PIE & NON-PIE FUNDS
The changes to the PIE tax rates (contained in the Taxation (Budget Measures) Act 2010) will be effective from 1 October 2010. The rates from 1 October 2010 will reduce to align with the new personal tax rates and will be capped at a maximum of 28%.
Investors in PIEs before 1 October 2010 will automatically shift to the new equivalent rate on 1 October 2010, so that they do not need to re-elect their rate with the PIE. An investor would only need to change their tax rate if their income level has changed placing them in a higher or lower income band. If an investor does not notify the PIE of their PIR, the 28% rate will apply.
The new legislation was enacted on 27 May 2010.
Legislation to correct current PIE tax rates
The amendment to PIE rates contained in the Taxation (Annual Rates, TransTasman Savings Portability, KiwiSaver, and Remedial Matters) Act (which was passed by Parliament on 25 August 2010 and received royal assent on 7 September 2010), allows a 21% PIR to be nominated by people who derive $48,000 or less in taxable income and $70,000 or less in taxable income plus PIE income - under current legislation, the 21% rate is only available to people who derive between $14,000 and $48,000 in taxable income and $70,000 or less in taxable income plus PIE income. This change will apply retrospectively from 1 April 2010. The 21% rate will then drop to 17.5% from 1 October 2010.
PIE & NON-PIE FUNDS
Employer superannuation contribution tax rates (ESCT) - PIE and non-PIE
The budget also brought reductions to ESCT applying for the first pay period post 1 October 2010. ESCT is the tax on employer contributions to superannuation schemes or employer contributions to KiwiSaver schemes that are not already exempted from ESCT. This will apply to both PIE and non-PIE funds.
Fund Withdrawal Tax - PIE and non-PIE
In a late change introduced by the Taxation (Annual Rates, TransTasman Savings Portability, KiwiSaver, and Remedial Matters) Act, Fund Withdrawal Tax (FWT) will now not apply to withdrawals that relate to contributions made on or after 1 April 2011 (pending any changes in the final version of the Act). FWT does not currently apply to permitted withdrawals from KiwiSaver schemes or complying superannuation funds.
This change will apply to both PIE and non-PIE funds.
Non PIE Funds
The budget also reduced the tax rate for a number of non-PIE widely held funds from 30% to 28% (including unit trusts, GIFs and superannuation funds). These changes will apply for the 2011-12 and subsequent income years.
REGISTRATION OF FINANCIAL INSTITUTIONS & DISPUTE RESOLUTION
The Financial Services Providers (Pre-Implementation Adjustments) Bill was divided into two separate Bills in June 2010; the Financial Advisers Amendment Bill (No 2) and the Financial Service Providers (Registration and Dispute Resolution) Amendment Bill.
Both of these Bills have since been enacted as the Financial Advisers Amendment Act 2010 and the Financial Service Providers (Registration and Dispute Resolution) Amendment Act 2010.
The Financial Service Providers (Registration and Dispute Resolution) Amendment Act 2010 (the Act) amends the 2008 version of the Act. Significant changes include:
- Introduction of a wholesale/retail distinction. Persons who provide financial services to wholesale clients only are exempted from the requirement to join a dispute resolution scheme (but still need to be registered (unless acting on behalf of an entity that is registered)).
- Employers are exempted from the Act so far as they provide services for their employees to enable them to join superannuation or KiwiSaver schemes in which the employer participates for the benefit of its employees.
- A change in the territorial scope of the Act. The Act will now apply to all persons ordinarily resident in New Zealand or who have a place of business in New Zealand regardless of where the financial service is provided.
To date, Financial Services Complaints Limited, the Insurance and Savings Ombudsman the Banking Ombudsman and Financial Dispute Resolution (the government's reserve scheme) have been approved as dispute resolution schemes under the Act.
The new Financial Service Providers Register opened on 16 August 2010 with all financial service providers (other than where an exemption applies) required to be registered by 1 December 2010.
