The Government is proposing a two-speed regulatory regime for managed funds that would see overseas investors enjoy a higher level of protection than local counterparts in a bid to establish New Zealand as an international financial services hub.
The proposal is contained in a discussion paper released this week by the Ministry of Economic Development (MED) following a review of the Securities Act, the ageing centrepiece of New Zealand's investment laws.
The discussion paper proposes tighter regulation of collective investment schemes such as KiwiSaver and other managed funds which account for a major chunk of New Zealanders' financial investments. The proposals include mandatory licences for fund managers and regular reporting requirements.
However, the paper notes the Government's hopes of establishing New Zealand as a financial services hub or funds domicile in the Asia Pacific region and says the favoured structure for international managed funds is the European Union's Undertakings for Collective Investment in Transferable Securities (UCITS).
"For New Zealand to become a successful funds domicile we require a world class regulatory regime and it is clear that this means we must either meet or better the UCITS regime," the paper states. However, rather than imposing such a strict regime on all of New Zealand's collective investment schemes the MED suggests a "dual regime" where domestic schemes face a softer regime and those trading internationally have to meet a more onerous regime similar to UCITS.
"This would avoid unnecessarily imposing stricter standards and higher costs on domestic schemes while creating the reputation and regime needed for a managed funds domicile.
"It should be noted that, while the domestic regime might be less onerous, we expect that it will adequately meet the needs of New Zealand consumers and providers."
The Government set up the International Fund Services Development Group in April to investigate the financial services hub opportunities and its chairman Craig Stobo yesterday said his preference was for the regulation of domestic and international schemes to be as integrated as possible and UCITS was a good model.
"Eventually if you were to offer one regime versus another, investors themselves will demand the superior protection over time."
Elsewhere the discussion paper, which fleshes out many of the Capital Market Development Taskforce's recommendations, seeks input on a move towards simplified disclosure statements for investment products, exemptions for securities offers to "sophisticated" investors, and expanding the powers the Financial Markets Authority will have to take legal action on behalf of investors.
The 32-year-old Securities Act is being rejigged and the Government is seeking input on:
* Which financial products are to be regulated and how.
* Tailoring of disclosure requirements to better suit a retail investor audience.
* Improving governance of managed funds.
* Possible additional powers for the new Financial Markets Authority.
To drum up business for New Zealand as a financial services hub, the Government is considering adopting European rules, or Undertakings for Collective Investment in Transferable Securities (UCITS) for managed funds. UCITS funds are:
* Retail managed funds with a defined list of eligible assets in which they can invest.
* Now have almost $6 trillion under management.
* Are increasingly popular worldwide with 40 per cent of sales outside the EU.
* Would require legislative and regulatory changes to be set up in New Zealand.