More work wanted on regulations for finance companies

The organisation representing many of the country's leading finance companies has sounded a cautious note over the Cabinet's initial approval for the Reserve Bank to regulate non-bank deposit taking institutions.

More work needed to be done to establish which firms the bank should oversee, the Financial Services Federation said.

Shortly before Christmas the Cabinet said there should be a single prudential regulator for all non-bank deposit taking institutions and that it should be the Reserve Bank, which already regulates banks.

The Cabinet's decision was a response to recommendations arising from the Ministry of Economic Development's ongoing review of financial products and providers.

Justin Kerr, the federation's executive director, said yesterday that there was "some merit" in having a single prudential regulator.

"If you're looking at the approaches adopted by other countries, we look to be a little bit odd in having one group of deposit-taking institutions that are banks regulated by the Reserve Bank and another regulated differently."

But Kerr said at this point it was unclear which businesses would fall under the Reserve Bank regulation. It would depend on how the non-bank category was defined.

The federation has 51 members, including GE Money, Hanover Financial Services, UDC Finance and Baycorp Advantage, between them holding more than $17 billion in assets.

Kerr said bank-like businesses among the federation members including building societies and the PSIS would easily fall under Reserve Bank regulation.

"If the business was simply providing transactional facilities, providing something equivalent to a cheque account, then that might be clear-cut, but when it comes to short-term investments it's unclear whether they should be included."

"The debt securities part will certainly cover the finance company funding that doesn't fall into the deposit-taking category," he said.

Last month the Cabinet also approved proposals that would see co-regulation of the financial services industry by the Minister of Commerce, the Securities Commission and approved professional bodies.

Those to be regulated would include investment advisers and marketers.

The Ministry of Economic Development, the Securities Commission and industry groups will go ahead with detailed design work on the new regime and are expected to produce a discussion document later this year.

The ministry will work toward presenting the draft bill to the Cabinet in the first half of next year with a view to having it passed next year or in 2008.