The Government has recently announced changes which will impact the non-bank financial sector.The changes include:

• Requiring registration of all financial service providers;
• Implementing dispute resolution mechanisms; and
• New rules for non-bank deposit takers including credit unions.

Registration Of All Financial Service Providers

What Is Being Proposed?

All financial service providers will be required to be registered on a publicly searchable database.  The definition of “financial service provider” includes banks, friendly societies, credit unions, building societies, industrial and provident societies, finance companies and lending businesses.

Registration will require the following information:

• The name of the entity;
• The name of the Dispute Resolution Scheme to which the entity belongs;
• A list of categories of financial services provided; and
• Details of controlling shareholders, directors, and management.

The details of controlling shareholders, directors, and management will be used to ensure that no controlling shareholder, director or senior manager is:

• An undischarged bankrupt;
• A person who is prohibited from being a Director or promoter of or concerned in the management of a company under the Companies Act, Act, Securities Markets Act or the Takeovers Act;
• A person who has been convicted a crime involving dishonesty or fraud within the previous five years, or convicted of a crime involving money laundering or financing of terrorism; and
• A person who has been subject to a confiscation or forfeiture order under the Proceeds of Crimes Act 1991, or in the event that it is enacted, such an order under the Criminal Proceeds (recovery) Bill.

The public will be able to search the register to access information on the products and services provided by the financial service provider and also which dispute resolution scheme the financial service provider belongs to.

The Registrar of financial service providers will be the same person who is the Registrar of companies.  The Registrar and other regulators will be able to enforce legislation relating to the financial sector with the assistance of the new compulsory registration.

Why Are The Changes Being Made?

The aim of requiring registration of all financial service providers is to enable identification and monitoring of providers of financial services.  The Government’s view is that this in turn should allow identification of risks in the financial sector as well as identifying those who are not complying with statutory requirements.  The changes will also allow consumers to access information on a financial service provider.  There is currently no assurance to consumers that financial service providers are fit to run financial institutions.  The overarching goal is to promote confidence in the financial sector.

Although some financial services providers are already subject to registration requirements, such as under the Building Societies Act 1965, the Friendly Societies and Credit Unions Act 1982 and the Securities Act 1978, the Government didn’t consider that the current requirements provided sufficient coverage of providers and their services as such requirements were established for many different purposes.

Dispute Resolution Mechanisms

Membership of an approved dispute resolution system will be mandatory for financial service providers who transact with consumers.  Disclosure to consumers of the nature and procedure of the dispute resolution system selected will also be required.  The Government will approve schemes and receive periodic reports, and may have powers of inspection.  However, the dispute resolution system will be fully funded by the industry.

Consumers will still retain their ability to take court action if they wish.  Consumers will not be precluded from rejecting decisions made by an approved dispute resolution scheme and taking court action against a financial provider.  There will also be a limited right to appeal from a decision of an approved disputes resolution scheme.

The aim is to provide simple, low cost, means for consumers to resolve issues with financial service providers.

New Rules Ror Non-Bank Deposit Takers Including Credit Unions

All non-bank deposit takers (“NBDTs”) will continue to be supervised by Trustee corporations but will be subject to some additional requirements:

• Licensing by the Reserve Bank and subject to conditions and enforced by the Reserve Bank in consultation with the Securities Commission;
• Public disclosure requirements under the Securities Act;
• To obtain and disclose a credit rating from an approved rating agency;
• The Reserve Bank will be responsible for administering the credit ratings regime; and
• The Securities Commission will authorize and supervise Trustee corporations and will set and enforce public disclosure requirements for NBDT in consultation with the Reserve Bank.

The credit rating will describe a NBDT’s capacity to meet its commitments and its probability of default.

When Will The Changes Take Place?

The Government intends that new legislation to give effect to these systems will be introduced later in 2007 and is aiming for the legislation to be enacted in 2008.  However, the new requirements will not come into force until a later date so that all entities affected will have sufficient time to come into compliance with the new requirements.