New Zealand Business Number agreement to issue Whole of Government directions

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1 OFFICE OF THE MINISTER OF FINANCE OFFICE OF THE MINISTER FOR ECONOMIC DEVELOPMENT OFFICE OF THE MINISTER OF STATE SERVICES The Chair Economic Growth and Infrastructure Committee New Zealand Business Number agreement to issue Whole of Government directions Proposal 1 This paper provides proposed directions on the implementation of the New Zealand Business Number (NZBN) for specified Crown entities, to be given as a whole of government direction under section 107 of the Crown Entities Act It recommends that Cabinet endorses the text and scope of these directions, and notes the Ministers of Finance and State Services intend to issue them. 2 This paper also provides an equivalent directive to specified government departments. It recommends that Cabinet endorse the text and scope of the directive, and agree to it being issued to the specified departments via a Cabinet Circular. Executive Summary 3 The NZBN is a key initiative in achieving the Result 9 Better for Business (R9) commitment of reducing business costs from dealing with government by 25 percent by the end of Each number will uniquely identify a business and will be able to be used in business-togovernment and business-to-business transactions. This will reduce transaction costs with initial benefit forecasts of $60m per annum to business. The goal, over time, is to replace many of the separate identifiers currently used by businesses and government agencies when dealing with each other. 4 A whole of government approach to using the NZBN is critical for the benefits of the NZBN to be realised. For this to be achieved agencies require direction about what they need to do, and by when. In March 2015, Cabinet agreed in principle for direction to be provided to: a. Government departments through an appropriate mechanism, likely to be a Cabinet Circular, and b. Crown entities by a whole of government direction issued by the Minister of Finance and the Minister of State Services under the Crown Entities Act [EGI Min (15) 6/2 refers] 5 In June 2015, the Ministers of Finance, Economic Development and State Services approved the commencement of consultation with 185 government departments and Crown entities on a proposed set of directions. 6 Following consultation, this paper seeks endorsement of the scope and text of these directions, agreement that a government directive be issued to departments (as a Cabinet Office Circular) and to note the Ministers of Finance and State Services intend to issue a whole of government direction to Crown entities (under the Crown Entities Act 2004). 1

2 Background to the New Zealand Business Number 7 Implementing a unique business identifier is a key part of delivering on the Result 9 Better for Business (R9) commitment of reducing business costs from dealing with government by 25 percent by The NZBN is a unique identifier that uses the Global Location Number format provided by an international organisation called GS1, which develops and maintains standards for supply and demand chains across multiple sectors. GS1 New Zealand is one of more than 110 member organisations of GS1 throughout the world. 8 The NZBN will be able to be used in government-to-business, business-to-government and business-to-business transactions over time. It will replace many of the separate identifiers currently used by businesses and government agencies when dealing with each other. It will deliver the following key benefits: Cost savings to business, by making it simpler and easier for them to deal with government. For example a business will only need to tell government once by updating their core information at a single point; Improved business efficiency, by providing a platform which the private sector can use as a basis for new goods and services for businesses; Cost savings to government agencies, by allowing them to obtain core information about businesses from a single source (i.e. the register of NZBNs), rather than from the businesses themselves; and Improve public services. 9 Companies have already been allocated NZBNs and the recent passing of the New Zealand Bill extends the NZBN from companies to other types of trading entities. As more businesses choose to use the NZBN, the more value it will have for other businesses already using it. There will need to be a high level of uptake from all other classes of business entity, such as sole traders and partnerships, if the full benefits of the NZBN are to be realised. A whole of government approach to using the NZBN is also critical for the benefits of the NZBN to be achieved. Background on the development of NZBN government directions 10 The Government has previously stated that the main goal of the NZBN is to replace, over time, many of the separate identifiers currently used by businesses and government agencies when dealing with each other. However, no comprehensive statement has been made stating when or how this goal will be achieved. Consequently, many government agencies are unsure about what they need to do to meet the Government s expectations or how to plan to meet those expectations. It also means that there is uncertainty about when businesses can expect to obtain the benefits of the NZBN. Issuing whole of government directions will provide clarity. 11 The Government can issue two types of directions: one to government departments under cover of a Cabinet Office Circular and the other to most types of Crown entities under a provision in the Crown Entities Act 2004 that empowers the Minister of State Services and Minister of Finance to jointly issue directions to support a whole of government approach. 12 Such directions are useful where there is a need for a large number of agencies to coordinate their actions and apply the same policies in order to achieve a government policy goal. For example, directions have been issued in relation to government procurement policy with the aim of improving the efficiency and effectiveness of procurement practices across government. In March 2015, Cabinet agreed in principle that it would be appropriate to use directions to progress implementation of the NZBN across the public sector. [EGI Min (15) 6/2 refers] 2