Fee and levy regulations released
The Financial Service Providers (Fee and Levy) Regulations 2010 were passed in August and prescribe the following fees and levy:
- Application fee to be registered as a financial service provider: $350 plus $39.38 for a criminal record check of the applicant (unless waived by the Registrar). Where the applicant is a body corporate or unincorporated body the charge of $39.38 is multiplied by the number of controlling owners, directors and senior managers of the applicant/provider.
- Annual confirmation fee: $60 plus criminal record check fee as above (unless waived by the Registrar).
- Annual Dispute Resolution Scheme levy: $30.
The Registrar has the discretion to determine whether the criminal record check is necessary.
FINANCIAL ADVISER REGIME
The Financial Advisers Amendment Act 2010 has fundamentally altered the scope of the financial advisers regime.
Significant changes to the regime include:
- Definition of financial advice - A narrower definition that omits 'guidance' and specifically states that certain activities are not financial advice.
- Definition of financial adviser service - Under the refined definition, a financial adviser service is provided where, in the ordinary course of business, financial advice is given or a discretionary investment management service or investment planning service is provided.
Discretionary investment management service - A person will be providing a discretionary investment management service where (acting on the authority of the client) they make decisions on which financial products to acquire or dispose of on behalf of a client, even if they have to consult with that client prior to making a decision.
The concept of 'an investment planning service' replaces the former 'financial planning service', the earlier definition criticised as being too wide. The new definition now covers a person designing, or offering to design, a plan for a client based on an analysis of the client's current and future overall financial situation, investment needs and future investment goals, where the plan includes one or more recommendations or opinions on how to realise those goals.
Those who provide guidance on the procedure for acquiring/disposing of a financial product or who pass on financial advice are excluded from the regime.
- Broad exclusion for incidental service - Services that are an incidental part of another business, that is not a financial service, are excluded from the regime. Services are incidental if they facilitate the carrying out of another business or are ancillary to another business.
- Categorisation of products - There has been a re-categorisation of several products. Of note is the replacement of 'estate or interest in land' with 'land investment product' (yet to be defined by regulation) and changes to the categorisation of insurance and cash/term PIEs.
- Wholesale/retail distinction - Persons who advise wholesale clients will not be required to be authorised, comply with the Code, or make disclosure (but will still be subject to general conduct requirements). The definition of 'wholesale client' is very broad. As part of the wholesale carve out clients will be regarded as 'eligible investors' if they certify in writing that they have sufficient knowledge, skills or experience in financial matters to assess the value and risks of the financial products and merits of services provided, and that they understand the consequences of certifying themselves as an eligible investor. Clients who would otherwise be classified as a wholesale client can opt out of being a wholesale client, with the result being they will be regarded as retail clients entitled to the protections under the regime.
- Class versus personalised service - Adviser
obligations have been reduced by the introduction of the concepts
of 'personalised service' and 'class
A financial adviser service is 'personalised' if the client is identifiable by the adviser and either the adviser has taken into account that client's particular financial situation or goals, or the client would reasonably expect the adviser to have taken them into account. Persons providing a non-personalised service (or a 'class service') will have lesser obligations to satisfy under the regime, although it should be noted that such obligations are yet to be confirmed by regulation.
- QFE model - Groups of entities will now be able to
operate under the umbrella of a single QFE, where each partner
entity is jointly and severally liable for members of the QFE
Group. QFEs can also seek to have 1 or more entities approved by
the Commission as 'associated entities' of the QFE.
An individual cannot be the nominated representative of more than one QFE (unless the QFEs are related bodies corporate).
- Broking services - The broking services provisions remain largely unchanged from the Supplementary Order Paper. Broking services are defined as the receipt, holding, payment or transfer of client money or client property by a person acting as an intermediary for a client. Brokers face conduct and disclosure obligations.
- Powers - Enhanced powers for Securities Commission to monitor and enforce the FAA.
- Scope - The regime applies to:
- Financial adviser services or broking services received by a client in New Zealand regardless of where the provider is resident/incorporated/carries on business
- Services received by a client outside of New Zealand if provided by a person ordinarily resident/incorporated/carrying on business in New Zealand.
