, or in any other manner that the Registrar thinks fit.
Clause 25 sets out the purposes of the register. These are—
to enable the public and any person to identify registered financial service providers and financial advisers, and access information about them:
to assist any person in the exercise of the person’s powers or the performance of the person’s functions under this Bill or any other enactment:
to conform with New Zealand’s obligations under the FATF Recommendations.
Clause 26 specifies the information that the register must contain about each registered person.
Clause 27 provides that registered financial service providers, and approved professional bodies (on behalf of their members), must supply to the Registrar each year an annual confirmation of registered details. If they do not, the Registrar may assume that the provider is no longer providing or offering to provide a financial service, and clauses 17 to 19 apply.
Clause 28 provides that the Registrar must amend the register in certain circumstances.
Clause 29 allows the Registrar to refuse to accept documents that are not in the required form or do not comply with prescribed requirements.
Clauses 30, 31, and 32 provide for searches of the register.
Clause 33 provides that the Registrar may communicate certain information to any of the following agencies:
the Securities Commission:
the Reserve Bank of New Zealand:
a prescribed agency that carries out supervisory or enforcement functions relating to money laundering or terrorist financing:
a prescribed overseas agency that is the equivalent of the Registrar or 1 of the above bodies.
The Registrar may use any information communicated to the Registrar by any of these agencies.
Clauses 34 and 35 provide for the appointment of the Registrar, and for the power of the Registrar to delegate.
Clause 36 sets out that the Registrar, or a person authorised by the Registrar, may require the production of documents and inspect and take copies of those documents for the purpose of ascertaining whether a person—
is providing or has provided a financial service; or
is offering or has offered to provide a financial service; or
is holding out or has held out that the person provides or has provided a financial service in breach of section 11; or
is qualified or has been qualified to be registered in accordance with section 12.
It is an offence to obstruct or hinder this process (clause 36(7)).
A registered financial service provider who does not comply with a requirement to produce information within 20 working days may be assumed to be no longer providing or offering to provide a financial service, and clauses 17 to 19 apply (clause 36(5)).
Clauses 37 and 38 provide for the disclosure of information and reports following an inspection under clause 36, and also provide for what should happen if there were an appeal or a judicial review about an inspection under clause 36.
Clause 39 provides that if any financial service provider that is not an individual commits an offence against the Bill, every director also commits an offence if the director knowingly authorises or knowingly fails to prevent the offence.
Clause 40 creates an offence of making false or misleading representations in any document or information required by or for the purposes of Part 2 or by regulations.
Clause 41 provides that a financial service provider may appeal any of the following decisions of the Registrar to the High Court:
not registering an applicant as a financial service provider under clause 15:
a deregistration under clause 17:
an act or decision of the Registrar or a person authorised by the Registrar under clause 36.
Clause 42 empowers the regulations that may be made under the Bill.
Clause 43 sets out the purpose of Part 3, which is to promote confidence in financial service providers and financial advisers by improving consumers’ access to redress from providers through the establishment of approved dispute resolution schemes. The schemes are intended to be accessible, independent, fair, accountable, efficient, and effective.
Clause 44 requires every financial service provider to be a member of an approved dispute resolution scheme if the provider provides a financial service to consumers who are natural persons or to businesses that have no more than 19 full-time-equivalent employees. However, this requirement only applies if there is a reserve scheme.
Clause 45(1) defines a dispute resolution scheme as an approved dispute resolution scheme if it has been approved by the Minister under Part 3 and that approval has not expired or been withdrawn. An approval expires 10 years after the date it was issued. Clause 45(3) defines a member of an approved dispute resolution scheme as a financial service provider or a provider of a financial adviser service who may be the subject of a complaint to that scheme.
Clauses 46 to 50 deal with how an application for an approval of a dispute resolution scheme may be made to the Minister, and the mandatory considerations for the Minister when deciding whether to approve such an application.
Clauses 51 to 56 deal with how and why the Minister may withdraw the approval of an approved dispute resolution scheme, and the effect on members of a scheme that loses its approval. The person responsible for an approved dispute resolution scheme may object to an intended withdrawal of the scheme’s approval.
Clause 57 requires the person responsible for an approved dispute resolution scheme to maintain a list of the scheme’s current members.
Clause 58 requires the person responsible for an approved dispute resolution scheme to issue rules about that scheme and indicates the matters that the rules must provide for or set out.
Clause 59 requires that the person responsible for an approved dispute resolution scheme must make copies of the rules available for inspection by the public free of charge. Any changes to the rules must be notified to the Minister within 10 working days (clause 60).
Clause 61 provides that a change in the rules may enable the Minister to withdraw approval for the scheme, although this must be done on notice and clauses 51 to 56 apply.
Clauses 62 and 63 require a person responsible for an approved dispute resolution scheme to supply the Minister with an annual report and any information the Minister requests about the information required by regulations to be in an annual report. Clause 64 requires that this information and the annual report be publicly available.
The reserve scheme is an approved dispute resolution scheme that has been appointed by Order in Council under clause 66 (clause 65).
Clause 66 sets out the appointment process for the reserve scheme.
Clauses 67 to 69 deal with the revocation of an appointment of a reserve scheme.
Clause 70 provides that the Governor-General may, by Order in Council made on the recommendation of the relevant Minister, make regulations about levies to fund the reserve scheme.
Clauses 71 to 73 provide that either the complainant or the member of an approved dispute resolution scheme may appeal to the District Court against the decision of an approved dispute resolution scheme on the grounds that the dispute resolution process was unfair to the person appealing and that unfairness prejudicially affected the decision.
Clause 74 empowers regulations that may be made for various purposes relating to Part 3.
Clause 75 indicates a consequential amendment made in the Schedule.
An effective and consistent regulatory framework for the financial sector that promotes confident consumers and institutions requires that regulators and consumers are able to identify which entities are providing which financial services. New Zealand does not comply with the Financial Action Task Force’s (FATF) Recommendations on Anti-Money Laundering and Countering the Financing of Terrorism (AML/CFT) that there be an effective supervisory framework to ensure financial sector compliance with AML/CFT requirements. Currently there are registration requirements for some providers (such as banks, building societies, and credit unions) and products (such as prospectuses) under specific legislation, but this is not comprehensive and does not identify what financial services an entity provides. The preferred option is for the Companies Office to register defined financial service providers and undertake negative assurance checks. Financial advisers will also be identified on the register. The Companies Office would co-operate with other financial sector regulators to ensure entities are meeting the relevant regulatory requirements.
The Regulatory Impact Analysis Unit has reviewed this regulatory impact statement and considers it is adequate according to the adequacy criteria.
Currently, there is no comprehensive way of identifying or monitoring providers of financial services or financial advisers. Data identifying all providers of financial services is important to regulators for the purpose of identifying risks in the sector and people who are not complying with the statutory requirements. Data is also necessary so that market participants (that is, business analysts, intermediaries, and consumers) can access information on a financial services provider.
Financial service providers with existing registration requirements are banks, superannuation schemes, building societies, industrial and provident societies, friendly societies, credit unions, and contributory mortgage brokers. Financial products that require registration include prospectuses under the Securities Act 1978, and trust deeds in relation to unit trusts under the Unit Trusts Act 1960.
The Ministry of Economic Development (MED) estimates that virtually all financial service providers are companies or entities that are already required to register with, and provide information to, the Companies Office under other legislation such as the Companies Act 1993, the Building Societies Act 1965, or the Friendly Societies and Credit Unions Act 1982. However, the current requirements are not designed to identify what type of business an entity is and hence do not give any information about the financial services an entity provides. It is difficult for consumers and market participants to find information about financial service providers and the services they provide, since there is not a single place where all the information can be accessed. Consumers are not likely to be aware of where the information may be found. Data identifying all providers of financial services is important to regulators for the purpose of identifying risks in the sector and identifying people who are not complying with the statutory requirements.
The Financial Action Task Force is an international body that sets standards for anti-money laundering and countering the financing of terrorism. New Zealand is a member of the FATF and is committed in principle to compliance with its standards.
In terms of FATF Recommendation 23, countries should ensure that financial institutions are subject to adequate regulation and supervision for anti-money-laundering purposes. Under this recommendation, New Zealand is required to have a comprehensive supervisory framework for financial institutions. Cabinet agreed in principle in October 2004 that the financial sector be monitored for anti-money-laundering compliance in accordance with the FATF Recommendations.
The FATF Recommendations also require that the necessary regulatory measures be taken to prevent criminals from owning a significant or controlling interest, or holding a management function, in a financial institution.
While there are general measures aimed at preventing criminals controlling or acquiring companies in New Zealand, there are no specific measures to ensure that the directors and management of financial sector entities meet negative assurance requirements (for example, that they have not been convicted of relevant financial crimes) in accordance with the FATF Recommendations.
It is not known to what extent money laundering or terrorist financing occurs in New Zealand. It is believed that the level of risk is low, particularly in relation to terrorist financing; however, the current regulatory regime for the financial sector makes such beliefs difficult to substantiate. Failure to comply with the FATF standards may attract money launderers and terrorist financers to New Zealand. Non-compliance would also have a very negative impact on New Zealand’s reputation as an international citizen. The risks associated with non-compliance include—
possible increased cost of borrowing overseas for both the Government and the private sector, as overseas lenders perceive New Zealand as a greater financial risk and demand a bigger margin to compensate:
difficulties (in the form of increased costs or lost business opportunities) for New Zealand companies in doing business overseas, as other countries may have laws that discriminate against non-compliant countries:
overseas investment in New Zealand may be reduced because of investors’ perception of increased risks, or legal restrictions in the investors’ home jurisdictions:
difficulties in trade negotiations at a government-to-government level, as foreign governments may be reluctant to extend trading privileges to non-compliant countries:
impacts on foreign relations as foreign governments discriminate against non-compliant countries:
potential loss of FATF membership.
The current regulatory regime does not enable the Government or the public to identify all financial sector providers or their services, does not comply with the FATF Recommendations, and does not meet the objectives set out below. The information available on the range of financial services an entity provides is not easily accessible to investors and is not comprehensive. The system has led to negative comments on New Zealand’s level of compliance with international standards. Therefore, it is not appropriate to maintain the status quo.
The objectives are—
to identify the entities providing defined financial services in the New Zealand market:
to provide an easily accessible means for investors and potential investors, intermediaries, analysts, and other market participants to find information on financial services providers and the range of services they provide:
to ensure that the directors and management of financial services providers meet negative assurance criteria; that is, they have no record of relevant criminal activities or adverse regulatory judgments such as having been declared bankrupt, or having been the subject of a director or management ban:
to comply with the relevant international principles and standards.
