Simon Power: Confidence is the trick

Commerce Minister Simon Power. Photo / NZPA

Commerce Minister Simon Power wants to rebuild trust in our markets.

Last week's Budget was all about putting in place changes that will help drive economic growth to improve our living standards. That will not happen unless those changes are accompanied by well-functioning capital markets.

The cuts in personal tax and the closing of property investment loopholes are designed to make the system fairer and encourage people to save and invest, hopefully, in those capital markets, which are so crucial to our economy. Like the tax changes, we need our capital markets to work. They are a key means of wealth creation for all New Zealanders and a vital source of finance for our businesses.

But failures in parts of the finance market in recent years have put that wealth creation at risk and presented business and the Government with some very big challenges.

There's no doubt that if we cannot deal with these challenges effectively and swiftly then mum and dad investors will not invest. And if that happens, our economy potentially has a real problem. The challenge is to give the public the confidence to invest their savings. To do that we need to make changes that improve oversight and enforcement.

The Capital Market Development Taskforce began its final report with a discussion about what investors need from capital markets. Their logic was very simple: if markets don't work for investors then they have no chance of working for businesses in the long-term.

I agree with that, and that's why we need to put in place a regulatory framework to give investors confidence in markets.

We have made big strides in recent months. Financial service providers now have to belong to a consumer dispute resolution scheme. We have set up prudential oversight of finance companies by the Reserve Bank. Moratoria documents now have to be clearer. There will be a supervision regime for trustees. We are implementing the financial adviser regime. Auditor regulation will be improved.

And we have announced the establishment of a single regulator.

It was clear to me that if we were to get on top of many of the issues, to give people the confidence to invest again in our capital markets, we needed a single regulator focused on proactively monitoring and enforcing securities law. Despite the best will in the world, the differences in functions and powers between existing regulators means co-ordination has not always been as effective as it could have been.

We needed a culture change. We needed a regulator that could draw from the lessons from the financial crisis and the finance company failures.

The Financial Markets Authority, which will consolidate functions fragmented across the Securities Commission, the Ministry of Economic Development, including the Government Actuary, and the NZX, will deliver that culture change. It will have the powers it needs and the encouragement to use them.

The Government knows it has to strike a balance. On one hand we must ensure there is an environment that invites innovation, while on the other we need to make sure we don't leave gaps for the unscrupulous to exploit. There has been too much of that in recent years.

But neither do we want to remove investors' responsibility for their decisions.

The trick is getting that balance right. With return comes risk, and the Government cannot and will not legislate to remove risk.

One area we can do much better is in the area of financial literacy, and as the Minister leading this approach I'm already working with agencies to make sure the Government's financial literacy efforts are better co-ordinated.

We are integrating Government oversight of this important piece of work to ensure mum and dad investors better understand the risks implicit with investments.

Another vital cog in this process is the review of our securities law.

This is the first time this has been done in 30 years, and I'm confident that at the end of the process we will be closer to delivering a robust but stable financial sector. I intend issuing a discussion document on this in the next few weeks.

The Government is determined to deliver a better standard of living for everyone, but we will do that only if we can deliver a growing economy. And we will deliver a growing economy only if we have a well-oiled and well-functioning financial sector overseen by a regulator focused on visible, proactive and timely enforcement.


Simon Power