Further regulations are expected any time, including in respect of disclosure and exemptions.
Code of Professional Conduct for Authorised Financial Advisers
The Commissioner for Financial Advisers approved the draft Code on 2 September and has sent it to the Minister of Commerce for his approval. The Minister has up to 90 days to review the Code.
Financial adviser fees regulations released
- AFA application fee: $1,120
- AFA renewal of authorisation fee: $560
- QFE application fee: $4,780
- QFE renewal of status: $4,500
- Each Partner Entity in a QFE Group must pay the relevant fee. Associated entities, however, are exempt.
On 9 August 2010 a Regulations and Codes of Practice Consultation Document and a Ministerial Exemptions Policy were released.
The Consultation Document follows on from the Regulations Discussion Document released earlier in 2010 and contains proposals regarding:
- The application of the AML/CFT Act (exemptions, threshold values);
- Customer due diligence requirements (identity verification, document certification);
- Factors to be considered when completing a risk assessment;
- Third party reliance;
- Designated Business Groups; and
- Annual reporting requirements.
Submissions on the Consultation Document closed on 6 September 2010.
The Ministerial Exemptions Policy sets out the regulation-making powers of the Minister and the Governor-General and how applications for exemptions will be assessed.
The AML/CFT co-ordination committee (Securities Commission, Reserve Bank, Internal Affairs, Police, Customs and Justice) are continuing to work on implementation and are meeting on a monthly basis.
It has been recommended that all affected entities continue to assess business risk in preparation for submitting their risk assessments.
The implementation period is likely to be two years from the release of the Regulations (given recent announcements by the Minister in respect of a slowing down in the AML implementation process, to enable providers to deal with the current amount of regulation being introduced). The AML regime is likely to be fully in force by late 2013.
SECURITIES ACT / REGULATIONS
The Ministry of Economic Development (MED) released a Discussion Paper on the Review of Securities Law in June 2010.
The Paper seeks submissions on the proposals to substantially revise New Zealand's securities laws and update the regulatory regime.
The Paper contains five chapters which include the following proposals:
- Defining regulated financial products - four specific categories of financial products are proposed to be covered by the new Act with economic substance considered over form: equity, debt, collective investment schemes and derivatives. The focus of the amendments will be on investment products designed to create an investment return or to hedge risk with the Financial Markets Authority given discretion to designate financial products into one of the categories or to reclassify a product.
- Offers to exempt investors - MED proposes a new set of exemptions for offers to investors where the full regulatory requirements of the Securities Act are deemed inappropriate (eg. investment businesses, sophisticated investors). The MED aims to provide certainty in respect of such exemptions with categories widened and tests simplified.
- Disclosure - A single product disclosure statement (PDS) is proposed, which would be designed specifically for certain financial products. Each PDS would be split into two sections; a two page summary of the nature of the investment and its risks, followed by additional disclosures necessary for an investor to make a decision. Issuers will be required to set a simple risk rating with additional disclosures registered on the financial register of securities.
- Collective investment schemes - MED proposes introducing a new standard framework for all collective investment schemes regardless of legal form.
- Other matters - Other matters discussed include treatment of unregistered and lightly regulated securities exchanges and expanding the powers of the Financial Markets Authority.
The full paper is available at: http://www.med.govt.nz/upload/73375/discussion-document.pdf. Submissions on the Discussion Paper closed on 20 August 2010.
While it was originally proposed that a new Securities Act would be brought into force some time in 2011 this is now expected in 2012.
The Securities Regulations 2009 are now in force. The transition period for issuers to comply with the new Regulations has now expired (issuers could elect to comply with the 1983 Regulations, on a transition basis, until 30 June 2010).
TRANSTASMAN MUTUAL RECOGNITION
The current ARMIS notice expires on 30 September 2010. Any issuer of an Australian registered managed investment scheme relying on this notice will need to opt into the new transTasman mutual recognition regime before this date.