3 13 Whole of government directions to Crown entities are governed by the Crown Entities Act 2004 and Cabinet Office Circular CO (13) 4. The Act requires the direction to be jointly issued by the Minister of Finance and Minister of State Services. The processes listed in the Crown Entities Act and CO (13) 4 are relatively prescriptive. The steps include: Developing the draft text; Consulting with every entity to which the direction is proposed to apply; Reporting to Cabinet, seeking approval of the final text and scope and obtaining agreement that the direction be issued, and issuing the direction; Processes which are designed to permit the House to disapply the direction within 15 sitting days of it being presented to the House; and Reviewing the direction five years after issue (or earlier). 14 The process of issuing directions to government departments does not involve the same degree of prescription. However, where directions are being issued to departments and Crown entities on the same matter, then it is essential for the contents to be fully consistent. It is preferable for the two directions to be developed together and issued at or about the same time. 15 In March 2015, Cabinet agreed, in principle, that the NZBN directions would be underpinned by the following matters: The vision, the goals and the major milestones. The range of agencies to which each direction would apply. A high-level description of what agencies need to do to contribute to achieving the goal and milestones and by when. A requirement on agencies to report on progress annually. A centralised system for monitoring agencies reports, including reporting to Ministers on progress. [EGI Min (15) 6/2 refers] 16 Key considerations for progressing the direction include: driving broad uptake of the NZBN across the public sector maximising benefits to business and government from public sector use of the NZBN, while minimising costs of implementation ensuring known risks associated with implementation are able to be managed. 17 Analysis as to why issuing a whole of government direction, when compared to other alternatives, is the preferred approach is set out in Annex A. Other relevant Cabinet Decisions on public sector implementation of the NZBN 18 Since the introduction of the Government s Better Public Services (BPS) targets in 2013, implementation of the NZBN by the public sector has been split into two categories Result 9 (R9) agencies and non-r9 agencies. 19 The R9 agencies include the agencies that businesses tend to have frequent interactions with in the course of any year. The full list comprises Inland Revenue, Accident Compensation Corporation, New Zealand Customs Service, Statistics New Zealand, Ministry of Business, Innovation and Employment, Ministry for Primary Industries, New Zealand Trade and Enterprise, and Callaghan Innovation. 3

4 20 On 28 May 2014, EGI agreed that R9 agencies will be required to recognise businesses by their NZBN by the end of 2017 [EGI Min (14) 11/7, paragraph 3.1 refers]. At the time R9 agencies expressed their ability to do so as being contingent on matters such as comprehensive application of the NZBN to all business customers, the implementation of the NZBN by other R9 agencies on which they are dependent for data and their ability to prioritise the NZBN as part of their existing transformation programmes. Some R9 agencies indicated they may struggle to meet this date [EGI 14/110, para 35 refers]. 21 The proposed directions continue to require R9 agencies to recognise the NZBN by the end of 2017, with one exception. It is recommended that they be given until the end of 2018 to incorporate the NZBN into their finance/procurement systems as these systems were not in scope of the original agreement. The factors outlined in paragraph 20 continue to be relevant. The timing of passing the New Zealand Business Number Act 2016 and extending the NZBN to all trading entities will impact on the achievability of R9 agencies meeting the end of 2017 date. 22 Cabinet has made one decision to date in relation to government agencies that are not R9 agencies. On 28 May 2014, EGI agreed that non-r9 government agencies which have businesses as customers be required to report on their NZBN recognition plans on an annual basis, and that this information be used by the Minister for Economic Development, in consultation with the relevant portfolio Minister, to determine whether there is a need to formally require these agencies to recognise the NZBN [EGI Min (14) 11/7 paragraph 3.2 refers]. 23 The proposed directions would require all agencies subject to the direction to report on implementation progress in their annual reports commencing with their 2015/16 report. It is also recommended that agencies be required to provide the NZBN Registrar with any information the Registrar may require to undertake its monitoring role. This is discussed further in paragraph 50. Consultation on directions for the New Zealand Business Number 24 In June 2015, the Ministers of Finance, Economic Development and State Services approved the commencement of consultation with 185 agencies (32 government departments and 153 Crown entities) on a set of proposed NZBN directions. 25 The consultation document set out three categories of requirements. These categories were: agencies using the NZBN as an entity identifier (known as Category A: Recognise ) information sharing across agencies to enable businesses to change core business information with one agency and enable that information to be shared across government (known as Category B: Tell Government Once ) leveraging the NZBN for whole of government service delivery (known as Category C: System Investment and Integration). 26 All Crown entities subject to a whole of government direction are required to comply with the direction. The direction will provide some flexibility for entities in respect of its requirements by classifying each entity against each requirement with either of the following: give effect to (E) the agency must implement the requirement; have regard to (R) the agency must give serious consideration to implementing the requirement but can take into account other factors (e.g. cost, benefits and risk) as part of their decision making process. 27 In the initial consultation, it was proposed that 79 agencies would have to give effect to the direction, 52 would have regard to it, and 54 Crown entities that cannot be subject to a direction be invited to give effect to it. 4

