Discussion Paper

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5. Proposed Organisation Form and Governance of the Reserve Scheme

74. The proposed structures of the reserve scheme and their functions and relationships are outlined below.

Minister of Consumer Affairs

75. The Minister of Consumer Affairs is responsible for Part 3 of the Financial Service Providers Act. The Minister's specific duties in relation to the reserve scheme are to:

• Recommend the rules about the functions of the reserve scheme;
• Recommend the appointment of the reserve scheme service provider;
• Recommend regulations on the levies and fees payable to the reserve scheme, including the amount, method of calculation and penalties or consequences of non-payment of levies;
• Undertake consultation with the Ministers of Finance and Commerce on the appointment of the reserve scheme provider and the reserve scheme rules prior to making any recommendations;
• Undertake consultation with persons who may be substantially affected by the reserve scheme rules and reserve scheme levies prior to making any recommendations;
• Recommend the appointment of members to the reserve scheme advisory body;
• Receive and consider annual reports of the reserve scheme; and
• Undertake not later than 5 years after the commencement of the dispute resolution regime, a review of the dispute resolution regime with recommendations on any necessary or desirable amendments to the regime, and to table the review report in Parliament.

Reserve Scheme Service Provider

76. It is intended that a Service Provider will perform the reserve scheme dispute resolution services as set out in the "Operating Rules". The Service Provider will be contracted by way of open tender. The contracting body for this service will be the Ministry of Economic Development/Ministry of Consumer Affairs and the service will be funded from levies. It is proposed that the reserve scheme operations will be overseen by an advisory body, which will also be funded through the levy.

Reserve Scheme Advisory Body

77. It is proposed that a reserve scheme advisory body is established to oversee the operations of the reserve scheme service.

Functions of the advisory body

78. It is proposed that the functions of the advisory body will be to:

• In conjunction with the Ministry of Consumer Affairs, recommend a reserve scheme service provider to the Minister of Consumer Affairs;
• In conjunction with the Ministry of Consumer Affairs, recommend the total annual budget for the reserve scheme to the Minister of Consumer Affairs;
• Consider the business plan;
• Oversee and monitor the reserve scheme's operation and effectiveness;
• Review the service provider's performance;
• In conjunction with the Ministry of Consumer Affairs, consult with members on any proposed changes to the scheme rules and make recommendations to the Minister for his or her consideration;
• Provide guidance to the service provider on policy and procedural matters;
• Consider any proposals from the service provider concerning reserve scheme members' expulsion from the scheme for non-compliance with the scheme's rules;
• Receive and consider complaints about the operation and performance of the reserve scheme service. The advisory body may elect to consider the complaint itself or it may request an independent person to advise on the matter;
• Receive information about systemic industry issues and provide advice to industry, relevant government agencies or the Minister, as appropriate;
• Develop guidelines for members' internal dispute resolution procedures; and
• Not later than 5 years after the commencement of the reserve scheme, work with the Ministry of Consumer Affairs to facilitate a review of the scheme through an independent reviewer. This includes assisting with the terms of reference and selection of reviewer.

Advisory body composition

79. It is proposed that the advisory body will consist of 7 members with 3 members being appointed because of their governance experience and knowledge of or connections with the industry members and 3 members because they represent consumer interests, and an independent chair.

80. The appointments process will be administered by the Ministry of Consumer Affairs and members will be appointed by the Minister of Consumer Affairs. The process will be similar to those conducted for other government appointed boards and advisory groups and will be conducted in a fair and transparent manner.

Foundation advisory body

81. If as proposed, the advisory body will have a role in selecting the reserve scheme service provider, the advisory body will need to be in place by late this year. At this stage, it is unlikely that the membership of the reserve scheme would be known and therefore the financial sector representation needed on the advisory body. Therefore it is proposed that a foundation body be established which would operate for 12-18 months until the reserve scheme membership becomes clearer.

Advisory body secretariat

82. The advisory body will require a secretariat to provide operational and administrative support to the advisory body, for example, monitoring the operations of the reserve scheme, developing and implementing standards for members' internal dispute resolution procedures and organising meetings. It is proposed that the secretariat will be funded by industry levies and be housed within the Ministry of Consumer Affairs.

The Ministry of Consumer Affairs

83. The Ministry of Consumer Affairs will continue to deal with policy matters relating to the reserve scheme and the financial service providers dispute resolution regime. The Ministry will:

• Contract the reserve scheme service provider.
• Administer the advisory body appointment process;
• House and manage the advisory body secretariat;
• In consultation with industry and with assistance from the advisory body, recommend the levies and fees to the Minister to be provided for in regulations.
• On an ongoing basis, in consultation with the advisory body, attend to any policy matters relating to the reserve scheme;
• Work with the advisory body to facilitate an independent review of the reserve scheme, no later than five years after its commencement; and
• Undertake a review of the operation of Part 3 of the Financial Service Providers Act not later than 5 years after the commencement of the scheme. The review will include recommendations to the Minister on whether any amendments to the Act relating to the reserve scheme are necessary or desirable.

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