CROWN RETAIL DEPOSIT GUARANTEES
A new Securities Act (Crown Retail Deposit Guarantee Schemes) Exemption Notice 2010 revokes the 2008 Exemption Notice.
The retail deposit guarantee scheme has been extended to 31 December 2011 on the basis of stricter criteria (primarily credit rating). A new form of guarantee deed applies from 1 January 2010 for those entities continuing to offer securities subject to the guarantee. Some institutions have opted out of the scheme.
A further series of questions and answers on the retail deposit guarantee scheme have been posted on the Treasury's website. These include information on who is covered by the scheme, how the scheme works, claims and defaults and changes to the scheme, as well as specific information tailored for institutions and trusts. The questions and answers are available here: http://www.treasury.govt.nz/economy/guarantee/retail/qanda.
South Canterbury Finance
The Government has paid out $1.7billion to cover investor losses to Trustees Executors Limited which oversees the interests of South Canterbury's 35,000 investors. This decision covers all investors including some which would be ineligible for payment under the guarantee under criteria relating to citizenship and tax residency.
Treasury Secretary Gabriel Makhlouf stated that while this will incur an upfront cost, it is cheaper overall for the Crown because it facilitates immediate payout of depositors and avoids the need for the Crown to make future interest payments.
REGULATION OF NONBANK DEPOSIT TAKERS
From 1 September 2009 non-bank deposit takers were required to comply with risk management programme guidelines, and from 1 March 2010, long term issuer credit rating was required.
The Deposit Takers (Credit Ratings, Capital Ratios, and Related Party Exposures) Regulations 2010 were released in June 2010. The Regulations:
- specify the type of credit rating that a deposit taker is required to have;
- require every deposit taker and trustee to ensure that the deposit taker's trust deed includes the minimum capital ratio that the deposit taker must maintain;
- specify the minimum capital ratio that must be included in the trust deed and how the ratio must be calculated;
- declare additional classes of persons to be related parties of deposit takers;
- require every deposit taker's trust deed to include a maximum limit on aggregate exposures to related parties; and
- specify the maximum limit on related party exposures included in the trust deed and how the limit must be calculated.
The Securities (Moratorium) Regulations 2009 prescribe additional disclosure for offer documents in moratorium proposals, imply terms into trust deeds and require additional reporting.
INSURANCE (PRUDENTIAL SUPERVISION) ACT
The Insurance (Prudential Supervision) Act was passed by Parliament on 26 August 2010 and received royal assent on 7 September 2010. The final version of the Act as passed is expected to be available soon.
The Act aims to promote a sound and efficient insurance sector and public confidence in it. All insurers that carry on business in New Zealand will have to be provisionally licensed by the Reserve Bank by 31 March 2012 and fully licensed by 30 September 2013. In order to get a licence, insurers must meet the requirements for entitlement for licensing under the Act including having:
- a current financial strength rating;
- the ability to carry on business in a prudent manner;
- the ability to comply with Prudential regulation and statutory fund provisions;
- the ability to hold and maintain a minimum amount of capital specified in an applicable solvency standard;
- a satisfactory fit and proper policy and risk management program (including appointing an actuary); and
- appropriate incorporation and ownership structure, governance and financial strength.
Draft solvency standards for life insurers were released for comment on 23 August 2010.
NZX's new clearing and settlement system, the NZCDC Settlement System, was granted 'designated' status under Part 5C of the Reserve Bank of New Zealand Act on 3 September 2010, and came into effect on 6 September 2010.
The NZCDC Settlement System will be important to NZX's plans to create dairy, energy and other derivative products.
On 25 June 2010 the NZX Market Supervision gave notice to the public of amendments to its NZSX/NZDX/NZAX listing rules relating to the introduction of the NZCDC Settlement System. A copy of the amended rules can be found at www.nzx.com/market-supervision/rules/.