5 28 Officials were deliberately ambitious in the initial classifications. This was with the expectation that information provided through the consultation process would enable more informed decisions to be made regarding the appropriate classification for individual agencies. It was noted in the consultation document that, following feedback, some entities may be reclassified or considered out of scope of the direction if they were not sufficiently business facing. 29 Formal consultation was carried out from 13 July 4 September Submissions were accepted until 15 October During the consultation period, MBIE held 14 workshops with 44 agencies and 10 one-on-one meetings with individual agencies. In August, follow up letters were sent to all agencies that were proposed to give effect to the direction but had not engaged in the consultation process. These letters were followed by telephone calls to confirm receipt. 30 MBIE received 66 submissions, covering 69 agencies. Submissions came from both government departments and Crown entities (with a range of different sizes and functions). Proposed to give effect to Proposed to have regard for Invited (can t be directed) # of agencies in initial classification # of submissions received Input from the submissions, workshops and informal engagement has enabled MBIE to better understand the likely impacts of the directions on most sectors and types of agency. Nineteen agencies sought changes to their proposed classification and provided rationale for this. 32 Feedback from agencies was constructive with all agencies supportive of the intent and goals of the NZBN. Most agencies were comfortable with Category A proposals that would require them to recognise customer NZBNs with their key business facing systems as long as they were able to determine for themselves how they would meet the requirement within the relevant systems. For example, in some systems they may choose a fully integrated approach while for others, especially aging legacy systems, they may implement a more manual process while awaiting system upgrade or replacement. 33 While agencies were also supportive of the Category B: Tell Government Once vision, feedback on this aspect consistently highlighted a number of challenges. These included costs, implementation risks, and achievability by the proposed date of Many agencies signalled that a lack of additional funding for NZBN implementation was a challenge, especially activities related to Category B: Tell Government Once. 35 If no additional funding was available they: would not be able to implement one or more categories within the timeframe consulted on 5

6 would have to divert funding from either core functions or other high priority IT investments, or would have to pass the implementation costs on to fee or levy payers. 36 There continues to be significant uncertainty about the cost to agencies of participating fully in the NZBN ecosystem. This has been a critical factor in officials recommendations, detailed in para 41, that Category B is focused on core business facing agencies for the next five years. With the recent passing of the New Zealand Business Number Act and technology decisions are made and solutions delivered over the next months, agency costs will be able to be quantified with greater certainty. 37 Where agencies did not make a submission, MBIE has reached classification recommendations based on publicly available information such as Annual Reports or Statements of Intent. However, some assumptions have had to be made. There is also a chance that some implementation risks have not yet been identified. Criteria used to classify agencies 38 The input received from agencies has shaped the final criteria used to apply classifications to ensure as much consistency across agencies as possible. 39 The criteria for assessing agency classifications have been: the nature of the agency s role the volume, value and nature of an agency s interaction with business the agency s criticality to delivering the benefits associated with the implementation of the NZBN over the next five years the risks associated with maintaining their originally proposed classification, and any other relevant consideration (e.g. national security). 40 Officials also recommend that some agencies be removed from inclusion at this stage, with the opportunity to reconsider their classification (if appropriate) when the directions are reviewed. This must be done within five years from the date of issue. The criteria for recommending that an agency be classified as out of scope are: the agency is expected to be disestablished within the next five years (e.g. Southern Response Limited) the agency is a limited life entity and its core purpose is not business related (e.g. Tamaki Redevelopment Company) the agency s small size and volume of interaction with business means that the costs of being subject to a direction, at this stage in the implementation of the NZBN, will outweigh the benefits (e.g. the NZ Symphony Orchestra) the agency not being included in the direction does not affect any other agency s ability to realise the NZBN s potential any other relevant consideration (e.g. national security). Recommended changes to the initial proposal and classifications 41 Following consultation and the analysis of submissions, officials have recommended some significant changes to the scope of the initial proposals and final classifications to individual agencies. The table below outlines the recommended changes at a high level. A more detailed analysis is attached as Annex B. 6