The criteria against which options to meet the objectives have been assessed are—
effectiveness in meeting the objectives:
level of compliance costs for business:
avoidance of duplication:
fit with existing or proposed regulatory function:
efficiency of use for regulatory authorities:
efficiency of use for investors and the public.
The range of types of financial services and the entities that provide them is very varied. Some parts of the sector do not have any self-regulatory or other professional or industry organisation, while others do. To meet the key objective of the review of financial products and providers, which is an effective and consistent regulatory framework, and also to meet the FATF Recommendations, no feasible alternative option to a registration system was found.
This option involved the various financial sector regulators each maintaining a register for the entities they supervise. For example, the Reserve Bank of New Zealand (the Reserve Bank) would perform a registration function for banks and other entities for which it has prudential responsibilities and the Securities Commission would register entities such as collective investment scheme operators and trustees, and, potentially, the Companies Office would register other issuers. This option would meet the objective of identifying some entities but would not cover all the entities falling under the FATF definition. It would mean duplication of registers, a low level of fit with the existing regulatory functions of the Reserve Bank and the Securities Commission, greater compliance costs, and an inability to meet the objective of an easily accessible source of information for investors and market participants.
The preferred option is that the Companies Office performs the registration function for all defined financial service providers. The definition will be based on the FATF definition of financial institution and will include: banks, friendly societies, credit unions, building societies, industrial and provident societies, finance companies, issuers of equity and debt securities, issuers of collective investment schemes, trustees supervising these issuers, insurers, platform and portfolio service providers and custodians, investment brokers, dealers in securities and futures contracts, lending businesses, financial leasing businesses, money or value transfer services (for example, money remittance), money and currency changers. The register will also provide a means of identifying financial advisers.
This will involve the Registrar of Financial Service Providers and Financial Advisers (the Registrar) establishing and maintaining a register, receiving applications for registration, carrying out criminal checks with the police for controlling shareholders, directors, and senior managers, and carrying out enforcement functions for breaches of registration requirements. The Registrar will need to co-operate with other regulators such as the Reserve Bank and the Securities Commission, because for some financial services there are additional regulatory requirements that must be met before an entity can be registered.
It is intended that from a financial service provider’s perspective there will be a seamless register combining the information they provide to register as a company (or other form, such as a building society or friendly society) with a small amount of additional information.
Giving the Companies Office the registration function would mean efficiencies could be gained and compliance costs minimised for businesses, since they would have to deal with only one registration body, and there would not be a duplication of requirements to provide registration information.
This option will have the advantage of reducing the time needed for entities to become familiar with the financial service provider registration processes, since they will already be familiar with Companies Office registration and filing processes. Any registration fees for providers will be in addition to their existing registration (for example, company) fees, will be set by regulation, and will be calculated using the same models as other business registry fees. It is likely that there will be a fee for financial service provider registration (to cover the police checks, the Companies Office checks, and the provision of information to financial service providers on the requirements, a contact centre, and enforcement processes). Potentially there may be a fee for filing an annual update (which may in part cover a contact centre, enforcement processes, and any checks that may be required). However, there is no fee under the Companies Act 1993 for a company to file an online annual return, and this may also be the case for the annual update of information by a financial service provider.
An estimate for a possible one-off registration fee for an entity (apart from a financial adviser) would be in the region of $500 to $800. This assumes that the costs are to be fully third-party funded and on the basis of approximately 2 000 registrations. There are various ways fees could be charged and this will need to be worked through over the next couple of months as the legislation develops. The Companies Office will apply all the necessary Treasury guidelines and approved costing models in working through the funding and fee structure. Cabinet approval will be sought for the regulations setting the fees.
While it is proposed that financial advisers will be identified on the register, the approved professional body that the adviser belongs to will be responsible for providing the adviser’s details to the Registrar and covering the costs associated with this, including any checking of the adviser. The costs for this will be determined by the costs incurred by the approved professional body and will not be the same as the indicated costs for registration of the financial service providers. (A financial adviser is defined as an entity that gives financial advice on financial products and investment and savings decisions to members of the public.)
For the entities outside the Review of Financial Products and Providers that will be required to be registered to meet the FATF Recommendations, consideration of the impacts on them and any measures to minimise compliance costs on them will be included in the FATF compliance review being led by the Ministry of Justice.
The preferred option results in a separation between the registration function and the regulatory or supervisory function. For example, for providers supervised by the Reserve Bank, it separates registration from prudential and AML/CFT supervision, and for providers supervised by the Securities Commission, it separates registration from market conduct and AML/CFT supervision. However, the costs of providers dealing with 2 regulatory agencies can be minimised by ensuring good information sharing and processes to ensure registration and any qualitative assessment carried out by the regulator work effectively, as well as by undertaking work to raise public awareness of where to find information about financial services providers, and of the respective roles of the Companies Office and regulators.
Information-sharing processes between the Companies Office, the Reserve Bank, and the Securities Commission already exist, but the volume of information sharing will increase with the implementation of these proposals. The Reserve Bank and the Securities Commission have done some work in estimating the overall cost of their additional regulatory functions, but have not separated out the information-sharing processes.
Apart from the Companies Office, no other agency currently has the equivalent existing systems, technology, and skills that are able to be so easily adapted for a new registration system for financial service providers. This option would therefore involve the lowest costs for government, as it could build on existing systems rather than creating a new registration system. The registration role will also include a negative assurance check. The Companies Office will check that the directors, senior managers, and controlling shareholders are not on the list of undischarged bankrupts, or on the list of persons banned from being a director or concerned in the management of a company, and will carry out a police check for convictions for specific crimes. The Companies Office currently does this sort of check for motor vehicle traders.
Costs to the Companies Office from this option include the cost of setting up and maintaining the register (including carrying out the necessary checks), an educational role to ensure financial service providers are aware of the requirements, and an enforcement role for breaches of registration requirements. The Companies Office’s indicative estimates of the cost of carrying out these functions are—
| 08/09 $m | 09/10 $m | 10/11 $m | 11/12 $m | Ongoing $m | |
|---|---|---|---|---|---|
| Vote Commerce | |||||
| Ministry of Economic Development—additional Companies Office functions | 0.1–0.4 | 0.9–1.2 | 0.8–1.5 | 0.8–1.5 | 0.8–1.5 |
| Associated capital expenditure | 0.35–1.0 | 0.65–2.0 |
As noted above, these costs could be reduced if there is third-party funding, which will be considered when approval is sought for the detailed funding proposals, to be reported back to Cabinet by 30 November 2007.
From the consumer’s perspective, the registration system will provide a one-stop shop where they can access a range of information on an entity, such as the services it provides, copies of disclosure documents, and where to seek redress if they have a complaint. It is not intended that there be any fee for a consumer to access information on the register.
The preferred option will meet the public policy objectives set out above.
To implement the proposal, legislation will be required. The necessary provisions will be part of the Financial Service Providers (Registration and Dispute Resolution) Bill expected to be passed in 2008.
It is intended that the register be in place in 2010. There will be a transitional period, intended to be 2 years, to allow those affected time to ensure compliance.
In addition, the Companies Office will need to undertake the necessary technical and operational work to include information on the new register and on existing registers (for example, registers under the Companies Act 1993, Building Societies Act 1965, and Securities Act 1978) to be available from a single online source. The Companies Office will be responsible for publicising the registration requirements so that entities providing financial services are aware of the requirements.
A privacy impact assessment has been commissioned to ensure that areas such as information-sharing provisions, which are intended to minimise compliance costs, are consistent with information privacy principles. Officials will work with the Office of the Privacy Commissioner to ensure consistency of the legislation with the Privacy Act 1993 during the drafting process.
The proposals were the subject of a discussion paper, which was released in August 2006, along with other discussion papers in the Review of Financial Products and Providers (the RFPP). One hundred and thirty-nine submissions were received on the RFPP papers, of which 22 contained comments on registration. The submitters included associations representing various parts of the financial sector and individual businesses operating in the sector.
Submissions on the discussion document generally supported the proposal for a registration system. Submitters noted that the Companies Office already has the infrastructure and expertise for the proposed registration system. Submitters also indicated the need to clearly delineate the functions and powers of the regulators and ensure that it is clear to financial services providers which regulator they need to deal with in a given situation, and that there is no duplication in the requirements between registration and licensing. These concerns are being addressed through the information-sharing provisions and provisions for co-operation between regulators. They will also be addressed in the implementation of the operational aspects of the registration system.
The following government agencies have been consulted on the proposals in this paper: the Department of the Prime Minister and Cabinet, the Inland Revenue Department, the Department of Labour, the Department of Internal Affairs, the State Services Commission, the Retirement Commission, the Ministry of Social Development, the Ministry for the Environment, Te Puni Kōkiri, the New Zealand Customs Service, the Department of Building and Housing, the Office of the Privacy Commissioner, the Ministry of Foreign Affairs and Trade, and the Commerce Commission. No significant concerns were raised.
There is currently a problem for some consumers in accessing appropriate dispute resolution and redress mechanisms in those parts of the financial sector where voluntary, simple dispute resolution mechanisms do not exist. Consumers experience problems because of lack of knowledge about where to go, and because of complicated and expensive dispute resolution processes that make it not worthwhile to pursue complaints.
Voluntary industry-based dispute resolution schemes currently cover most banks and insurance companies, as well as many managed funds. The main gaps in the financial sector where consumers do not have access to industry-based dispute resolution include finance companies, building societies, credit unions, financial advisers, and some superannuation schemes. In these areas, consumers must use the court system to seek redress.
The proposal is to require all financial providers to join an industry-based dispute resolution scheme that has been approved by the Minister of Commerce.
This option will ensure that, as an alternative to the courts, consumers have access to simple, low-cost dispute resolution. Industry responsibility for funding and operating the dispute resolution schemes will provide incentives for financial providers to maintain appropriate customer service standards and ensure customers are treated fairly and reasonably.
The Regulatory Impact Analysis Unit has reviewed this regulatory impact statement and considers it is adequate according to the adequacy criteria.
Under the status quo, there are 2 voluntary industry-based dispute resolution schemes—the Banking Ombudsman and the Insurance & Savings Ombudsman. While these schemes work very well in providing a simple, low-cost dispute resolution service, access to these schemes is only available for consumers who are customers of these schemes’ member firms. Other consumers must use the court system for dispute resolution and to obtain redress.
Banks, managed funds, and insurance companies make up a large proportion of the New Zealand financial sector. The majority of these financial institutions are members of one of the existing schemes. However, while these schemes are available to a large number of consumers, dispute resolution is not available to consumers in all parts of the financial sector. The main gaps in the financial sector where consumers do not have access to industry-based dispute resolution include finance companies, building societies, credit unions, financial advisers, and some superannuation schemes. These sectors are more fragmented and lack the cohesion present in the banking and insurance sectors that facilitated the establishment of the voluntary schemes.