The Securities Markets Act (NZCDC Settlement System) Exemption Notice 2010 exempts the New Zealand Clearing and Depository Corporation Limited, NZ Clearing Limited, New Zealand Depository Limited and specified participants from the substantial security holders' disclosure obligations in sections 22 to 25 of the Securities Markets Act 1988 in respect of any relevant interests in a security under the new NZCDC settlement system.
A policy document (Designation and Oversight of Designated Settlement Systems (DSS1)) explaining the roles and policies of the Reserve Bank and the Securities Commission in relation to the designation and oversight of designated settlement systems can be found on the Securities Commission website.
The application process, the application fee, and information that should be submitted with an application for designation are set out in the joint regulators Application Guidelines for Designation under Part 5C of the Reserve Bank of New Zealand Act 1989 (DSS2), also found on the Securities Commission website.
The Securities Trustees and Statutory Supervisors Bill received its first reading on 23 March and submissions to the Commerce Committee closed on 6 May. The Commerce Committee is due to report back to Parliament on 24 September 2010.
The Bill removes the automatic statutory approval for the existing six trustee companies and requires all debt trustees, statutory supervisors and unit trustees to be licensed by the Securities Commission. The Securities Commission will consider a number of factors in deciding whether to grant a license, including the experience, skills and qualifications and financial resources of the applicant together with the applicant's independence from issuers of securities covered by the licence and the applicant's governance structure. Licences will be tailored so that they fit the purpose and impose obligations that reflect the characteristics of the issuers being supervised. Ongoing monitoring will be the responsibility of the Securities Commission.
Simon Power has recently announced the intention to amend the Securities Act so as to provide that the manager of a retail KiwiSaver scheme is the 'issuer'. In this announcement the Minister has also confirmed trustees of retail KiwiSaver schemes will be subject to the Bill. The licensing requirements in respect of KiwiSaver trustees will however be delayed with the change to the KiwiSaver issuer to be implemented in legislation establishing the Financial Markets Authority.
TRANS-TASMAN PORTABILITY OF RETIREMENT SAVINGS
The Taxation (Annual Rates, Trans-Tasman Savings Portability, KiwiSaver and Remedial Matters) Act was passed by Parliament on 25 August 2010 and received royal assent on 7 September 2010. The final version of the Act as passed is expected to be available soon. The provisions in the Act relating to Trans-Tasman Savings Portability are expected to come into effect early to mid 2011. At the date of this update no specified date can be provided as the legislation relies on equivalent enabling legislation in Australia being passed.
The Finance and Expenditure Committee (who reported back to the House on the Bill in May 2010) recommended that the Bill be passed with amendments.
Regarding the Trans-Tasman portability of retirement savings, the Committee recommended:
Reallocation or transfer back to Australia of savings if membership is declined or invalid - amending the Bill to refer to the 'amount transferred' rather than 'net' amounts to be paid if an individual's superannuation membership is found to be invalid. The Committee also recommends amending the Bill to ensure that in situations where KiwiSaver account amounts must be transferred back to the original Australian complying scheme, because the KiwiSaver enrolment is deemed invalid, an individual could nominate another superannuation scheme in Australia if their original scheme would not accept a transfer, or the scheme no longer existed.
Fees first deducted from New Zealand-sourced savings - deleting the clause from the KiwiSaver scheme rules that requires fees to be first deducted from the net value of amounts not transferred from Australia.
Other matters - The Committee considered amending the Bill to take account of concerns about the transfer of superannuation funds that exceed Australia's contribution threshold. However, the Committee concluded that this issue is not of great concern at present because of the relatively small amounts in KiwiSaver accounts that may be transferred.
The Committee's full report is available at: http://www.parliament.nz/NR/rdonlyres/D16AD1CE-691B-47FC-8DC3-6713AFB84D74/143038/DBSCH_SCR_4745_TaxationAnnualRatesTransTasmanSavin.pdf
KiwiSaver Act amendments
The Taxation (Annual Rates, Trans-Tasman Savings Portability, KiwiSaver and Remedial Matters) Act (the Act) makes a number of technical amendments to the KiwiSaver Act 2006.