7 Proposal as Consulted On Category A: Recognise Recognise a legal entity by its NZBN Implemented by the end of 2017 (for R9 agencies) or by the end of 2018 (for all other directed agencies) 79 agencies were proposed to give effect to 52 agencies were proposed to have regard to 54 agencies invited to give effect to Category B: Tell Government Once Access relevant core business information (known as primary business data) from the NZBN register Receive and share changes to relevant primary business data to enable a business to tell government once Have systems in place so that only authorised people can change primary business data Use the NZBN on outgoing correspondence, where appropriate Implemented by the end of agencies were proposed to give effect to 54 agencies were proposed to have regard to 54 agencies invited to give effect to Category C: System Investment and Integration Considering: the NZBN when making investment decisions whether their agency s business registration and cessation processes should be added to the integrated process to be implemented by MBIE, ACC and Inland Revenue phasing out equivalent identifiers as appropriate when upgrading or replacing systems. Providing assistance to the NZBN Registrar to perform their monitoring function. The consultation document did not propose classifications for Category C. MBIE sought comments from agencies about how and when it Recommendation As consulted on, with some changes Make some changes to classifications from the consultation document, to better align agencies with criteria in paragraph 39. Medium and large agencies with a business-facing role give effect to, others have regard to. Result 9 agencies will continue to be required to meet the end of 2017 date to recognise the NZBN with their key business customer facing systems but have until the end of 2018 to fully implement into their finance/procurement systems. Agencies will determine for themselves how to meet the requirement to recognise the NZBN. While the goal is full system integration some agencies may choose to use a manual interim solution e.g. staff looking up NZBNs via especially if they are in the process of replacing legacy systems. 57 agencies recommended to give effect to 36 agencies recommended to have regard to 53 agencies invited to give effect to 39 agencies recommended be excluded from scope Start narrow, with key agencies Agencies that have significant interactions with trading entities (i.e. those with an NZBN) for regulatory purposes, give effect to Category B (All Result 9 agencies). All others have regard to Category B as the cost of applying the requirement to a wider range of agencies outweighs the expected benefits at this time. Of the forecast benefits of $60m per annum to business once the NZBN has been fully implemented, $26m accrues to the implementation of Category B. These forecast benefits are not compromised by the recommendation to narrow the direction to agencies that have significant interactions with trading interactions as the original forecasts were based only on implementation by Result 9 agencies. Agencies assessed by criteria as outlined in paragraph recommended to give effect to 85 agencies recommended to have regard to 53 agencies invited to give effect to 39 agencies recommended be excluded from scope Remove Category C, relocate some requirements to other categories, use existing business case process for others Remove Category C as a separate category and: Continue to progress integrated registration through the business case process ACC, IR, and MBIE are already committed to following Cabinet decisions in March 2015 and then consider inclusion in directions when they are reviewed, pending business case outcomes relocate the requirement on considering phasing out equivalent identifiers, so that it applies to all agencies subject to the direction relocate the requirement that agencies provide assistance so the Registrar can perform its monitoring function, so that it applies to all 7

8 should apply to them. Agencies were generally interested in pursuing the opportunities created by the NZBN. agencies subject to the direction. 42 The text of the proposed section 107 direction to Crown entities is attached as Annex C. The text of the proposed Cabinet Circular to government agencies is attached as Annex D. The draft explanatory notes for Select Committee are attached as Annex E. 43 The table below provides a high level summary of the recommended classifications of agencies when applying the criteria in paragraphs 39 and 40 and the recommended options for each category above. Recommended to give effect to Categories A and B Recommended to give effect to Category A and have regard to Category B Recommended to have regard to Categories A and B Recommended to be excluded from scope Invited to give effect to (can t be directed) # of agencies in recommended classification The recommended classifications for individual agencies are attached in Annexes F and G to this briefing. 45 Whole of government directions may be given to a group of Crown entities under section 107 of the Crown Entities Act only if the group is made up of at least three Crown entities and the entities have at least one significant characteristic in common that relates to the direction. The direction is proposed to be given to Crown entities that are all medium-large sized entities whose functions require them to interact with New Zealand businesses. The direction is proposed to be given under section 107 (1) of the Act for the specific purpose of improving public services. Dispute Resolution 46 In March 2015, EGI noted that consideration would need to be given to whether the directions will include a mechanism for resolving disputes about whether a business identifier currently being used by an agency could be replaced by the NZBN [EGI Min (15) 6/2 refers]. 47 As part of their considerations officials have consulted with the Government Centre for Dispute Resolution. At this time, there is insufficient evidence of the need for, or the appropriate design of, a formal dispute resolution mechanism. The inclusion of such a mechanism in the directions is not recommended at this time. The need for a formal mechanism can be revisited when the directions are reviewed. 48 There may be instances where an agency is uncertain about whether a business-related identifier or system should be in scope of the direction. Where this occurs, we recommend that they be required to consult with the NZBN Registrar and give serious consideration to the Registrar s advice. Monitoring and Reporting 49 It is recommended that Cabinet agree that all agencies subject to the directions be required to report implementation progress in their annual reports. It is proposed this commences from the 2015/16 financial year contingent on the section 107 direction to Crown entities completing the Select Committee process by 30 June