While the court system (including the Disputes Tribunal) generally works well for most types of consumer disputes, it does have some disadvantages in the case of financial services. For example, the time, cost, and complexity of initiating court action may dissuade some consumers from standing up for their rights. The Disputes Tribunal addresses these issues of cost and complexity; however, the monetary limit of $7,500 (or $12,000 with the agreement of the parties) for Disputes Tribunal claims will exclude many financial disputes.
Although the existing schemes have the capacity to take on new members, it is not expected that they will further extend their coverage without regulatory intervention. Voluntary industry-based dispute resolution provides a competitive advantage for member firms by enhancing their reputation and promoting consumer confidence in those firms. It is expected that there would be reluctance from those firms that are currently members of a voluntary scheme to extend coverage of the scheme to other parts of the financial sector.
In August 2006, the Ministry of Economic Development released a discussion paper noting results from the National Consumer Survey on Awareness and Experience of Consumer Legislation (the National Consumer Survey) (conducted by National Research Bureau Ltd on behalf of the Ministry of Consumer Affairs, October 2005) that showed that, while the level of consumer problems with misleading or unfair treatment by financial providers is relatively low, consumers experience problems in seeking and obtaining redress. Common reasons given by consumers included “did not know who to complain to”
, “did not think it would make a difference”
, and “couldn’t be bothered”
.
There are problems in relation to both consumer knowledge of, and ability to access, dispute resolution mechanisms. For example, the National Consumer Survey found that 30% of respondents believed that there is a problem about taking a case to the Disputes Tribunal or about the way that the courts work. Common comments by respondents included “costs, direct or indirect, may be involved”
, “time frame to get heard would be too long”
, “time and effort required would not be worth it for such small amounts”
, “not knowing where to start or how to go about it, or how to contact them”
, and “intimidating experience”
.
Some submissions to the discussion paper expressed the view that there was not a problem in relation to consumers’ access to dispute resolution. For example, one submission noted that consumer decisions to borrow or invest are not made because of the existence, nature, or form of dispute resolution or redress procedures; decisions are made for more positive reasons often in ignorance of the existence of such procedures.
On the other hand, low financial literacy means that New Zealand consumers have limited ability to properly compare competing options offered by financial providers. If consumers do not have access to effective redress if things go wrong, this means that there are limited incentives for financial providers to treat customers in a fair and reasonable manner.
On balance, submissions on the August 2006 discussion paper supported the view that there is sufficient evidence of a problem to warrant further government action to improve access to redress in order to promote consumer confidence in financial markets.
A robust and efficient financial sector, where the public has a strong basis for being confident in the sector, is an essential prerequisite for a strong and dynamic economy. In the context of consumer dispute resolution and redress, 3 further policy objectives support the overarching aim of a robust and efficient financial sector. These objectives are—
to promote consumer/investor confidence in financial markets. Consumer confidence relies on 3 elements—
consumers’ expectations of a transaction being met by suppliers:
confidence in market rules and institutions:
consumers having effective access to redress:
to reinforce market incentives, within a competitive environment, to encourage fair and reasonable behaviour by financial providers towards their customers:
to maintain resilience and stability of financial markets.
This option would address the problem by building the capability of consumers to make informed choices so that consumers will avoid unsuitable products, thus reducing the number of disputes. This option is seen as a long-term solution, rather than achieving immediate improvements in consumer confidence. This option would not address problems that occur after a contract has been entered into, such as maladministration, or financial providers not properly following their own policies, or misrepresentation by financial providers prior to the transaction taking place.
The benefits of improved consumer education will not be evenly distributed across all consumers. Education and information will have a proportionately bigger benefit for those consumers who have better ability to make use of information in their financial decisions, as well as those consumers who have access to a wide range of options in choosing financial products or providers.
This option would be difficult to implement. For example, it would be difficult to compel firms to provide effective generic education, rather than product-specific information. The financial sector consists of a large number of providers offering a wide range of products. If the obligation to provide consumer education falls on industry, firms will have an incentive to focus their education and information efforts on information specific to the products they offer. This will not assist consumers in making choices between competing products and suppliers, or whether a product meets their return and risk needs.
This option would involve adopting simplified court procedures (for example, through a specialist Disputes Tribunal) to improve consumer access to courts to seek redress. While the court system (including the Disputes Tribunal) generally works well for most types of consumer disputes, it does have some disadvantages in the case of financial services. Cost and complexity may dissuade some consumers from initiating court action. These disadvantages were identified by the Financial Intermediaries Task Force, and include evidential difficulties, particularly where advice or recommendations are given orally, and the factual background is complex; difficulties in establishing and quantifying loss, particularly where other factors, such as market fluctuations, have contributed to loss; the fact that disputes often focus on a highly specialised area of knowledge; and limitation issues—it may take a significant amount of time for problems with financial advice and information to become evident, so that claims may fall outside limitation periods.
A specialist tribunal would allow the accumulation of specialist expertise, and allow for setting monetary limits appropriate for financial disputes. However, as it would still be part of the court system, a specialist tribunal would still face the same problems currently experienced by courts, such as evidential difficulties and time limitations.
The main disadvantage of this option is that it would not encourage industry commitment, particularly because it would not leverage off the goodwill of the existing industry-based dispute resolution schemes.
This option would involve significant costs to government in establishing a new branch of the Disputes Tribunal. It is expected that this would increase the number of consumers taking court action and, while there would be a drop in the number of District Court cases because these claims could be heard in the new tribunal, there is likely to be a net increase in the costs for government in operating the court system.
Under this option there would be no costs to industry in establishing the new tribunal. It is expected that simplifying consumer access to a dispute resolution mechanism will result in an increase in consumers seeking redress, and this will mean increased costs for industry in defending complaints.
There will be some benefits to consumers under this option as it will enable consumers to take disputes to the specialist Disputes Tribunal rather than the District Court, regardless of the amount in dispute. This will make dispute resolution easier and probably increase the number of complaints made by consumers. This option would retain existing Disputes Tribunal processes, such as a $50 filing fee.
This option would involve a single industry-based dispute resolution scheme that all financial providers would be required to join. The main advantage of this option is that a single scheme may be cheaper to operate due to efficiencies of scale, producing advantages for both financial providers and consumers. This is particularly significant given the relatively small size of the New Zealand financial industry and number of consumer complaints.
A single dispute resolution scheme would create a level playing field in terms of regulatory treatment. This would provide coverage across all sectors of the financial industry. This option would also address unnecessary barriers to entry that may hinder access for some firms to membership of a dispute resolution scheme. However, a one-size-fits-all approach may lack specialisation or be too blunt to effectively deal with varying industry practices.
This scheme would require the greatest degree of government involvement. This could have implications for industry commitment to the success of the scheme, for example, if firms come to see themselves as regulated entities rather than members.
There is a wide range of types of financial providers, from small businesses through to large banks and insurance companies. It may be difficult to achieve industry cohesion or a common understanding of the rules to be followed. This suggests that this option would require a greater degree of government intervention than the other options.
Membership of an approved dispute resolution scheme will be mandatory for all financial service providers that are required to be registered, and financial advisers, who provide products or services to consumers. However, they are free to join any scheme.
A class of consumers is defined based on the characteristics of the customer, regardless of any particular characteristics of the product or provider. The definition of consumer includes—
natural persons; and
small- and medium-sized enterprises (SMEs), which are enterprises with 19 or fewer employees.
This approach recognises that natural persons and SMEs typically enter into simple, low-value contracts with financial service providers and, where disputes arise, redress is often not sought because of cost, complexity, or lack of knowledge. The definition of consumer ensures that a simple, low-cost avenue to seek redress is available for claims that would not otherwise be taken to the courts and thus would not be resolved.
Providing a definition of consumer is necessary because the absence of a definition of consumer would mean that all customers, including big businesses, would be able to make a complaint against a financial service provider through an industry-based dispute resolution scheme. This would result in significant costs for financial service providers.
An approved dispute resolution scheme is one that has satisfied the Minister of Commerce (following consultation with the Minister of Consumer Affairs and the Minister of Finance) that it meets the criteria of accessibility, independence, fairness, accountability, efficiency, and effectiveness. In deciding whether to approve a scheme, the Minister of Commerce must give regard to some mandatory considerations relating to the governance of the scheme, periodic reviews, the scheme’s funding, the cost to consumers, membership restrictions, the scheme’s jurisdiction, the limits on liability of scheme members, evidence and processes, awareness, promotion and education, and reporting to stakeholders.
Government involvement will be limited to approving schemes (including periodic renewal), receiving periodic reports, and powers of inspection if necessary, rather than involvement in the day-to-day operation of a scheme. Reapproval is to be obtained by schemes at 10-year intervals. Periodic reporting is to be annual and is likely to include basic information about the activities of the scheme (for example, the number and type of complaints considered, promotional activities undertaken, etc), as well as identification of any systemic issues that the scheme considers require attention by government.
The scheme approval process will include appropriate checks and balances, including a requirement for the Minister of Commerce to be satisfied that the scheme has undertaken appropriate consultation, a time frame for decisions, the method of notifying approval, and other matters.
The Minister of Commerce may impose conditions on the approval of a scheme, or withdraw the approval of a scheme. Conditions might cover issues such as the scheme’s governance arrangements, requirements for training, and other matters.
Under this option, the dispute resolution system is fully funded by industry. By allowing the various sectors of the financial industry to establish their own schemes, this option provides for the greatest degree of industry involvement and commitment, as well as taking advantage of the skills needed to address a particular part of the financial sector.
This option also provides that, in the event of no schemes meeting the approval criteria, or if there is not full coverage of the financial industry by those schemes that are approved, powers will allow the Minister of Commerce to appoint a person to operate a reserve scheme. A reserve scheme would be based on the same principles as approved dispute resolution schemes and must comply with legislative requirements common to all approved dispute resolution schemes, such as binding decisions and appeals, and periodic reporting. Regulations may require all financial service providers who are members of the reserve scheme to pay a levy. The regulations may deal with issues such as the amount of the levy, calculation of the levy, payment and collection of levies, exemptions, and penalties for non-payment.
A decision of a scheme will be binding on the member in relation to whom it is made, but will not preclude a consumer from rejecting the scheme’s decision and taking alternative court action against a financial provider.
If this option is not implemented, there will continue to be many consumers who are unable to access simplified dispute resolution mechanisms and must resort to the courts to seek redress. This runs the risk of not achieving the key objective of promoting investor/consumer confidence in financial markets. It also would not establish any mechanisms for reinforcing market incentives to encourage fair and reasonable behaviour by financial providers towards their customers. The absence of a comprehensive industry-based dispute resolution system would also hamper the ability for government to monitor and obtain the necessary information (for example, information about levels of compliance with the law or increased complaints about a firm as an indicator of potential collapse) so as to maintain resilience and stability of financial markets.