The Act was passed by Parliament on 25 August 2010 and received royal assent on 7 September 2010. The final version of the Act is expected to be available soon. Notably, the Supplementary Order Paper (SOP) to the Act that added contribution rates of 6% and 10% was withdrawn before the Bill was passed by Parliament.
Another significant amendment already in the Act clarifies the way in which persons under the age of 18 may enrol in a KiwiSaver scheme:
- Children under 16 years old may only be enrolled by their legal guardians, and may not enrol themselves in KiwiSaver.
- Children aged 16 to 17 must co-sign with their legal guardians in order to enrol in KiwiSaver. They will not be able to enrol themselves, and a legal guardian may not enrol a child aged 16 to 17 into KiwiSaver without the child's consent.
Managers to become issuers of KiwiSaver schemes
The Government has confirmed that amendments will be made to the Securities Act 1978 to make the manager of a KiwiSaver scheme the issuer, rather than the trustee. The trustees of the scheme are currently the issuer. This change places more responsibility and accountability on the manager. Amendments will also be made to ensure that trustees are responsible for supervising managers and making sure they comply with the trust deed and their other responsibilities. Such changes will be introduced in the legislation, yet to be issued, establishing the Financial Markets Authority.
As mentioned under 'Trustee Supervision' above, proposed changes to the Securities Act mean that the Securities Trustees and Statutory Supervisors Bill currently before Parliament will require retail KiwiSaver scheme trustees to be licensed. Trustees will be supervised by the Financial Markets Authority (FMA).
First home deposit withdrawal and first home deposit subsidy
The first home deposit withdrawal and first home deposit subsidy will be available from 1 July 2010 onwards, once members have belonged and contributed to KiwiSaver for three years.
The qualifying criteria are detailed on the Housing New Zealand website. The criteria will be reviewed annually from June 2010. Application process details are now available on the Housing New Zealand website at http://www.hnzc.co.nz/hnzc/web/rent-buy-or-own/buying-your-first-home-with-kiwisaver/buying-your-first-home-with-kiwisaver.htm
The Tax Bill referred to above contains proposed amendments to the KiwiSaver scheme rules that will ensure that individuals with an interest or past interest in a leasehold estate, such as a residential tenancy, will not be excluded from the first home withdrawal.
Annual Reports via hyperlink
The Tax Bill also contains proposed amendments to the KiwiSaver Act 2006 that will allow scheme providers to fulfil the requirement to provide an annual report by sending a hyperlink in an email which links to the annual report, if the member has agreed to this in writing.
NEW ZEALAND AS A FUNDS DOMICILE
The Government has announced an initiative to look at the feasibility of establishing New Zealand as an Asia-Pacific funds domicile. A private sector group called the Fund Services Development Group was formed and has submitted their report to the Minister. An announcement or a cabinet paper is expected at some stage, possibly in late September. It is understood the report is positive towards the initiative, but will emphasize it is a long term game that needs strong leadership and focus. It will address such things as the regulatory requirements, tax and incentives. Oliver Wyman was engaged as a consultant to assist the group.
FINANCIAL MARKETS AUTHORITY (NEW 'SUPER REGULATOR')
On 28 April 2010, the Government announced the implementation of an integrated single regulator. The 'super regulator' will be called the Financial Markets Authority (FMA) and is expected to be operating by early next year, and will incorporate a wide range of existing regulatory powers and functions including those of the Securities Commission and some currently performed by the Companies Office and its National Enforcement Unit.
The FMA will also have the following functions:
- Will have sole responsibility for enforcing securities, financial reporting and company laws.
- Will regulate and oversee trustees, auditors, directors of financial service providers and financial advisers.
- Sharemarket operator NZX will retain the power to make and enforce its own market rules, but they will need to be approved by the FMA which will also have powers to formulate rules.
- The functions of NZX's NZ Markets Disciplinary Tribunal will be transferred to a new statutory rulings panel serviced by the FMA.