9 50 In addition to this, the NZBN Registrar will have a monitoring and reporting function. The proposed directions state that agencies must provide the Registrar with any information they require in order to carry out this function. The cost of this function will be met from the NZBN appropriation made in Budget The Registrar will report to the Minister for Economic Development six-monthly. Legislative implications 51 Some agencies may require legislative change to enable them to be able to incorporate the NZBN into their services. Agencies subject to the directions will be responsible for identifying any legislative change they require. MBIE officials will report back to the Minister of Economic Development on these and an appropriate legislative vehicle by the end of Financial implications 52 An agency will incur cost, and may incur some risk, from meeting the requirements of the directions. While it is expected costs to government agencies to meet requirements in the directions will be absorbed by each agency as they incorporate the NZBN into the ongoing refresh or redevelopment of their systems. However, the capacity of individual agencies to do so may vary according to the systems and processes that need to be implemented to enable the requirements to be met. 53 Costs will predominantly arise from changes to incorporate the NZBN into agencies key business customer facing systems with some costs also accruing to the accompanying necessary internal process changes. The significant majority of costs are expected to be one-off implementing these changes. 54. (Withheld under Section 9(2)(f)(iv)) Other agencies may also indicate funding pressures once they have completed work to finalise implementation costs. MBIE will continue to work with all agencies to understand their system requirements and options to minimise costs. As a last resort, a funding bid for Budget 2017/18 will be considered. 55 Agencies will not be charged for the support they will require from MBIE to be able to comply with the directions. For example, MBIE will be providing data matching services to match an agency s existing business customers with their NZBN. 56 Result 9 agencies (in particular IR and ACC) are building NZBN functionality into their departmental transformation change programmes. These agencies have not identified any marginal costs at this stage, or the need for additional funding. If significant marginal costs did arise, agencies would need to consider funding options at that time, or the approach to the Category B benefits anticipated would need to be reconsidered. Risks and Mitigations 57 The below table outlines the most significant risks and mitigations of the recommended approach to the directions. Risk Costs of complying with direction significantly out of proportion with total benefits* (for agencies required to give effect to ) *total benefits refers to benefits to business, network benefits and benefits to agencies. Mitigation/s Where possible, implementation of NZBN is being included as part of agency transformation programmes to minimize additional costs. For non-result 9 agencies, proposed clarification to direction includes where a system will be retired or replaced within the next three years it is exempt as long as replacement system/s comply in order 9

10 to minimize wasted investment. NZBN Registrar has an active monitoring role in implementation of the direction and can escalate agency concerns re costs to comply through appropriate governance groups and to Ministers. Crown entities have existing mechanisms to raise risks/issues with monitoring agencies. Where it is agreed implementation costs are significantly disproportionate to total benefits, an agency s classification for the direction can be reviewed earlier than five years and advice provided to Ministers on steps to reclassify that agency (or agencies). An agency required to give effect to the direction doesn t comply which impacts on other agencies ability to implement the NZBN. Implementation of NZBN does not deliver intended benefits The NZBN Registrar will be implementing proactive stakeholder management with agencies required to give effect to the direction and work with them to support their implementation of the NZBN. Processes will be put in place to identify any risk of non-compliance as early as possible and escalate as appropriate. Agencies will be required to report on implementation in annual reports starting from the 2015/16 financial year. The NZBN Programme is a major project monitored by Treasury and subject to a range of associated delivery accountability mechanisms (including Gateway reviews). The NZBN is a key initiative of the Result 9 programme and focused on benefits to business, rather than savings to agencies. Benefits of the NZBN are already being realised in the private sector e.g. Air NZ are using the NZBN automatic validation in their new Airpoints for Business programme removing the need for an employee to manually complete registrations. Consultation within government 58 The following government agencies were consulted on this paper: State Services Commission and Treasury; Agencies recommended to give effect to Category A and Category B requirements: Inland Revenue, New Zealand Customs Service, Accident Compensation Corporation, Statistics New Zealand, Ministry for Primary Industries, New Zealand Trade and Enterprise, Callaghan Innovation, and the New Zealand Transport Agency. 10