If a reserve scheme is not provided for, and no schemes meet the approval criteria, or if there is not full coverage of the financial industry by those schemes that are approved, it is likely that some financial service providers will be unable to join an approved scheme. This means that they would be unable to fulfil the precondition for registration and thus would be unable to operate their business as a financial service provider without contravening the law.
There would be costs to government in approving schemes and monitoring the dispute resolution system. However, these are not anticipated to be large. The proposals will result in additional roles and functions for MED in providing advice to the Minister of Commerce on approval of dispute resolution schemes, as well as liaising with, and producing educational material for, dispute resolution schemes, industry participants, and consumers. These costs are estimated at $0.3 million per annum for the first 2 years and $0.1 million per annum thereafter.
If a reserve scheme is established, there would be higher costs to government than under a system of industry-based schemes. These costs would arise because of the additional costs of appointing the reserve scheme operator, and the additional supervision that would be necessary as a result of greater involvement in the dispute resolution system. However, these costs are likely to be small, because as a levy would be imposed that would allow for full cost recovery from financial providers who become members of the reserve scheme.
It is anticipated that financial providers would incur 3 types of costs—
costs for internal complaints handling:
internal costs incurred in responding to complaints through the dispute resolution body:
membership fees levied by the dispute resolution body—whether fees are levied on a per case basis or consist of a general membership levy.
Costs might be incurred if a dispute resolution scheme requires, as a condition of membership, that its members establish internal complaint-handling procedures. Note that not all financial providers will incur these costs, as many will already have internal complaints-handling processes in place. A study in the United Kingdom indicated that the cost of an internal complaints-handling system ranged between GBP50 and GBP1,700 per case, depending on the size of firm and the type and volume of business it does (Financial Ombudsman Service (UK), Complaints handling arrangements: feedback statement on CP33 and draft rules, May 2000, www.fsa.gov.uk/pubs/cp/cp49.pdf, page 51). The August 2006 discussion paper requested comments (on a confidential basis if requested) from financial providers. However, no submissions addressing this point were received.
The proposal does not impose additional costs for firms’ internal costs incurred in responding to complaints through the dispute resolution body. These costs would be incurred by the firm regardless of the form of dispute resolution. For example, the firm would face similar (or possibly higher) costs in defending an action in the courts or the Disputes Tribunal. Firms may experience increased costs if, as expected, this proposal results in an increase in complaints from consumers who would otherwise have been reluctant to complain through the courts or the Disputes Tribunal. Improving ease of access to dispute resolution will undoubtedly increase the number of consumers seeking redress. This may be thought to also lead to an increase in frivolous or vexatious complaints. However, the experience of existing schemes has generally been that these complaints can be weeded out quite easily.
The current Banking Ombudsman and Insurance & Savings Ombudsman schemes operate on annual budgets of approximately $1.2 million and $1 million respectively. They are funded through a combination of an annual levy on members (depending on the size of the firm) and a case levy for each complaint considered by the scheme. The funding formulae adopted by the existing New Zealand schemes, as well as similar schemes in other countries, vary quite widely and are designed to reflect the particular nature of each scheme’s members. Note that a case levy does not always represent the true marginal cost of additional cases, but must be set at such a level that it does not affect the incentives facing members in their decisions to either settle or fight a complaint.
While it is difficult to quantify the expected costs and benefits of industry-based dispute resolution for financial providers, the fact that the banking, insurance, and savings sectors have voluntarily established dispute resolution schemes suggests that those sectors have found that the benefits outweigh the costs. Other sectors, such as financial advisers, have not voluntarily established such regimes; however, this may be because these sectors are more fragmented and industry-wide consensus is more difficult to reach than in the banking or insurance sectors.
It is expected that the proposal would have benefits for financial providers through improved consumer/investor confidence in financial markets. This will promote more efficient markets and encourage greater participation by consumers in financial markets, with consequent benefits for financial providers.
As the proposal is broadly similar to the regulatory regime in Australia, this will make it easier for New Zealand firms to expand into Australia, as they will be familiar with the compliance requirements they would need to meet in Australia. Alignment with Australian standards will also make it easier for dispute resolution schemes to build their capability, as they will be able to take advantage of experience from overseas.
While the establishment of an industry-based dispute resolution mechanism would not impose any direct costs on consumers, it is likely that any additional costs to financial providers would be passed through to consumers.
Virtually all existing industry-based dispute resolution schemes are free of charge to consumers. Schemes also put very few formal obstacles in the way of consumers seeking to use their services. For example, most schemes allow consumers to make contact by telephone or through the Internet. This is especially beneficial for less educated consumers.
The ease of access to current industry-based dispute resolution schemes can be contrasted with the court system, where consumers must pay a fee to lodge a claim. The official forms for lodging claims can also be confusing and intimidating for some consumers.
Access to industry-based dispute resolution will provide considerable benefits for consumers. For example, a free complaints service would enable consumers to obtain redress for small-value claims, as they would otherwise put up with the problem rather than commence court action. This is especially beneficial to low-income consumers. An informal dispute resolution style, in conjunction with an awareness-raising campaign, would be especially beneficial for less educated consumers. It is difficult to quantify the detriment currently suffered by consumers as a result of inability to access redress.
An increase in the number of consumer complaints would indicate an increasing degree of consumer sophistication. This has flow-on benefits for financial providers and the community in improving service standards in the industry. It may also flow through to more confident participation in financial markets by consumers, including, for example, encouraging saving.
Defining consumer in a way that excludes larger businesses from access to industry-based dispute resolution schemes will require those businesses to use the court system, incurring costs for government and for larger businesses. However, these businesses would be likely to use their expertise and resources and choose to use the courts anyway. Natural persons and SMEs will benefit from being able to use simple, low-cost, industry-based dispute resolution schemes.
The existence of multiple dispute resolution schemes will allow firms to seek out the scheme that has the best fit. This will minimise costs for firms in complying with the scheme’s rules.
The criteria for approval of a scheme have been designed with a principles-based approach so as to give schemes flexibility to meet the requirements in the best way for them, that is, the cheapest and most effective.
New legislation will be required to implement this proposal. This proposal links with the proposed new registration regime for financial institutions.
The proposal will be implemented with commencement in 2 stages. Stage 1, which establishes the rules for approval of dispute resolution schemes, will commence immediately following enactment of the legislation (including any regulations, if necessary). Stage 2, which will be the mandatory requirement for financial institutions to join an approved dispute resolution scheme, will come into force at the same time as the requirement to register in 2012.
To assist affected parties in complying with the new regime, the Ministry of Economic Development will produce educational material for dispute resolution schemes to help them meet their obligations in order to obtain approval; for financial institutions, to inform them of their obligation to join a dispute resolution scheme; and for consumers, to inform them of the availability of new dispute resolution and redress mechanisms.
Compliance by firms with the requirement to join a dispute resolution scheme will be enforced by the proposed Registrar of Financial Service Providers through the registration regime (as outlined in the paper Review of Financial Products and Providers: Registration of Financial Service Providers).
The effectiveness of the new dispute resolution regime in achieving its objectives will be monitored through the annual reports that approved dispute resolution schemes are required to submit to the Minister of Commerce.
There is a risk that no dispute resolution schemes will seek or obtain approval; however, this has been managed by consultation with industry and potential schemes. The level of support for industry-based dispute resolution shown through consultation on the discussion paper indicates that industry is committed to successfully implementing the proposal.
The proposals were the subject of a discussion paper that was released in August 2006, along with other discussion papers in the Review of Financial Products and Providers (the RFPP). One hundred and thirty-nine submissions were received on the RFPP papers, of which 42 contained comments on consumer dispute resolution.
Some key concerns raised by submitters include—
some submissions related to the existence of a problem and the ability of improved dispute resolution arrangements to solve the problem (for example, one submission noted that consumer decisions to borrow or invest are not made because of the existence, nature, or form of dispute resolution or redress procedures; decisions are made for more positive reasons, often in ignorance of the existence of such procedures). This has been addressed by noting that dispute resolution is only one component of consumer confidence, and further work on improving consumer financial capability is also ongoing:
concerns were expressed that government intervention might damage the existing goodwill and industry commitment to external dispute resolution. This has been addressed by ensuring that the approval criteria for dispute resolution schemes closely reflect current practices as much as possible:
concerns were expressed that the proposal could result in industry funding the dispute resolution system, but without any say in its operation. This has been addressed by limiting government involvement to approval of schemes, with a hands-off approach to the day-to-day governance and operation of dispute resolution schemes:
concerns were expressed about the potential scope of the proposed dispute resolution system. This has been addressed through limiting access to consumers (note that MED will be undertaking further work on establishing appropriate definitions of consumer in particular sectors), and through requiring that the Minister of Commerce must have regard, when deciding whether to approve a scheme, to matters such as the jurisdiction of the scheme and any monetary limit on the liability of scheme members.
The following government agencies have been consulted on the proposals in this paper: the Ministry of Consumer Affairs, the Reserve Bank of New Zealand, the Treasury, the Ministry of Justice, the Securities Commission, the Retirement Commission, and the Commerce Commission. No significant concerns have been raised.
Hon Lianne Dalziel
Government Bill
190—1
Subpart 1—No providing financial service or licensed service or holding out that entitled to provide financial service unless registered
11 No holding out in course of business that entitled to provide financial service unless registered
Application for registration as financial service provider
Changes relating to financial service provider
Deregistration of financial service provider
Registrar of Financial Service Providers and Financial Advisers
45 Meaning of approved dispute resolution scheme and meaning of member of approved dispute resolution scheme
Approval of dispute resolution schemes
List of members of approved dispute resolution scheme
Rules about approved dispute resolution scheme
The Parliament of New Zealand enacts as follows:
This Act is the Financial Service Providers (Registration and Dispute Resolution) Act 2007.
(1) Part 2 and section 44 come into force on a date to be appointed by the Governor-General by Order in Council, and 1 or more Orders in Council may be made appointing different dates in respect of different types of financial service providers.
(2) The rest of this Act comes into force on the day after the date on which it receives the Royal assent.
(1) This Act requires financial service providers to be registered. There are different requirements for registration depending on whether a provider provides—
(a) a financial adviser service (a term defined in the Financial Advisers Act 2007); or
(b) a financial service.
(2) In order to be registered, financial service providers are required to be members of an approved dispute resolution scheme if they provide financial services to certain people. However, this requirement only applies if the reserve scheme has been appointed.
(3) The Act sets out how a dispute resolution scheme may be approved by the Minister, why the approval might be withdrawn, and how an approved dispute resolution scheme may be appointed as the reserve scheme.
