KEY POINTS:
New rules will give consumers better information about investing in finance companies, but the changes aimed at restoring confidence in the sector are still four years away from having any effect.
Two Government bills set new standards for finance companies, require them to provide clear information on their
creditworthiness and give consumers easier access to redress if they have a complaint.
They follow a three-year review of the sector in which thousands of investors have lost their life savings after a series of company collapses.
David Tripe, director of Massey University's centre for banking studies, said the changes would eventually allow consumers to better weigh up the merits of different finance companies.
"Also, as regards advisers, this legislation is overdue to some extent. There is more standardisation and less scope for people to operate as cowboys in this area, and that is certainly not a bad thing."
However, the effects of the Financial Service Providers (Registration and Dispute Resolution) Bill and the Reserve Bank Amendment Bill (No 2) will not be felt for about four years.
"If there was a further rash of finance company failures in coming months, action is going to need to be taken reasonably promptly, and legislation that comes into effect in two years' time won't have a lot to do with it.
"So the question, especially as regards finance companies, is whether this is shutting the stable door after the horse has bolted. The problem may be long gone by the time this legislation comes into effect."
The bills are expected to become law next year, but a register of finance services is not expected to be in place until 2010 and companies then have until 2012 as a "transition" period to register and join a disputes resolution scheme.
Commerce Minister Lianne Dalziel has said the results are aimed at "promoting a sound and efficient financial sector in which the public has confidence in the professionalism and integrity of advisers".
The Government began its review of the sector three years ago, and the Cabinet gave initial approval for the Reserve Bank to have regulatory and supervisory powers over finance companies two years ago - just before Christmas in 2005. But the legislation was not introduced until late this year.
The changes will also help New Zealand comply with international conventions against money laundering and terrorism financing.
The bill's regulatory impact statement warned that failing to do so could attract money launderers and terrorist backers to New Zealand, and would "have a very negative impact on New Zealand's reputation as an international citizen".
Parliament was debating the bills this week, and they will then be considered by select committees where public submissions will be sought.
THE NEW LAWS
* Require "non-bank" financiers such as finance companies, building societies, credit unions and financial advisers to list on a public register.
* Finance companies must meet prudential standards set by the Reserve Bank.
* Finance companies must get a credit rating from an approved agency to make it easier for investors to judge the safety of their investments.
* Companies and advisers whose clients include the general public or small businesses must join a government-approved disputes resolution scheme to make it easier and cheaper for consumers to complain and get compensation without having to go to court.
* Senior managers and directors must be "fit and proper" to hold the offices. They must have no criminal convictions, must not be bankrupt and must not be banned from holding management positions under other laws.
