Govt plan 'step in right direction'

Mark Weldon says it makes enormous sense to consolidate the three regulatory bodies. Photo / Mark Mitchell

Investor advocates have welcomed the Government's response to the Capital Markets Development Taskforce report but some say it will take too long to implement and the report is more "aspirational" than action-packed.

Commerce Minister Simon Power yesterday responded to all 60 of the recommendations made by the taskforce in December - 18 months after it was set up to try to breath new life into the market by making it more attractive to investment from individuals and companies.

Like the taskforce, the Government chose to focus its efforts on improving investor protection in the wake of the finance company collapses.

It has promised to introduce plain English investment statements and prospectuses and place warnings on riskier products.

It also wants to take a more co-ordinated approach to improving New Zealand's financial literacy.

The third plank of its investor protection plan will involve pulling together the regulatory arms of the NZX, Companies Office and Securities Commission.

Power said there was a need to rebuild investor trust in capital markets, which had been severely dented by the global recession and finance company collapses.

"We want everyday investors to feel more confident about putting their savings into capital markets, through understanding the basics of investment, getting advice they can trust, and making informed choices."

Capital Markets Development Taskforce chairman Rob Cameron said the group was pleased with the Government's response.

"We are delighted the first thing they have adopted is the framework for the work we undertook starting with the environment for investors."

But market commentator and fund manager Brian Gaynor said it was a step in the right direction but it was only a small step. "A lot of the things talked about are aspirational, talking about what we want to get to but not how."

Gaynor said plain English documents were a good idea but the recommendations did not explain what form they should be in or who would monitor them.

"What is going to be the penalty for those who breach it?"

Gaynor said the taskforce had already had 18 months to discuss and consult with the industry on the ideas but now the Government wanted to undertake more consultation.

Gaynor said many of the recommendations were not due to be implemented until late 2011 and that was too slow.

"We got this in the late 80s - in the end it took so long that nothing got done."

He also warned that 2011 would coincide with election year - a time when much of the political calendar is taken up with electioneering.

NZX chief executive Mark Weldon believed the best way to consolidate the three regulatory bodies would be to "start from scratch".

"It's a matter for the Government to decide, but I would start something new and start the culture afresh," he said.

Weldon said it made "absolutely enormous sense" to consolidate the three bodies, and the "right culture" would have to be built into that body.

"They weren't gaps - they were canyons between the Securities Act and the Companies Act and the Securities Commission and the Companies Office."

He said masses of act breaches were slipping through those canyons.

Shareholders Association chairman Bruce Sheppard said the Government's actions appeared to be common sense when it came to combining the arms of the regulatory bodies, but also said the recommendations lacked detail.

"It is what we have asked for but we haven't seen the fine print yet."

Sheppard said it wanted all regulatory functions of the NZX to be split off and added to a "re-engineered" Securities Commission. But if the NZX was allowed to "cherry pick" the functions it kept the Government would not be going far enough.

ACTION POINTS

The key recommendations the Government is committed to implementing are:

* Introducing "plain English" into investment statements and prospectuses, with warnings on risky or complex products.

* A more co-ordinated approach to the Government's role in improving the financial literacy of New Zealanders.

* Ensuring the duties of fund managers and supervisors are clear and enforced.

* Considering consolidating parts of the Companies Office, Securities Commission and the NZX Disciplinary Tribunal into a new market conduct regulator.

* Making it easier and cheaper for companies to raise capital privately by clarifying and broadening the exemptions to the Securities Act and Takeovers Act.

* Improving risk management in the economy by supporting the development of derivatives markets in commodities and energy.