11 Agencies recommended to give effect to Category A requirements: Department of Conservation, Department of Corrections, Department of Internal Affairs, Education Review Office, Land Information New Zealand, Ministry for Culture and Heritage, Ministry of Defence, Ministry of Education, Ministry of Health, Ministry of Justice, Ministry of Social Development, Ministry of Transport, New Zealand Defence Force, New Zealand Police, Te Puni Kokiri, Auckland District Health Board, Bay of Plenty District Health Board, Canterbury District Health Board, Capital and Coast District Health Board, Civil Aviation Authority, Commerce Commission, Counties Manukau District Health Board, Earthquake Commission, Energy Efficiency and Conservation Authority, Environmental Protection Authority, Financial Markets Authority, Hawke s Bay District Health Board, Housing New Zealand Corporation, Hutt District Health Board, Lakes District Health Board, Maritime New Zealand, MidCentral District Health Board, Nelson Marlborough District Health Board, New Zealand Qualifications Authority, Northland District Health Board, Pharmaceutical Management Agency, South Canterbury District Health Board, Southern District Health Board, Tairawhiti District Health Board, Taranaki District Health Board, Tertiary Education Commission, Waikato District Health Board, Wairarapa District Health Board, Waitemata District Health Board, West Coast District Health Board, Whanganui District Health Board and WorkSafe New Zealand. Health Alliance Limited and NZ Health Partnerships Limited were informed as subsidiary companies of District Health Boards who would need to implement components of the direction on their behalf. The Ministry of Civil Defence and Emergency Management was consulted as an agency that has been recommended to have Tier Three classification which differs to the proposed classification of their umbrella agency (DPMC) (recommended as out of scope). 59 The Department of Prime Minister and Cabinet was informed. The Cabinet Office was consulted on the contents of the Cabinet Circular. New Zealand Transport Agency comment 60 The New Zealand Transport agency has provided the following comment: 61 The New Zealand Transport Agency supports the objectives of the NZBN initiative and will work with the Ministry to develop a multi-year programme of work to progressively align to the Category A and B requirements. An initial feasibility assessment of participating in either Tier One (Give Effect to Category A, Give Effect to Category B) or Tier Two (Give Effect to Category A, Have regard for Category B) suggests that the Agency could meet and possibly exceed some expectations as a Tier Two Crown Entity. The initial assessment is that Category A can be completed and recognised by 2018 and by 2020 for some Category B requirements across 18 business facing systems. The Agency will be obliged to recover significant costs to invest in this programme and therefore would include the NZBN in its reviews of fee structures in order to support this change initiative. Financial Markets Authority comment 62 The Financial Markets Authority has provided the following comment: 11

12 63 With the Financial Markets Conduct Act coming fully into force on 1 December 2016, the FMA is currently undertaking a broad ranging review of its future work programme and funding requirements. This includes a first principles look at the FMA s efficiency and effectiveness as an organisation. Publicity Withheld under Section 9(2)(f)(iv) 64 The Minister of Economic Development intends to issue a press release upon the issuing of the whole of government direction to Crown entities and the Cabinet directive to government departments. 12

13 Recommendations It is recommended that the Committee: 1 Note that the New Zealand Business Number (NZBN) is a key initiative to achieve the Result 9 Better for Business (R9) commitment of reducing costs to businesses by reducing the effort required to work with government agencies by 25 percent by the end of 2017; 2 Note that the goal of the NZBN system, over time, is to replace many of the separate identifiers currently used by businesses and government agencies when dealing with each other. Government directions 3 Note that government agencies have not, to date, been given clear direction about what they need to do in order to contribute to meeting the goals of the NZBN; 4 Note that on 25 March 2015, the Cabinet Economic Growth and Infrastructure Committee agreed in principle to issue directions on the NZBN: 4.1 to government departments through a Cabinet Office Circular; 4.2 to Crown entities by the Minister of State Services and Minister of Finance using the power in the Crown Entities Act 2004 to require Crown entities to support a whole of government approach; 5 Note that in June 2015, the Ministers of Finance, Economic Development and State Services approved the commencement of consultation on a proposed set of directions with 185 agencies (32 government departments and 153 Crown entities); 6 Note that consultation was carried out on these proposed directions from July-September 2015; 7 Note that 66 submissions were received from potentially affected agencies; 8 Note that following analysis of submissions and further engagement with potentially affected agencies changes to the scope of the directions and proposed agency classifications are recommended; 9 Agree to the recommended text of the whole of government direction to be issued to designated Crown entities under section 107 of the Crown Entities Act 2004 as set out in Annex C; 10 Agree to the recommended text of the Cabinet directive to be issued to designated government agencies under the cover of a Cabinet Circular as set out in Annex D; 11 Agree to the recommended agency classifications for Categories A and B, as set out in Annex F; 12 Agree to the recommended agencies to be excluded from scope, as set out in Annex G; 13 Note the other state sector agencies that can be invited to give effect to the direction, but cannot be directed, as set out in Annex H; 14 Note that the Ministers of Finance and State Services intend to issue the section 107 directions to Crown entities, notify the affected parties, and present the direction and explanatory material to the House of Representatives in the next House sitting period; 15 Note the Select Committee explanatory material to accompany the section 107 direction as set out in Annex E; 13

14 16 Note that the Cabinet directive to government departments will be issued on the same day as, or as soon as practicable after, the presentation of the direction to the House; 17 Authorise the Minister of Economic Development to approve any minor editorial or technical changes to the directions prior to release; Legislation 18 Note that some agencies may require legislative change in order to comply with the directions and the Ministry of Business, Innovation and Employment will report back to the Minister of Economic Development on this and an appropriate vehicle by the end of 2016; Publicity 19 Note that the Minister of Economic Development intends to issue a press release upon the issuing of the whole of government direction to Crown entities and the Cabinet directive to government departments; 20 Authorise the Ministry of Business, Innovation and Employment to place this paper on its website, subject to redactions under the Official Information Act 1982 where necessary. Hon Bill English Minister of Finance / / Hon Steven Joyce Minister for Economic Development / / Hon Paula Bennett Minister of State Services / / 14

