New bill to restore investor confidence
The Financial Markets Conduct Bill, currently at select committee, is critical to the continued rebuilding of investor confidence in New Zealand, says Commerce Minister Craig Foss.
Mr Foss accepted all but two of the commerce committee’s 13 recommendations after an inquiry into why finance companies failed since May 2006.
According to the commerce committee, since then 45 finance companies have failed, either being placed into receivership or entering into moratorium arrangements with debt holders.
It is estimated between 150,000 and 200,000 deposit holders were affected, with likely losses of more than $3 billion between May 2006 and December 2011.
These failures put at risk about $6 billion of investors' deposits, much of which will not be recovered. The stream of failed companies has also dented investor confidence in the country's capital markets.
Some of the recommendations made to the minister in the report included:
# Educating the public to understand financial markets better.
# Investigating the possibility of banning conflicted remuneration structures for financial advisors.
# Standardising the way information is presented so the public can readily understand financial information such as profitability.
# Introducing legislation to allow class actions.
# Ensuring resources are available to regulators to ensure that enforcement is timely and effective.
# Accelerating work on means of penetrating trusts to recover assets for creditors.
Mr Foss says that while the government supports the “general nature” of the recommendations, significant work has been carried out in reforming financial markets over the past three years.
“Most notably, since creating the new Financial Markets Authority, many of the issues identified by the commerce committee have either already been addressed or are being examined right now,” he told Parliament.
“All but two of the commerce committee’s 13 recommendations have been taken on board,” says Mr Foss.
He says the government is already progressing work in line with the recommendations around the Financial Markets Conduct Bill, addressing issues of disclosure, trustees, financial advisor and director duties.
He said further policy work is being undertaken to progress legislation on class actions and the law commission is examining issues around the operation of trusts.
The third and biggest problem was described by the committee as “deficiencies in disclosure advice and investors’ understanding”.
The report outlines instances where a number of investors lack of understanding was exploited by finance companies.
The committee’s main recommendation is for “serious efforts” to be made to improve ordinary New Zealanders' understanding of financial issues.
Mr Foss said financial literacy initiatives are being evaluated and improved and are hoped to address this lack of understanding.