The TAB have no grounds and no right to have input on what squads play what games.
Maybe not but the TAB can withdraw betting on the Central league if they are not happy with the integrity. That would be loss of valuable income for NZ Football who share in the profits.
If NZF are pandering to betting agencies for scraps of income we have far larger issues than a professional club's reserve side playing in a local amateur league.
The TAB provide large income for NZ football. For the 2018 World Cup the TAB took $30M plus of which NZ football got 1% plus a share of the profits. Also take into account betting on the EPL and other leagues around the World which NZ Football get a share of.
Then there is the current Women's World Cup. I do not know what NZ Football is getting out of The Central League currently but a few years ago I recall seeing that The League was attracting Millions in bets with The TAB from overseas countries.
What NZ Football gets from the World Cup and EPL is orders of magnitude greater than what they get from the Central League and the TAB & NZF aren't about to throw away a relationship over a development side developing players.
There may have been a law change in the last decade, but when I was a TAB employee you had to be in NZ to bet with the TAB (you had to show ID in store to open an account). I don't see why someone outside NZ would go out of their way to bet with the TAB when Bet365 offers superior odds on the league without the hoops to jump through. I'd like to see a source because your recollection doesn't seem overly accurate on the face of it.
I can understand why people might be concerned that the Phoenix are using their reserve team to develop players instead of winning the league (although, they are sitting second), but the feelings of a betting agency is not something that needs consideration and indeed should be actively avoided when deciding whether competition regulations have been breached given the opportunities for corruption that would present.