- All of the functions of the Government Actuary, including KiwiSaver regulation, will be transferred to the FMA.
The cabinet paper has been released and a bill is expected to be introduced to Parliament any time. Since the announcement, the Financial Markets Establishment Board has been set up under the chairmanship of Simon Botherway.
CAPITAL MARKET DEVELOPMENT TASKFORCE
On 26 May 2010, Simon Power released a progress report on the Government's response to the Capital Development Taskforce. The document outlines recommendations which:
- have been delayed;
- have been fast-tracked; and
- are on-track to be implemented.
The full progress report is available at: http://www.med.govt.nz/upload/72824/CMDT-April-Progress-Update.pdf.
The Taskforce report was originally issued in December. The report covers:
- Better informing retail investors.
- Improving the quality of investment products.
- Improving commercialisation and start up funding.
- Freeing up private markets and expanding public markets.
- Co-ordinating capital market infrastructure.
- Addressing tax biases.
Commerce Minister Simon Power released the Government's plan for responding to the Capital Market Development Taskforce report on 18 February 2010. Some of the recommendations the Government has said that it is committed to implementing are:
- Introducing plain English into investment statements and prospectuses, with warnings on risky or complex products.
- A more co-ordinated approach to the Government's role in improving the financial literacy of New Zealanders.
- Ensuring the duties of fund managers and supervisors are clear and enforced.
- Considering consolidating parts of the Companies Office, Securities Commission, and the NZX Disciplinary Tribunal into a new market conduct regulator.
- Making it easier and cheaper for companies to raise capital privately by clarifying and broadening the exemptions to the Securities Act and Takeovers Act.
- Improving risk management in the economy by supporting the development of derivatives markets in commodities and energy.
As well as steps to improve capital markets, the Government has started work on a business case to develop the Taskforce recommendation of establishing an Asia-Pacific financial services hub.
INVESTMENT SAVINGS AND INSURANCE ASSOCIATION (ISI)
The Investment Savings and Insurance Association (ISI) represents many investment and life insurance companies in New Zealand.
ISI is looking at addressing concerns by self-regulation rather than regulation.
New standards and guidelines that have recently been released by the ISI for its members include:
- Proposed policy to phase-out commissions (April 2010) - the proposed policy will include the discontinuance of volume-based performance bonuses or commission and ongoing renewal commissions. The policy will not be retrospective and there will be a transition period for members to comply. The ISI hopes the policy will result in consumers negotiating a fee for the service they receive which will ensure the consumer is fully aware of the cost and how that advice will be paid for.
- Code of Ethics and Conduct Standards (April 2010) - the Standards contain ethical standards (for example: "Members will conduct themselves with integrity and in a manner consistent with fostering and maintaining the good reputation of their industry and will refrain from any conduct that may bring discredit to their industry") and conduct standards (for example: "Members must at all times safeguard the interest of their customers provided that they do not conflict with the duties and loyalties owed to the community, as expressed by its laws."
These standards and guidelines are all available on the ISI's website at: http://www.isi.org.nz.
On 28 April 2010 the Government announced that auditor oversight, as it relates to issuer audits, is to be the responsibility of the new Financial Markets Authority (FMA).
The Government believes oversight is necessary to avoid finance company audit failures, and to ensure practitioners who carry out financial sector audits have the necessary skills and experience to carry out the work to a high standard. The changes will also bring New Zealand into line with international practise in this area, in order to allow New Zealand auditors to be recognised by overseas regulators.
The reforms will only affect audits of issuers of securities, along with banks, insurance companies and other entities that take deposits or hold assets for broad groups of investors.
The auditor-related oversight functions are likely to come into force in mid-2012.
NZ-AUSTRALIA GOVERNMENT MOU ON THE COORDINATION OF BUSINESS LAW
On 23 June 2010 a revised Memorandum of Understanding on the Coordination of Business Law (MoU) was signed by the Governments of New Zealand and Australia, in accordance with the five-yearly review requirements of the original MoU.