15 ANNEX A Analysis of alternatives to issuing a whole of government direction Individual letters of expectation from Ministers to boards 1 Individual Ministers could write to entities for which they are responsible, expressing expectations to be addressed in Statements of Intent. However, this would be administratively cumbersome for a large group of entities, cannot bind those entities, and would be referring to operational matters that are unlikely to be covered in strategicallyfocused Statements of Intent. Directions by responsible Ministers under section 103 of the Crown Entities Act 2 This section enables the responsible Minister of a Crown agent to direct the entity to give effect to a government policy that relates to the entity s functions and objectives. 3 However, we do not recommend the use of section 103 because this approach would: only apply to Crown agents and not cover all the entities targeted by the proposed directions; be inefficient, requiring multiple Ministers to make individual directions; and raise questions as to whether the specified operational obligations would relate to each entity s functions and objectives as considered in terms of section 103. Cabinet Office Circulars 4 Cabinet Office circulars are another possibility for consideration. Cabinet Office circulars are used to provide guidance to Ministers (or Ministers and departments) on particular issues. However, they are not intended for a wider audience and, given the processes set out in the Act to issue directions, it is highly unlikely that the contents of a Circular would be considered binding on Crown entities. They are, therefore, not considered appropriate to support a whole of government approach to Crown entities. A Cabinet Circular, consistent with this direction, will be issued to specified departments to direct their implementation of the NZBN. Regulations or instructions under the Crown Entities Act, Public Finance Act, or other legislation 5 Officials are not aware of any other regulation-making or instruction-giving power under the Crown Entities Act, Public Finance Act, or other legislation that could produce the same effect, and have the flexibility of, the proposed directions. 6 We consider that the subject-matter of the proposed directions is suited to an administrative direction rather than legislation. During the initial formulation of the New Zealand Business Number Bill the inclusion of a clause mandating recognition of the NZBN was envisaged. However, additional analysis concluded that a set of directions expressing the Government s expectations that entities comply with specified operational requirements was a more appropriate vehicle. 15

16 ANNEX B: High Level Analysis of Agency Feedback and Recommendations Category Agency feedback Issues for consideration Recommendation Category A: Recognise Recognise a legal entity by its NZBN Implemented by the end of 2017 (for R9 agencies) or by the end of 2018 (for all other directed agencies) 79 agencies were proposed to give effect to 52 agencies were proposed to have regard to 54 agencies invited to give effect to Category B: Tell Government Once Access relevant core business information (known as primary business data) from the NZBN register Receive and share changes to relevant primary business data to enable a business to tell government once Have systems in place so that only authorised people can change primary business data Use the NZBN on outgoing correspondence, where appropriate Implemented by the end of agencies were proposed to give effect to 54 agencies were proposed to have regard to 54 agencies invited to give effect to Agencies were generally supportive of the Category A proposal to recognise the NZBN by the end of Some also highlighted dependencies on other agencies. Some large Result 9 agencies also sought to have until the end of 2018 to fully implement Category A into their procurement systems. This was on the basis that when it was agreed to implement recognise by the end of 2017 the scope of this was their business-facing systems that related to their regulatory functions, and did not include their procurement systems. While agencies were supportive of this vision, submissions consistently highlighted a number of challenges in this space: agreeing definitions of primary business data determining how authorised people will be recognised across participating systems how primary business data will be shared between agencies. Many agencies questioned whether overall benefits (including to business) of the agency implementing the proposal would outweigh the cost and risks associated with fast-tracking system and process changes over the next five years. Because primary business data will be associated with a legal entity, updates to that data will be more useful for compliance functions than procurement ones. This is because procurement often requires information that is more granular than the primary business data (for example, a regional office address instead of head office). Most agencies could not provide an estimate of potential implementation costs. Estimates that were provided ranged from tens of thousands of dollars into the millions. Many smaller agencies would have to implement an authority model into their systems that would meet the rigor required to ensure only authorised persons could consent to changing primary business data on A number of interdependencies were identified between agencies. For example, ACC has dependencies on the Ministry of Health (Health Provider Index) and Inland Revenue as it receives information from them using existing entity identifiers. A number of agencies have identifiers that could either identify a legal entity or operate at a more granular level. For example, the Ministry of Education issues profile numbers to education providers per location. This means an organisation such as ABC Childcare Limited would have one NZBN as the legal entity, but multiple profile numbers one per childcare centre. Need to clarify the relationship between the requirement to recognise an NZBN and an agency s customer facing online services that require a username/password i.e. we are not expecting them to retroactively change their existing login systems to use the NZBN as a user name. The NZBN (as it currently exists) identifies the legal entity. Where an agency predominantly holds information about an organisation at a lower level e.g. regional office, there is a high risk that making them subject to Category B would result in costs exceeding any benefits. The operational definitions of the primary business data elements are still being worked through by key business facing R9 agencies. It is important for these to be agreed by major agencies before other agencies are subject to information sharing requirements. Network benefits are important, but can t be quantified now. Further clarity required around what is meant by outbound communications to specify where an equivalent identifier wouldn t ordinarily be used then the NZBN is not required. For example, a contact centre making outbound calls wouldn t be expected to identify themselves using the agency s NZBN. As consulted on, with some changes Make some changes to classifications from the consultation document, to better align agencies with criteria in para 21. Medium and large agencies with a business-facing role give effect to, others have regard to. Result 9 agencies will continue to be required to meet the pre-existing end of 2017 date to recognise the NZBN in their business customer facing systems but have until the end of 2018 to fully implement into their procurement systems. Note: this will mean that, in particular, ACC and IR will incur some marginal cost incorporating the NZBN into legacy systems as their new systems will not be live by the end of However, this is no change from the status quo. The direction is just formalising a pre-existing commitment by R9 agency Chief Executive s to Ministers to recognise the NZBN by the end of Start narrow, with key agencies Agencies that have significant interactions with trading entities (i.e. those with an NZBN) for regulatory purposes, give effect to Category B. All others have regard to Category B. Agencies with a focus on: The nature of an agency s role (Are they are regulator of business? Is their core focus related to business or individuals?) Size, nature, and volume of interaction with business makes them a key touch point Network benefits (The agency s inclusion in Category B would create opportunities for other sector agencies to realise NZBN s potential). Note: IR and ACC intend to deliver the Category B requirements in their new systems. As the two critical business-facing agencies that drive the delivery of benefits in this category significant dependencies exist between IR and ACC being able to comply with Category B by the end of 2020 and the successful implementation of their transformation programmes. Note: there are privacy issues associated with the sharing of primary business data where it relates to personal information. This will be dealt with through the cross-agency working groups on primary business data. 16