(4) The Act provides that the reserve scheme is to act as the default dispute resolution scheme and is to be capable of resolving disputes relating to all types of financial service providers.
(5) This section is intended as a guide only.
In this Act, unless the context otherwise requires,—
annual confirmation means the annual confirmation relating to a registered provider supplied to the Registrar under section 27
annual report means the annual report relating to an approved dispute resolution scheme supplied to the Minister under section 62
approved dispute resolution scheme has the meaning given by section 45
approved professional body has the meaning given by section 35 of the Financial Advisers Act 2007
business includes any profession, trade, or undertaking, whether or not carried on with the intention of making a pecuniary profit
chief executive means the chief executive of the department of State that, with the authority of the Prime Minister, is for the time being responsible for the administration of this Act
company means a company, or an overseas company, within the meaning of section 2(1) of the Companies Act 1993
controlling owner means, in relation to a financial service provider that is not an individual, any person who beneficially owns 50% or more of that provider
deposit has the meaning given by section 108(2) of the Friendly Societies and Credit Unions Act 1982
director has the meaning given by section 126 of the Companies Act 1993, but also includes, in relation to a body that is not a company, a person who occupies a position comparable to that of a director (such as a trustee or a partner)
document means—
(a) any material, whether or not it is signed or otherwise authenticated, that bears symbols (including words and figures), images, or sounds, or from which symbols, images, or sounds can be derived, and includes—
(i) a label, marking, or other writing that identifies or describes a thing of which it forms a part, or to which it is attached:
(ii) a book, map, plan, graph, or drawing:
(iii) a photograph, film, or negative; and
(b) information electronically recorded or stored, and information derived from that information
due date, in relation to an annual confirmation, means the date allocated to a registered provider by the Registrar under section 15(1)(b) or 21(b)
FATF means the Financial Action Task Force on Money Laundering established in Paris in 1989
FATF Recommendations means all of the following recommendations:
(a) the 40 Recommendations adopted by FATF at its plenary meeting on 20 June 2003:
(b) the Special Recommendations on Terrorist Financing adopted by FATF at its extraordinary plenary meeting on 31 October 2001:
(c) Special Recommendation IX on Terrorist Financing adopted by FATF at its plenary meeting between 20 and 22 October 2004
financial adviser has the meaning given by section 7 of the Financial Advisers Act 2007
financial adviser service has the meaning given by section 5 of the Financial Advisers Act 2007
financial service has the meaning given by section 5
financial service provider means a person who provides or offers to provide a financial service
insurance has the meaning given by section 2 of the Insurance Companies’ Deposits Act 1953
lawyer has the meaning given by section 6 of the Lawyers and Conveyancers Act 2006 except that, before that section comes into force, lawyer means a barrister or solicitor as defined in section 2 of the Law Practitioners Act 1982
licensed provider means a person who is licensed by a licensing authority to provide a licensed service
licensed service means a financial service that is required by an enactment to be provided only by a licensed provider
member, in relation to a dispute resolution scheme, has the meaning given by section 45
member of a local authority has the meaning given by section 5(1) of the Local Government Act 2002
Minister means the Minister of the Crown who, under the authority of any warrant or with the authority of the Prime Minister, is for the time being responsible for the administration of this Act
Ministry means the department of State that, with the authority of the Prime Minister, is for the time being responsible for the administration of this Act
prescribed means prescribed by this Act or by any regulations made under this Act
register means the register of financial service providers and financial advisers established and maintained under section 23
Registrar means the Registrar of Financial Service Providers and Financial Advisers appointed under section 34
related company has the meaning given by section 2(3) of the Companies Act 1993
reserve scheme has the meaning given by section 65
senior manager means, in relation to a financial service provider, a person who is not a director but occupies a position that allows the person to exercise significant influence over the management or administration of that provider (for example, a chief executive or a chief financial officer).
In this Act, financial service means any of the following financial services that is not provided in the context of a financial adviser service:
(a) accepting deposits:
(b) keeping, investing, administering, or managing money or securities on behalf of other persons:
(c) lending money or securities and providing credit (for example, under a credit contract within the meaning of the Credit Contracts and Consumer Finance Act 2003):
(d) providing financial leases, except under a contract that is not a consumer credit contract under section 15 of the Credit Contracts and Consumer Finance Act 2003:
(e) operating a money or value transfer service:
(f) issuing and managing means of payment (for example, credit and debit cards, cheques, travellers’ cheques, money orders, bankers’ drafts, and electronic money):
(g) giving financial guarantees:
(h) participating in securities issues as any of the following:
(i) an issuer, a contributory mortgage broker, a trustee, a unit trustee, a superannuation trustee, a statutory supervisor, a promoter, or a manager within the meaning of those terms in section 2(1) of the Securities Act 1978:
(ii) a public issuer within the meaning of that term in section 2(1) of the Securities Markets Act 1988:
(iii) a provider of lending facilities:
(i) changing foreign currency:
(j) entering into derivative transactions, or trading in money market instruments, foreign exchange, interest rate and index instruments, transferable securities (including shares), and commodity futures on behalf of another person:
(k) providing forward foreign exchange contracts:
(l) managing individual or collective investment portfolios:
(m) underwriting and placing insurance:
(n) providing any other financial service that is prescribed for the purposes of New Zealand complying with the FATF Recommendations or other similar international obligations.
(1) This Act applies to people who are in the business of providing a financial service or a financial adviser service.
(2) This Act does not apply to any of the following people:
(a) a lawyer in the course of that person’s professional practice as a lawyer:
(b) a chartered accountant in the course of that person’s professional practice as a chartered accountant:
(c) a prescribed Crown agency:
(d) an employee of a person listed in paragraph (a), (b), or (c):
(e) an employee of a financial service provider.
(3) This Act does not apply with respect to financial services provided between related companies.
This Act binds the Crown.
The purpose of this Part is to—
(a) establish a compulsory public register of financial service providers and financial advisers to enable—
(i) the public to access information about financial service providers and financial advisers; and
(ii) the Registrar and other regulators to regulate financial service providers and financial advisers:
(b) prohibit certain people from being involved in the management or direction of registered financial service providers:
(c) conform with New Zealand’s obligations under the FATF Recommendations.
(1) Registration under this Act continues until the registered person is deregistered.
(2) Registration may not be transferred and may not vest by operation of law in any person other than the person registered under this Act.
(3) A person is deregistered when the Registrar enters on the register that the person is deregistered.
(1) A person to whom this Act applies must not provide a financial service in the course of business unless that person is registered under this Part.
(2) A person to whom this Act applies must not provide a licensed service in the course of business unless that person is registered under this Part as a licensed provider in relation to that particular licensed service.
(3) Every person who knowingly breaches subsection (1) or (2) commits an offence and is liable on summary conviction,—
(a) in the case of an individual, to imprisonment for a term not exceeding 2 years or to a fine not exceeding $100,000, or to both; or
(b) in the case of a body corporate, to a fine not exceeding $300,000.
(1) A person to whom this Act applies must not hold out (whether directly or indirectly) in the course of business that the person is registered, entitled, qualified, able, or willing to provide a financial service unless that person is registered under this Part.
(2) Every person who knowingly breaches subsection (1) commits an offence and is liable on summary conviction,—
(a) in the case of an individual, to imprisonment for a term not exceeding 12 months or to a fine not exceeding $100,000, or to both; or
(b) in the case of a body corporate, to a fine not exceeding $300,000.
A person is qualified to be registered as a financial service provider if—
(a) the person is not disqualified under section 13; and
(b) the person is a member of an approved dispute resolution scheme if required by section 44; and
(c) the person has a licence to provide any licensed services the person provides or offers to provide.
(1) A person is disqualified if,—
(a) in the case of an individual, the individual is disqualified under subsection (2); or
(b) in the case of a person who is not an individual, the person has a controlling owner, director, or senior manager who is disqualified under subsection (2).
(2) The following persons are disqualified:
(a) an undischarged bankrupt:
(b) a person prohibited from being a director or promoter of, or concerned in the management of, an incorporated or unincorporated body under the Companies Act 1993, the Securities Act 1978, the Securities Markets Act 1988, or the Takeovers Act 1993:
(c) a person subject to a management banning order under the Securities Act 1978, the Securities Markets Act 1988, the Takeovers Act 1993, or subject to an order under section 108 of the Credit Contracts and Consumer Finance Act 2003:
(d) a person who has been convicted of an offence relating to fraud or dishonesty within the past 5 years:
(e) a person who has been convicted of a money laundering offence or an offence relating to the financing of terrorism:
(f) a person who is subject to a confiscation order under the Proceeds of Crime Act 1991.
(3) A member of a local authority must be treated as if he or she is not disqualified.
(1) An application to be registered as a financial service provider must be made to the Registrar and—
(a) contain the following (as relevant to the applicant):
(i) the name and business address of the applicant:
(ii) the name and business address of the approved dispute resolution scheme of which the applicant is a member:
(iii) whether the applicant is applying in relation to a licensed service, and if so, which particular licensed service; and
(b) be in the form (if any) required by the Registrar; and
(c) confirm that the applicant is not disqualified under section 13; and
(d) contain, or be accompanied by, any other prescribed information or documents; and
(e) be accompanied by the prescribed fee (if any).
(2) If the application relates to a licensed service, it must be accompanied by any prescribed information required to obtain an appropriate licence.
(1) If the Registrar accepts that an applicant is qualified to be registered as a financial service provider, the Registrar must—
(a) enter the following details on the register (as relevant to the provider):
(i) the name and business address of the provider:
(ii) the name and business address of the approved dispute resolution scheme of which the provider is a member:
(iii) if the provider is a licensed provider in relation to a particular licensed service, that fact and the name and business address of the licensing authority that licensed that provider:
(iv) any other information prescribed in regulations; and
(b) allocate a due date for the provider’s annual confirmation, notify the provider of that date, and notify that date on the register.
(2) If the Registrar does not accept that an applicant is qualified to be registered as a financial service provider, the Registrar must notify the applicant and any relevant licensing authority of the Registrar’s decision.
(1) Each of the following persons must notify the Registrar about the following relevant changes relating to a financial service provider:
(a) a financial service provider, if the provider knows that the provider is no longer qualified for registration in accordance with section 12:
(b) the licensing authority in relation to a provider who is no longer licensed:
(c) the person responsible for an approved dispute resolution scheme of which a financial service provider was a member, if the person knows that the provider is no longer a member of that scheme.
(2) The time within which a person must notify the Registrar under subsection (1) is 10 working days from the date the person comes to know about the change.
(3) A financial service provider who breaches subsection (1)(a) commits an offence and is liable on summary conviction to a fine not exceeding $10,000.
(4) A person who breaches subsection (1)(c) commits an offence and is liable on summary conviction to a fine not exceeding $10,000.