The revised MoU incorporates the work programme of 27 cross-border 'outcome areas' agreed to in August 2009 by the New Zealand and Australian Prime Ministers, which include insolvency law, financial reporting policy, financial services policy, competition policy, business reporting, corporations law, personal property securities law, intellectual property law and consumer policy.
The Governments aim to accelerate, deepen and widen the trans-Tasman trade and investment relationship and hope that benefits will include improvement of the business environment in both countries, increased international competitiveness, increased national productivity and job creation.
The agreed principles to drive coordination efforts are:
- That people should not have to engage in processes or provide information twice
- Measures should deliver substantially the same outcomes
- Regulated occupations should operate seamlessly in each country
- Governments should seek economies of scale in regulation
- Products and services should be supplied in both jurisdictions
- Joint capability to influence international policy design should be strengthened
- Net trans-Tasman benefit should be optimised.
The MoU will be reviewed again in 2015.
CONSUMER LAW REVIEW
The Ministry of Consumer Affairs is currently undertaking a review of seven key consumer laws as part of a consumer law reform, including some areas that have not been reviewed for many years.
The legislation included in this review is:
- the Fair Trading Act;
- the Consumer Guarantees Act;
- the Weights and Measures Act;
- the Layby Sales Act;
- the Unsolicited Goods and Services Act;
- the Door to Door Sales Act;
- the Auctioneers Act; and
- aspects of the Goods Act and the Sale of Goods Act.
The discussion document assesses each of these pieces of legislation, in particular assessing their history, purpose, ongoing relevance, whether they are up-to-date for today's consumer transactions, any gaps in the law and the overall effectiveness of the law. The full discussion document is available here: http://www.consumeraffairs.govt.nz/pdf-library/consumer-law-review-a-discussion-paper.pdf.
The review aims to lead to principles-based consumer law, simplification and consolidation of the existing consumer law and harmonisation with Australian consumer law (where appropriate), in accordance with the government's agenda of a single economic market with Australia.
Submissions on the discussion document closed on 30 July 2010, and submitters were heard in August in Wellington. The Ministry is now considering all submissions received and will prepare a summary of submissions that will be made available to the public. The Ministry will then report to the Minister of Consumer Affairs on a recommended path for the reform of consumer laws.
REGULATORY RESPONSIBILITY BILL
Submissions on the Draft Regulatory Responsibility Bill prepared by the Regulatory Responsibility Taskforce closed on 27 August 2010.
The central feature of the Bill is the introduction of six principles of responsible legislation. In brief these are that legislation (which is defined broadly but does not include local government legislation at this stage) should:
- Be consistent with the rule of law;
- Not diminish personal liberty, security, freedom of choice or action or property rights except as necessary to provide for the liberty, freedom or rights of another;
- Not take or impair property without the consent of the owner except in the public interest and with full compensation;
- Not impose charges unless the charges are reasonable and only impose taxes through Acts of Parliament;
- Provide for merit review of decisions by public bodies that affect a person's liberties, freedoms or rights; and
- Not be made unless those affected have been consulted, the benefits of it outweigh the costs, and it is the most effective, efficient and proportionate response to the issue.
However, the Bill limits these principles by stating that incompatibility with the principles is justified to the extent it is reasonable and can be demonstrably justified in a free and democratic society.
The Bill includes four key mechanisms for ensuring compliance with the principles:
- Ministers and Chief Executives of Government Departments must certify that any proposed new legislation is compatible with the principles and if not, why not.
- Courts must interpret legislation consistently with the principles where possible (all new legislation following the Bill and all legislation, new and old, following the 10th anniversary of the Bill).
- Courts have the power to declare legislation to be incompatible with the principles (all new legislation following the Bill and all legislation, new and old, following the 10th anniversary of the Bill). However, any such declaration will not affect the validity of the incompatible legislation.
- Public entities must review all the legislation they are responsible for in order to check compatibility with the principles and publish information on these reviews.
See https://www.treasury.govt.nz/economy/regulation/rrb for more detail and a list of the consultation questions.
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