Discussion Paper

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5. Further Features of the Approved Schemes System

Amending the Scheme Rules

161. If a scheme wishes to amend the scheme rules, the scheme must notify the proposed changes to the Minister (section 65). The Minister will consider whether the changes are adequate in regards to the benchmark principles, and whether the rule requirements under section 63 are met. If the Minister does not approve the change, then the change must not be made.

162. If the Scheme has not heard from the Minister within 45 working days of the notification being made, the change is treated as having been approved by the Minister. The scheme cannot have rules that conflict with this process.

163. As discussed earlier, good practice suggests there should be a governance board responsible for overseeing the operations of the scheme. If a governance board is in place, it is suggested it is responsible for recommending changes to the scheme rules and promoting consultation on those changes. While members should be consulted about changes, it is not advisable to give members the power to veto any proposed amendments. Giving members a veto power:

• Gives members a disproportionate influence compared with other stakeholders, particularly consumers; and
• Undermines the Scheme's independence from those that provide funding.

Exit Requirements

164. The Minister must withdraw approval if the person responsible for an approved scheme so requests. The withdrawal takes effect from any future date requested (section 56(3)). The members of the scheme will become members of the reserve scheme unless other arrangements have been made to join another approved scheme (section 61).

Revoking Approval

165. Approval does not expire. The indefinite period of approval is intended to encourage investment in resources and staff capability. The Minister is able to review the functioning of approved schemes through mechanisms such as the annual report (section 68), and the independent reviews (section 63(q)).

When the Minister may withdraw approval (section 56)

166. The Minister may withdraw approval under section 56 for a number of specified reasons. These include:

• A breach of a requirement prescribed in regulations;
• A failure to comply with scheme rules;
• A list of current members has not been maintained or published;
• The scheme's rules have not been published;
• Required information has not been supplied to the Minister, such as the annual report, information requested under section 69, and the independent review required under the scheme rules;
• Changes to the rules have not been notified to the Minister;
• The provision for co-operation and information sharing was not been complied with; and
• The scheme no longer satisfies the principles of fairness, independence, accountability, efficiency, effectiveness and accessibility.

167. When deciding whether to withdraw approval, the Minister must have regard to a number of the initial approval considerations, in light of the principles of fairness, independence, accountability, efficiency, effectiveness and accessibility. These considerations are:

• Whether the scheme has an appropriate purpose;
• Whether there has been reasonable consultation with persons likely to be substantially affected by the scheme;
• Whether there is adequate funding for the scheme to operate according to its rules and its purpose;
• Whether the directors and senior managers are competent to manage a dispute resolution scheme;
• Whether the scheme is capable of resolving disputes about the types of financial services provided by its members;
• The claims limit, and whether this is reasonable and appropriate; and
• Whether the scheme rules comply with section 63, and with the principles of fairness, independence, accountability, efficiency, effectiveness and accessibility.

Notice of Intention to Withdraw Approval (section 57)

168. Once the Minister decides to withdraw approval, he or she must give notice to the person responsible for the scheme stating the reasons for withdrawal. The Minister's notice may require the person responsible for the scheme to notify all members, or to provide the Minister with a contact list so that the Minister may notify the members. During the notice period, the scheme must not accept any new members (section 58(1)(b)).

Objection to Withdrawal of Approval (section 58)

169. A notice period of 20 working days applies, during which the person responsible for the scheme may object to the Minister's intention to withdraw approval. Once the Minister receives an objection, he or she cannot proceed with the withdrawal until satisfied that any or all of the withdrawal reasons in section 56 apply.

Notification, Publication and Effect of Withdrawal of Approval (sections 59 – 61)

170. After withdrawing approval, the Minister must notify both the Registrar and the person responsible for the scheme as soon as practicable. The withdrawal becomes effective from the date the person responsible for the scheme is notified. Members of the scheme then become members of the Reserve Scheme.

171. The Minister must ensure that the withdrawal is published in the Gazette, and that the Chief Executive updates the details that are available for public inspection under section 78.

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