(1) The Registrar must deregister a financial service provider after a notice period in accordance with sections 18 and 19, if the Registrar is satisfied that the provider is no longer—
(a) qualified to be registered in accordance with section 12; or
(b) providing or offering to provide a financial service.
(2) The Registrar must deregister a financial service provider if the provider so requests, with effect from the date requested by the provider. The Registrar must notify any relevant licensing authority of this deregistration.
(3) For the purposes of this section and sections 18 and 19, notice period means 20 working days from the date of the Registrar’s notification under section 18.
(1) The Registrar must notify a financial service provider and any relevant licensing authority of the Registrar’s intention to deregister the provider under section 17(1).
(2) The Registrar’s notice must set out—
(a) that the Registrar intends to deregister the provider under either section 17(1)(a) or (b) (stating whichever applies); and
(b) the reasons why the Registrar considers section 17(1)(a) or (b) applies; and
(c) that there is a notice period before deregistration occurs during which the provider may object, under section 19, to the deregistration.
(1) During the notice period, the financial service provider may object (with reasons) to the proposed deregistration under section 17(1).
(2) If the Registrar receives an objection under subsection (1) within the notice period, the Registrar must consider the objection and must not proceed with a deregistration under section 17(1), unless the Registrar is satisfied that the financial service provider is no longer—
(a) qualified to be registered in accordance with section 12; or
(b) providing or offering to provide a financial service.
If the Registrar proceeds with deregistration, the Registrar must notify—
(a) the financial service provider of the deregistration and the provider’s right of appeal to the High Court against the deregistration; and
(b) any relevant licensing authority of the deregistration.
If an approved professional body notifies the Registrar, under section 51 of the Financial Advisers Bill, of the details of a provider of a financial adviser service, the Registrar must—
(a) enter those details on the register; and
(b) allocate a due date for the provider’s annual confirmation to be sent under section 27, notify the approved professional body of that date, and notify that date on the register.
The Registrar must deregister a provider of a financial adviser service who has ceased to be a member of an approved professional body.
The Registrar must establish and maintain a register of financial service providers and financial advisers.
(1) The register may be kept as an electronic register or in any other manner that the Registrar thinks fit.
(2) The register must be available for access and searching by the public at all times unless—
(a) the Registrar suspends the operation of the register, in whole or in part, in accordance with subsection (3); or
(b) otherwise prescribed.
(3) The Registrar may refuse access to the register or otherwise suspend the operation of the register, in whole or in part, if the Registrar considers that it is not practical to provide access to the register.
The purposes of the register are—
(a) to enable the public and any person referred to in paragraph (b) to—
(i) identify registered financial service providers and financial advisers; and
(ii) access information about—
(A) how to contact registered persons; and
(B) the approved dispute resolution scheme of which a registered person is a member (if required by section 44); and
(C) whether a registered financial service provider provides a licensed service; and
(D) in relation to a financial adviser, the approved professional body of which the financial adviser is a member; and
(b) to assist any person in the exercise of the person’s powers or the performance of the person’s functions under this Act or any other enactment; and
(c) to conform with New Zealand’s obligations under the FATF Recommendations.
The register must contain the following information about each registered person (to the extent that the information is relevant):
(a) the person’s name and business address:
(b) whether the person is a financial service provider or a financial adviser:
(c) the name and business address of the approved dispute resolution scheme of which the person is a member:
(d) in relation to a licensed provider, the name and business address of the licensing authority that has licensed that provider:
(e) in relation to a financial adviser, the name and business address of the approved professional body of which that financial adviser is a member:
(f) any other information prescribed in regulations.
(1) Each registered financial service provider must supply to the Registrar each year by the due date an annual confirmation of details relating to that provider.
(2) Each approved professional body (on behalf of each registered member) must supply to the Registrar each year by the due date an annual confirmation of details relating to that member.
(3) The annual confirmation must be in the form required by the Registrar (if any) and be accompanied by the prescribed fee (if any).
(4) If a registered financial service provider does not comply with subsection (1) within 3 months of the due date, the Registrar may assume that the provider is no longer providing or offering to provide a financial service and sections 17 to 19 apply.
The Registrar must amend the register if—
(a) an annual confirmation contains information that is different from the information entered on the register; or
(b) a financial service provider or an approved professional body (on behalf of a registered member) informs the Registrar of changes to the name and business address of the provider or to the approved dispute resolution scheme to which the provider belongs; or
(c) a licensing authority informs the Registrar that a registered financial service provider has become a licensed provider in relation to a particular licensed service; or
(d) the Registrar is satisfied at any time that the register contains a typographical error, a mistake, or omits information that was supplied to the Registrar.
The Registrar may refuse to accept a document received by the Registrar under this Act if that document—
(a) is not in the required form (if any); or
(b) does not comply with prescribed requirements.
The register may be searched only by reference to criteria to be specified in the regulations.
The register may be searched for the following purposes:
(a) by an individual, or a person with the consent of the individual, for the purpose of searching for information about that individual in accordance with the Privacy Act 1993:
(b) by a person for a purpose referred to in section 25:
(c) by a person for the purpose of advising another person in connection with any of the purposes referred to in this section.
A person who searches a public register for personal information for a purpose that is not a purpose set out in section 31 must be treated, for the purposes of Part 8 of the Privacy Act 1993, as if that person has breached an information privacy principle under section 66(1)(a)(i) of that Act.
Compare: 2006 No 55 s 456
(1) The Registrar may communicate to any of the agencies referred to in subsection (4) any information that the Registrar—
(a) holds (other than on the register) in relation to the exercise of the Registrar’s powers or the performance of the Registrar’s functions and duties; and
(b) considers may assist the agency in the exercise of its powers or the performance of its functions and duties.
(2) The Registrar may use any information communicated to the Registrar by an agency referred to in subsection (4) in the Registrar’s exercise of the Registrar’s powers or the performance of the Registrar’s functions and duties.
(3) This section applies despite anything to the contrary in any enactment, contract, deed, or document.
(4) The agencies to which this section applies are—
(a) the Securities Commission; and
(b) the Reserve Bank of New Zealand; and
(c) a prescribed agency that carries out supervisory or enforcement functions relating to money laundering or terrorist financing; and
(d) a prescribed overseas agency that is the equivalent of the Registrar or of a body referred to in paragraphs (a) to (c), but only where there is a written agreement between the overseas agency and the Minister about sharing the information.
(1) The chief executive must appoint a Registrar of Financial Service Providers and Financial Advisers under the State Sector Act 1988.
(2) The person holding office as Registrar of Companies under the Companies Act 1993, immediately before the commencement of this Act, is deemed to have been appointed as the first Registrar of Financial Service Providers and Financial Advisers in accordance with this section.
Compare: 1999 No 126 s 136
(1) The Registrar may delegate to any person, either generally or particularly, any of the Registrar’s functions, duties, and powers except the power of delegation.
(2) A delegation—
(a) must be in writing; and
(b) may be made subject to any restrictions and conditions the Registrar thinks fit; and
(c) is revocable at any time, in writing; and
(d) does not prevent the performance or exercise of a function, duty, or power by the Registrar.
(3) A person to whom any functions, duties, or powers are delegated may perform and exercise them in the same manner and with the same effect as if they had been conferred directly by this Act and not by delegation.
(4) A person who appears to act under a delegation is presumed to be acting in accordance with its terms in the absence of evidence to the contrary.
Compare: 2003 No 12 s 62
(1) The Registrar, or a person authorised by the Registrar, may take any of the steps listed in subsection (2) for the purpose of ascertaining whether a person—
(a) is providing or has provided a financial service; or
(b) is offering or has offered to provide a financial service; or
(c) is holding out or has held out that the person provides or has provided a financial service in breach of section 11; or
(d) is qualified or has been qualified to be registered in accordance with section 12.
(2) The steps referred to in subsection (1) are the following:
(a) requiring a person to produce for inspection relevant documents within that person’s possession or control:
(b) inspecting and taking copies of relevant documents:
(c) taking possession of relevant documents and retaining them for a reasonable time for the purpose of taking copies.
(3) Nothing in this section limits or affects the Tax Administration Act 1994 or the Statistics Act 1975.
(4) A person must not obstruct or hinder the exercise of a power conferred by subsection (1).
(5) If a registered financial service provider does not comply with a requirement under subsection (2)(a) within 20 working days from the date the requirement was notified to the provider, the Registrar may assume that the provider is no longer providing or offering to provide a financial service and sections 17 to 19 apply.
(6) A person who knowingly fails to comply with a requirement under subsection (2) commits an offence and is liable on summary conviction,—
(a) in the case of an individual, to a fine not exceeding $30,000:
(b) in the case of a body corporate, to a fine not exceeding $300,000.
(7) A person who breaches subsection (4) commits an offence and is liable on summary conviction,—
(a) in the case of an individual, to a fine not exceeding $30,000:
(b) in the case of a body corporate, to a fine not exceeding $300,000.
(8) In this section, relevant document means a document that contains information relating to whether a person—
(a) is providing or has provided a financial service; or
(b) is offering or has offered to provide a financial service; or
(c) is holding out or has held out that the person provides or has provided a financial service in breach of section 11; or
(d) is qualified or has been qualified to be registered in accordance with section 12.
Compare: 1993 No 105 s 365
(1) A person authorised by the Registrar for the purposes of section 36 who has obtained a document or information in the course of making an inspection under that section or prepared a report in relation to an inspection under that section must, if directed to do so by the Registrar, give the document, information, or report to—
(a) the Registrar; or
(b) the Minister; or
(c) the chief executive; or
(d) any person authorised by the Registrar to receive the document, information, or report for the purposes of this Act.
(2) A person authorised by the Registrar for the purposes of section 36 who has obtained a document or information in the course of making an inspection under that section or prepared a report in relation to an inspection under that section must not disclose that document, information, or report, except—
(a) in accordance with subsection (1); or
(b) subject to the approval of the Registrar, with the consent of the person to whom it relates; or
(c) subject to the approval of the Registrar, for the purposes of this Act; or
(d) to the extent that the information, or information contained in the document or report, is available under any Act or in a public document.
(3) A person who fails to comply with this section commits an offence and is liable on summary conviction to a fine not exceeding $10,000.
Compare: 1993 No 105 s 366
(1) Despite any other provision of any Act or any rule of law, if a person appeals or applies to the High Court in relation to an act or decision of the Registrar or a person authorised by the Registrar under section 36, until a decision on the appeal or application is given,—
(a) the Registrar, or that authorised person, may continue to exercise the powers under that section as if no such appeal or application had been made; and
(b) no person is excused from fulfilling an obligation under that section by reason of that appeal or application.
(2) Subsection (3) overrides subsection (1).
