KEY POINTS:
Australian fund managers looking to avoid tough licensing laws in their home country could soon find a back door through New Zealand.
Draft legislation sitting with the Ministry of Economic Development proposes a mutual agreement which would allow investments passed by New Zealand's Securities Commission to be sold
to Australians.
It would also allow Australian products approved by the Australian Securities and Investment Commission (ASIC) to be sold here without further compliance.
Industry commentators fear cheaper set-up costs and softer regulation in New Zealand may tempt Australian fund managers to set up shop here and sell their products back to the Australian market.
Binu Paul, general manager of NZX-owned FundSource, which provides research on the managed funds industry, said he had already been approached by two or three Australian firms looking to sell into the New Zealand market.
He said it was the next logical step that Australian funds would look to set up here, where it was much cheaper, and sell their products to Australians.
"It costs around $40,000 to set up a managed fund in New Zealand, whereas in Australia it can be as much as $250,000."
Tracey Cross, a partner in Law firm Phillips Fox, said as it stood the legislation allowed New Zealand companies and any other foreign-owned companies who set up operations here to offer their products in Australia without having to go through the licensing process.
"There is a loophole at the moment, but the legislation isn't in place yet, so they might decide to close that."
Cross said Australian fund management companies had been able to sell products in New Zealand for some time through a special dispensation.
But Australia had an extensive licensing regime which providers had to get through before they could even look at getting products approved by ASIC.
"We would have thought it would be something that the Australian financial community would be concerned about."
But she said consultation had resulted in very little response from the market.
The Australian legislation was passed in June and the regulation is due to be passed in December, but Australia's early election announcement may see it put off until early next year, a spokesperson from the Ministry of Economic Development said.
New Zealand is waiting for Australia to pass its regulation before going through with the final approval.
The investment director of New Zealand-based fund manager Lion Tamer, Janine Starks, said it had taken the company a year to get a licence to launch its first open-ended fund into the Australian market, which it can do because the company is Australian owned.
Starks said the regulation change would make things a lot easier for the business but said it was not just the legal side which New Zealand fund managers had to get their heads around.
"There is a significant attitudinal difference between New Zealand and Australian investors."
Starks said Australians were very used to receiving a product disclosure statement and many would not feel comfortable accepting a prospectus which is standard for New Zealand securities and managed funds.
Financial adviser Chris Lee said the proposal had merit, but the New Zealand Securities Commission should focus on toughening up its standards before the legislation was brought in, to stop cowboy Australian companies from entering the New Zealand market.
