Originally published December 2005
Government initiatives for reform of the financial services sector continue to gather momentum. We take this opportunity to update you on the progress of various proposed reforms in the sector.
Alasdair Mcbeth And Tracey Cross Appointed To Advisory Groups
As part of its Review of Financial Products and Providers (Review), the Ministry of Economic Development has recently announced the establishment of new Advisory Groups to focus on the following areas:
- Collective investment schemes.
- Non-bank deposit taking institutions.
- Equity and debt.
The purpose of these Advisory Groups is to 'bring together industry and expert perspectives to ensure that policy proposals best meet the needs and circumstances of New Zealand industry and consumers'. Alasdair McBeth has been appointed to the Collective Investment Schemes Advisory Group and Tracey Cross has been appointed to the Superannuation Advisory Group.
The next step in the process will be the release of a discussion paper outlining options for reform – it is expected that consultation on this discussion paper will take place in the first half of 2006. Policy proposals will then be put to cabinet in late 2006, with a view to having new legislation in place in 2008.
The Review will be informed by a number of separate reviews being carried out, including the work of the Financial Intermediaries Taskforce, the review of the Securities Act 1978, the Law Commission's Report on Life Insurance and the review of Credit Unions.
Task Force On Financial Intermediaries – Cabinet Approval For Co-Regulatory Model To Be Sought By Christmas
Recent government announcements indicate it is keen to keep up the momentum on the Task Force's recommendations. The government has said that it supports the proposed co-regulatory model under which a government regulator would work together with industry-led approved professional bodies. It will aim to obtain Cabinet approval to this model before Christmas. This will give certainty to industry that there will be a role for approved industry bodies, and allow officials to work with these bodies in designing the new regime.
The government recognises that there is still a lot of detailed design work to be done, and has said that the Ministry of Economic Development will carry out this detailed design work through to mid-late 2006. This will involve consultation with approved industry bodies, the regulator and other stakeholders. The aim is to have a draft bill presented to Cabinet in the first half of 2007, and legislation implementing the co-regulatory framework in place by 2007/2008.
STOP PRESS - FINANCIAL INTERMEDIARIES
We have just received confirmation from the Ministry of Economic Development that Cabinet has approved the co-regulatory model proposed by the Financial Intermediaries Task Force. We will be reviewing the Cabinet paper released on 21 December 2005, with a view to providing a further update early in the new year.
Securities Legislation Bill
The Securities Legislation Bill (Bill) was introduced on 30 November 2004. The aim of the Bill is to increase the effectiveness and efficient operation of New Zealand's securities and takeover laws and, as a result, attract investment in New
Zealand's capital markets. Key areas addressed by the Bill include:
- Insider trading.
- Market manipulation.
- Takeovers Code.
- Investment adviser and broker disclosure.
- Substantial security holder disclosure.
It had been expected that the Bill would have passed into legislation by now. However, we understand that a Supplementary Order Paper, dealing with a number of outstanding issues, is currently in formation. The SOP will not be publicly available until the new year, meaning that the Bill is not likely to become law until some time in early 2006.
Anti-Money Laundering Update
Best Practice Guidelines
The New Zealand Police Financial Intelligence Unit has released Best Practice Guidelines for Financial Institutions (Guidelines).
The Guidelines aim to assist financial institutions in understanding and complying with the requirements of the Financial Transactions Reporting Act 1996 (Act). They also seek to explain money laundering methods as well as providing ways to identify suspicious transactions.
The Guidelines are applicable to any financial institution involved in accepting or processing money on behalf of members of the public. This includes banks, insurance companies, retail investment companies, casinos, real estate agents and sharebrokers.
Under the Act, the obligations of financial institutions when accepting or processing money include the following:
- Verification of customer identity.
- Retention of transaction records and customer verification details.
- Reporting suspicious transactions.
Financial institutions should review their current compliance processes against the Guidelines to ensure they meet the requirements of the Act. This is important as failure to comply with the requirements of the Act is an offence.
The Guidelines are available at: http://www.police.govt.nz/service/financial/guidelines.html
Review of legislation
As outlined in our October bulletin, the Act is currently being reviewed by the Ministry of Justice to ensure its consistency with international standards on anti-money laundering and terrorist financing. Our October bulletin can be found at http://www.phillipsfox.com/publications/RecentPublications.asp The proposed review timetable aims to have the Financial Transactions Reporting Amendment Bill tabled in the House by April 2006, with the new legislation coming into effect in 2008. More information on the review is available at: www.justice.govt.nz
As noted in our May Financial Services Update, it is intended that the new KiwiSaver regime will commence on 1 April 2007. It is becoming increasingly apparent that this represents a very tight timeframe for all the steps yet to be achieved to get the scheme up and running by that date. We understand that a draft bill is to be put before the Minister of Finance before Christmas this year, and a bill introduced into the House in February 2006. This means that the detail of how KiwiSaver is to operate could be determined over the next couple of weeks, and there is concern within the industry that it does not leave much, if any, opportunity for further input from interested parties, particularly the impact it will have on existing superannuation schemes.
Proposed Changes To Taxation Of Investment Income
In June this year, the government released a Discussion Document on possible changes to the taxation of investment income. Proposed changes include new tax rules for collective investment vehicles, as well as new rules for offshore portfolio investment in shares. Phillips Fox was one of a large number of submitters on the Discussion Document. Submissions closed at the end of September, and the IRD is now working through those submissions. It is expected that an internal report will be made by the end of the year, with a view to a further (limited) consultation round taking place in late January or early February next year. However, it is not envisaged that there will be a further discussion document for general circulation.
With government having its foot firmly placed on the accelerator for KiwiSaver, the taxation of collective investment vehicles is in the spotlight. It is evident that the success of KiwiSaver could be dependent on the review on the taxation of collective investment vehicles. This may well see the tax rules for offshore investment in shares put on hold and the review on the taxation of collective investment vehicles brought forward so legislation is in place to take effect from 1 April 2006. This would mean that the policy work would need to be done in the first half of 2006 and the bill introduced by October 2006.
A copy of the government's June Discussion Document is available at: http://www.taxpolicy.ird.govt.nz/publications/files/invincomedd.pdf
This publication is intended as a first point of reference and should not be relied on as a substitute for professional advice. Specialist legal advice should always be sought in relation to any particular circumstances and no liability will be accepted for any losses incurred by those relying solely on this publication.