(3) If the appeal or application is allowed or granted,—
(a) the Registrar must ensure that, as soon as is reasonably practicable after the Court’s decision is delivered, any copy of a document taken or retained under section 36 is destroyed; and
(b) no information acquired under section 36 is admissible in evidence in any proceedings unless the Court hearing the proceedings in which it is sought to adduce the evidence is satisfied it was not obtained unfairly.
Compare: 1993 No 105 s 371
If any financial service provider that is not an individual commits an offence against this Act, every director of the provider who knowingly authorises or knowingly fails to prevent the offence also commits an offence against this Act.
(1) Every person commits an offence who, in any document or information required by or for the purposes of this Part or by regulations,—
(a) makes a representation knowing that it is false or misleading in a material particular; or
(b) omits any matter knowing that the omission is false or misleading in a material particular.
(2) A person who is convicted of an offence under subsection (1) is liable on summary conviction,—
(a) in the case of an individual, to imprisonment for a term not exceeding 2 years or to a fine not exceeding $100,000, or to both; or
(b) in the case of a body corporate, to a fine not exceeding $300,000.
(1) A financial service provider who is not satisfied with any of the following decisions of the Registrar may appeal to the High Court:
(a) not registering an applicant as a financial service provider under section 15:
(b) a deregistration under section 17:
(c) an act or decision of the Registrar or a person authorised by the Registrar under section 36.
(2) The time within which an appeal under subsection (1) may be made is 20 working days after the date of notification of the decision, or within any further time that the Court allows.
(3) On appeal, the Court may do any of the following:
(a) confirm, modify, or reverse the act or decision or any part of it:
(b) exercise any of the powers that could have been exercised by the Registrar in relation to the matter to which the appeal relates:
(c) refer the act or decision back to the Registrar with directions to reconsider the whole or a specified part of the act or decision.
(1) The Governor-General may, by Order in Council, make regulations for all or any of the following purposes:
(a) specifying a financial service for the purposes of section 5(n):
(b) prescribing the Crown agencies to whom this Act does not apply under section 6:
(c) specifying information or documents to be included in, or attached to, application forms, and requiring those forms to be signed by specified persons:
(d) prescribing procedures, requirements, and other matters, not inconsistent with this Part or with the purposes described in section 25, for the register, including matters that relate to—
(i) the operation of the register:
(ii) the information or documents to be contained in the register:
(iii) access to the register:
(iv) search criteria for the register:
(v) fees that may be payable in order to search the register:
(e) prescribing either of the following types of agency:
(i) an agency that carries out supervisory or enforcement functions relating to money laundering or terrorist financing for the purposes of section 33(4); or
(ii) an overseas agency that is the equivalent of the Registrar or of a body referred to in section 33(4)(a) to (c) for the purposes of section 33(4):
(f) prescribing fees payable to the Registrar in respect of any matter under this Part or the manner in which fees may be calculated:
(g) providing for any other matters contemplated by this Part, necessary for its administration, or necessary for giving it full effect.
(2) Without limiting subsection (1)(c), information or documents may be prescribed under that subsection for the purpose of assisting any person with the person’s powers, functions, or duties as a licensing authority under any enactment providing for the licensing of licensed providers (regardless of whether or not that information or documentation is collected for the purposes of this Part).
(3) The Registrar may refuse to perform a function or exercise a power until the prescribed fee is paid.
(4) Any Order in Council made under subsection (1)(f) may—
(a) prescribe the method of payment of a fee; and
(b) authorise the Registrar to refund or waive, in whole or in part and on any prescribed conditions, payment of a fee in relation to any person or class of persons.
(5) Any fee or amount payable to the Registrar is recoverable by the Registrar in any court of competent jurisdiction as a debt due to the Registrar.
The purpose of this Part is to promote confidence in financial service providers and financial advisers by improving consumers’ access to redress from providers through the establishment of approved dispute resolution schemes. The schemes are intended to be accessible, independent, fair, accountable, efficient, and effective.
Every financial service provider must be a member of an approved dispute resolution scheme—
(a) if the provider provides a financial service to—
(i) consumers who are natural persons; or
(ii) businesses that have no more than 19 full-time-equivalent employees; and
(b) if the reserve scheme has been appointed under section 66.
(1) A dispute resolution scheme is an approved dispute resolution scheme if it has been approved by the Minister in accordance with this Part and that approval has not expired or been withdrawn.
(2) An approval expires 10 years after the date it was issued.
(3) A member of an approved dispute resolution scheme is a financial service provider or a provider of a financial adviser service who may be the subject of a complaint to that scheme.
(1) The person responsible for a dispute resolution scheme may apply to the Minister for approval of the scheme.
(2) The applicant must submit the following with the application:
(a) the rules about the scheme:
(b) any other information that is prescribed concerning the considerations outlined in section 47:
(c) any annual reports relating to the scheme:
(d) any internal reviews of the scheme:
(e) the prescribed fee (if any).
(3) The Minister may request the applicant to supply further information or documentation relating to the matters referred to in subsection (2)(a) to (d).
(1) When considering an application under section 46, the Minister must have regard to the following considerations in light of the principles listed in subsection (2):
(a) whether the scheme has an appropriate purpose:
(b) whether the applicant has undertaken appropriate consultation on the scheme with members or potential members of the scheme and representatives of the people referred to in section 44(a):
(c) whether the scheme’s proposed dispute resolution processes are timely and appropriate:
(d) the extent to which the applicant’s governance arrangements ensure the independence and accountability of the scheme:
(e) whether the applicant has adequate funding to enable it to operate the scheme according to the scheme’s purpose and in accordance with the rules about the scheme:
(f) whether the applicant’s directors and senior managers are competent to manage a dispute resolution scheme:
(g) the cost, if any, to lodge a complaint with the scheme, and whether that cost is reasonable and appropriate:
(h) whether the scheme is capable of resolving disputes about the types of financial services provided by the members or potential members of the scheme:
(i) the amounts of money that complaints lodged with the scheme may be about, and whether those amounts are reasonable and appropriate:
(j) whether the rules about the scheme are adequate and comply with the principles listed in subsection (2).
(2) The principles are—
(a) accessibility:
(b) independence:
(c) fairness:
(d) accountability:
(e) efficiency:
(f) effectiveness.
(1) The Minister must decide an application under section 46 by approving it (with or without conditions) or by rejecting it.
(2) The Minister may only make a decision under subsection (1) after consultation with—
(a) the Minister of Finance; and
(b) the Minister of Consumer Affairs.
(3) The Minister may impose conditions on the approval about any or all of the following matters:
(a) the applicant’s governance arrangements:
(b) training requirements for people employed or engaged in the operation of the scheme:
(c) other prescribed matters that relate to the principles listed in section 47(2).
The Minister must, as soon as practicable after deciding the application,—
(a) notify the applicant in writing of the decision; and
(b) ensure that the decision is—
(i) published in the Gazette; and
(ii) made available to the public by making copies of it available for inspection, free of charge, at the head office of the Ministry (during ordinary office hours), and for a reasonable period of time on an Internet site in an electronic form that is publicly available (at all reasonable times).
An applicant whose application has been rejected may at any time reapply under section 46.
(1) The Minister may withdraw the approval of an approved dispute resolution scheme after a notice period in accordance with sections 52 and 53 for any or all of the following reasons:
(a) there has been a breach of a prescribed requirement:
(b) there has been a breach of a condition of approval:
(c) there has been a failure to comply with the rules about the scheme:
(d) the person responsible for the scheme has not maintained a list of members as required by section 57:
(e) the person responsible for the scheme has not supplied the Minister with an annual report by 1 July as required by section 62:
(f) the person responsible for the scheme has not supplied the Minister with any further information requested by the Minister under section 63:
(g) the person responsible for the scheme has not notified the Minister within 10 working days after the date of any change made to the rules about the scheme:
(h) the rules about the scheme have changed since the scheme’s approval was given, and that change means the rules—
(i) are no longer adequate; or
(ii) do not comply with the principles listed in section 47(2):
(i) the scheme no longer satisfies the principles in section 47(2).
(2) When considering whether to withdraw an approval, the Minister must have regard to the considerations referred to in section 47(1) in light of the principles listed in section 47(2).
(3) The Minister must withdraw the approval of an approved dispute resolution scheme if the person responsible for the scheme so requests, with effect from the date requested.
(4) For the purposes of this section and sections 52 and 53, notice period means 20 working days from the date of the Minister’s notification under section 52(1).
(1) The Minister must notify the person responsible for the approved dispute resolution scheme of the Minister’s intention to withdraw the scheme’s approval under section 51(1).
(2) The Minister’s notice must set out—
(a) that the Minister intends to withdraw the scheme’s approval for any or all of the grounds described in section 51(1) (stating which apply); and
(b) the reasons why the Minister considers any or all of the grounds described in section 51(1) apply; and
(c) that there is a notice period before the withdrawal of the scheme’s approval during which the person responsible for the scheme may object, under section 53, to the intended withdrawal.
(1) During the notice period, the person responsible for an approved dispute resolution scheme may object (with reasons) to the intended withdrawal of the scheme’s approval under section 51(1).
(2) If the Minister has received an objection under subsection (1) within the notice period, the Minister must consider it and must not proceed with a withdrawal under section 51(1) unless the Minister is satisfied that any or all of the reasons set out in section 51(1) apply.
If the Minister withdraws a scheme’s approval, the scheme’s approval is withdrawn from the date the person responsible for the scheme is notified under section 55(a).
The Minister must, as soon as practicable after withdrawing the approval of a dispute resolution scheme,—
(a) notify the person responsible for the scheme in writing of the withdrawal of the scheme’s approval; and
(b) notify the Registrar of the withdrawal of the scheme’s approval; and
(c) ensure that the withdrawal is—
(i) published in the Gazette; and
(ii) made available to the public by making copies of it available for inspection, free of charge, at the head office of the Ministry (during ordinary office hours), and for a reasonable period of time on an Internet site in an electronic form that is publicly available (at all reasonable times).
On the date that a dispute resolution scheme’s approval is withdrawn, members of the scheme become a members of the reserve scheme (if any).
The person responsible for an approved dispute resolution scheme must maintain a list of the scheme’s current members.