17 Category Agency feedback Issues for consideration Recommendation the NZBN register. This would result in significant additional costs to those agencies. A significant number of agencies submitted that they would require additional funding to implement Category B. Category C: System Investment and Integration Considering: the NZBN when making investment decisions whether their agency s business registration and cessation processes should be added to the integrated process to be implemented by MBIE, ACC and Inland Revenue phasing out equivalent identifiers as appropriate when upgrading or replacing systems. Providing assistance to the NZBN Registrar to perform their monitoring function. The consultation document did not propose classifications for Category C. MBIE sought comments from agencies about how and when it should apply to them. Agencies were generally interested in pursuing the opportunities created by the NZBN. Most agencies were supportive of Category C in principle, recognising that the NZBN is an enabler for better government service delivery. We received the most feedback about phasing out equivalent identifiers. Agencies sought confirmation that this would not apply to identifiers that were required for other purposes such as identifying locations or products. We did not receive much specific feedback on other components of Category C. We expect this is because there is not yet the level of detail available that would enable agencies to assess how they could participate. Agencies sought clarification of what they would need to do to comply with Category C requirements. Need to clarify the relationship of integrated registration with the business case process already committed to following March 2015 Cabinet decisions. Administratively simpler to progress through the business case process. Only requires agencies to consider requirements so no guarantee of implementation in first phase of directions. Impact of requirements on agencies will vary depending on size, nature and interactions with business. Implementation of NZBN needs to mature before dates for meeting requirements can be set with any confidence. Flexibility will be required for phasing out identifiers that are needed to meet international obligations such as in export certification. Remove Category C, relocate some requirements to other categories, use existing business case process for others Remove Category C as a separate category and: Continue to progress integrated registration through the business case process ACC, IR, and MBIE are already committed to following Cabinet decisions in March and then consider inclusion in directions when directions are reviewed, pending business case outcomes relocate the requirement on considering phasing out equivalent identifiers, so that it applies to all agencies subject to the direction relocate the requirement that agencies provide assistance so the Registrar can perform its monitoring function, so that it applies to all agencies subject to the direction. Requirements for all agencies covered by the directions Report on progress (towards Category A, B and C requirements) annually Reporting done in accordance with the established government sector reporting cycle, starting with the 2015/2016 year. This will form part of agencies annual reports. Agency feedback on all categories raised concerns about some aspects of the wording of the directions. Officials are recommending changes to better clarify requirements to mitigate risk and unnecessary costs. Legislative changes will be needed for some agencies to be able to comply with any category. In order to mitigate cost and risk exposure at this early point in the NZBN ecosystem we propose that the direction clarifies that: it applies to key business facing systems within agencies for outbound communication where an equivalent identifier wouldn t ordinarily be used then the NZBN is not required non-result 9 agency systems that are planned to be retired/replaced within the next three years are exempt as long as replacement systems comply with the direction given the NZBN acts as a key enabler in the digital landscape, and benefits are realised in this space, that priority is to be given to incorporating the NZBN into electronic/online channels agencies are only required to receive and share changes to primary business data that they would normally record or hold. 17