The person responsible for an approved dispute resolution scheme must issue rules about that scheme, and those rules must provide for, or set out, the following:
(a) which financial service providers and providers of a financial adviser service may be members of the scheme:
(b) how financial service providers and providers of a financial adviser service become members of the scheme and how membership is terminated:
(c) how complaints about a member may be made to the scheme:
(d) that complaints about members must be investigated in a way that is consistent with the rules of natural justice:
(e) that complaints about members may be made relating to any of the following things:
(i) breaches of contract by the member:
(ii) breaches of statutory obligations by the member:
(iii) breaches of industry codes by the member:
(iv) any other matters provided for in the rules:
(f) that any information may be considered in relation to a complaint and any inquiry made that is fair and reasonable in the circumstances:
(g) the sanctions that can be imposed on a member of the scheme following a complaint (for example, a requirement to change systems) and the compensation that can be awarded to the complainant:
(h) how sanctions imposed and compensation awarded may be enforced against the scheme’s members:
(i) any provision for allocating the costs of resolving the dispute between the member complained about and the complainant:
(j) that a decision made on a complaint about a member of the scheme is binding on the member concerned, subject to an appeal under section 71:
(k) that a decision made on a complaint about a member of the scheme is binding on the complainant concerned, subject to an appeal under section 71, if the complainant accepts the decision:
(l) that the complainant may take alternative court action against the member at any time, including if the complainant rejects the decision:
(m) that an internal review of the scheme must occur at least once every 3 years after the date of the scheme’s approval:
(n) that the person responsible for the scheme must co-operate with other approved dispute resolution schemes if a complaint involves members of those other schemes:
(o) that the scheme’s members must inform the people referred to in section 44(a) about the scheme to the extent that the members provide a financial service to those people.
A person responsible for an approved dispute resolution scheme must make copies of the rules about the scheme available for inspection by the public, free of charge,—
(a) at the scheme’s head office (during ordinary office hours); and
(b) on an Internet site in an electronic form that is publicly available (at all reasonable times).
A person responsible for an approved dispute resolution scheme must notify the Minister of a change made to the rules about the scheme within 10 working days after the date of the change.
(1) Following receipt of a notification of a change of rules under section 60, the Minister may notify the person responsible for a scheme that the Minister—
(a) approves the change; or
(b) intends to withdraw the scheme’s approval under section 51(1), and sections 51 to 56 apply.
(2) If the Minister does not notify the person responsible for the scheme in accordance with subsection (1) within 45 working days of the notification of the change of rules, the change is treated as having been approved by the Minister.
A person responsible for an approved dispute resolution scheme must supply to the Minister, by 1 July each year, an annual report containing prescribed information about the scheme in relation to the 12 months ending on 31 March in that year.
A person responsible for an approved dispute resolution scheme must supply to the Minister any further information requested by the Minister about the information that is required by regulations to be in an annual report.
A person responsible for an approved dispute resolution scheme must make copies of its annual report and any information requested under section 63 available for inspection by the public, free of charge,—
(a) at the scheme’s head office (during ordinary office hours); and
(b) on an Internet site in an electronic form that is publicly available (at all reasonable times).
The reserve scheme is an approved dispute resolution scheme that has been appointed by Order in Council under section 66.
(1) The Governor-General may, by Order in Council made on the recommendation of the Minister, appoint an approved dispute resolution scheme to be the reserve scheme (with or without conditions) for a term not exceeding the term of the scheme’s approval.
(2) The Minister may only make a recommendation if—
(a) the person responsible for the scheme consents in writing to the scheme being the reserve scheme; and
(b) the scheme is capable of resolving disputes relating to all types of providers of all types of financial services and financial adviser services.
(3) The Minister may only make a recommendation after consultation with—
(a) the Minister of Finance; and
(b) the Minister of Consumer Affairs; and
(c) any persons the Minister considers are likely to be substantially affected by the recommendation.
(4) A failure to comply with subsection (3)(c) does not affect the validity of an Order in Council made under subsection (1).
(5) Conditions that may be imposed by an Order in Council may relate to any or all of the following:
(a) the governance arrangements of the person responsible for the reserve scheme:
(b) training requirements for people employed or engaged in the operation of the reserve scheme:
(c) other prescribed matters that relate to the principles listed in section 47(2).
(1) The Governor-General may, by Order in Council made on the recommendation of the Minister, revoke the appointment of an approved dispute resolution scheme as the reserve scheme.
(2) The Minister may only make a recommendation for any or all of the following reasons:
(a) the reserve scheme’s approval as an approved dispute resolution scheme has been withdrawn:
(b) the Minister is no longer satisfied that the reserve scheme is capable of resolving disputes relating to all types of providers of all types of financial services and financial adviser services:
(c) the person responsible for the reserve scheme requests that its appointment as the reserve scheme be revoked.
(3) The Minister may only make a recommendation after consultation with—
(a) the Minister of Finance; and
(b) the Minister of Consumer Affairs; and
(c) any persons the Minister considers are likely to be substantially affected by the recommendation.
(4) A failure to comply with subsection (3)(c) does not affect the validity of an Order in Council made under subsection (1).
(1) The Minister must notify the person responsible for the reserve scheme that the Minister intends, under section 67(2)(b), to recommend a revocation of the reserve scheme’s appointment.
(2) The Minister’s notice must set out—
(a) that the Minister intends, under section 67(2)(b), to recommend a revocation of the reserve scheme’s appointment; and
(b) the reasons why the Minister considers that section 67(2)(b) applies; and
(c) that there is a notice period during which the person responsible for the reserve scheme may object, under section 69, to the intended recommendation.
(3) For the purposes of this section and section 69, notice period means 20 working days from the date of the Minister’s notification under subsection (1).
(1) During the notice period, the person responsible for the reserve scheme may object (with reasons) to the Minster’s intention, under section 67(2)(b), to recommend a revocation of the reserve scheme’s appointment.
(2) If the Minister has received an objection under subsection (1) within the notice period, the Minister must consider the objection and must not proceed with a recommendation for a revocation of the reserve scheme’s appointment under section 67(2)(b) unless the Minister is satisfied that section 67(2)(b) applies.
(1) The Governor-General may, by Order in Council made on the recommendation of the Minister, make regulations—
(a) specifying that levies to fund the reserve scheme are payable by all members or by any class of members, and that different levies may apply to members who provide—
(i) different types of financial adviser services; or
(ii) different types of financial service:
(b) specifying the amounts of levies payable under this section:
(c) providing for the method by which levies will be calculated:
(d) specifying the criteria and other requirements by and against which levies will be set or reset:
(e) specifying the financial year or part-financial year to which levies apply:
(f) providing for the payment and collection of levies:
(g) exempting any member from paying levies:
(h) providing for waivers or refunds of the whole or any part of any levy paid by any member or class of members:
(i) providing for interest to be paid if a member fails to pay levies by the due date specified in the regulations:
(j) enabling the reserve scheme to terminate the membership of a member who has failed to pay levies by the due date specified in the regulations.
(2) Regulations made under subsection (1) must provide that no other membership fee apart from the levies may be charged by the reserve scheme.
(3) The Minister may only make a recommendation under subsection (1) after consultation with any persons the Minister considers are likely to be substantially affected by the regulations.
(4) A failure to comply with subsection (3) does not affect the validity of an Order in Council made under subsection (1).
(1) Either party may appeal to a District Court against a decision made in accordance with an approved dispute resolution scheme on a complaint about a member of the scheme on the grounds that the dispute resolution process was unfair to the appellant and prejudicially affected the result of the decision.
(2) Without limiting the generality of subsection (1), a decision maker is deemed to have conducted the dispute resolution process in a manner that was unfair to the appellant and prejudicially affected the result if—
(a) the decision maker failed to have regard to either of the following:
(i) any provision of any enactment that was brought to the attention of the decision maker before the decision maker’s decision; or
(ii) any rule about the scheme; and
(b) as a result of the failure referred to in paragraph (a), the decision is unfair to the appellant.
(3) An appeal may be brought by filing a notice of appeal in the District Court within 28 days of the decision, or within any further time as a District Court Judge may, on application, allow.
(4) As soon as practicable after a notice of appeal has been filed, the appellant must serve a copy of the notice of appeal on the other party to the decision and on the person responsible for the scheme.
(5) The District Court Registrar must fix the time and place for the hearing of the appeal and must notify both parties.
(6) The filing of a notice of appeal against a decision operates as a stay of any process for the enforcement of that decision, but the District Court may at any time, on the application of either party, order that any process may be resumed or commenced or, the process having been resumed or commenced, order that it be further stayed.
(7) In this section,—
appellant means the person who appeals the decision, and may be the complainant or the member of the approved dispute resolution scheme
party means a person who was a party to the decision, whether the person is the complainant or the member of the approved dispute resolution scheme.
Compare: 1988 No 110 s 50
(1) Within 28 days after the notice of appeal is served on the person responsible for an approved dispute resolution scheme under section 71(4), the decision maker must file with the District Court Registrar a report on the manner in which the complaint was considered and the reasons for the decision on the complaint.
(2) Apart from filing the report under subsection (1), the decision maker, and the person responsible for the approved dispute resolution scheme (if different), may not be parties to the District Court’s decision on the appeal (except in relation to the costs of preparing and filing the report under subsection (1)).
(3) The District Court Registrar must serve a copy of the report filed under subsection (1) on both parties a reasonable period of time before the hearing of the appeal.
Compare: 1988 No 110 s 51
(1) On the hearing of an appeal, a District Court Judge may—
(a) quash the decision appealed from and order the complaint to be reheard on any terms the Judge thinks fit; or
(b) dismiss the appeal.
(2) In ordering a rehearing under subsection (1)(a), the Judge may give any directions the Judge thinks fit about the rehearing of the complaint.
(3) An appeal under this section is to be heard by a District Court Judge in chambers, and the procedure at the hearing may be determined by the Judge.
Compare: 1988 No 110 s 53
(1) The Governor-General may, by Order in Council, make regulations for all or any of the following purposes:
(a) prescribing the information or documents to be supplied to the Minister as part of an application under this Part:
(b) prescribing processes for applications for the approval of dispute resolution schemes:
(c) prescribing rules for a class of approved dispute resolution scheme or for all approved dispute resolution schemes in the event that approval of those schemes is withdrawn:
(d) prescribing the information that must be included in every annual report, which must include—
(i) information about any internal review that occurred within the previous 12 months; and
(ii) information about a scheme’s operation (including complaints received):
(e) prescribing fees payable in respect of any matter under this Part or the manner in which fees may be calculated:
(f) providing for any other matters contemplated by this Part, necessary for its administration, or necessary for giving it full effect.
(2) The Minister may refuse to make a decision under this Part until the prescribed fee is paid.
(3) Any Order in Council made under subsection (1) may—
(a) prescribe the method of payment of a fee; and
(b) authorise the Minister to refund or waive, in whole or in part and on any prescribed conditions, payment of a fee in relation to any person or class of persons.
(4) Any fee or amount payable under this Part is recoverable in any court of competent jurisdiction as a debt due to the Crown.
The enactment specified in the Schedule is amended in the manner indicated in that schedule.
Schedule | s 75 |
Part 1 of Schedule 2: insert the following item in its appropriate alphabetical order:
Financial Service Providers (Registration and Dispute Resolution) Act 2007 Section 23
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