KEY POINTS:
Commerce Minister Lianne Dalziel responds to Brian Gaynor's column on creating a Capital Market Development Taskforce
Dear Mr Gaynor,
Thank you for your open letter which you published as a column last Saturday in the Weekend Herald.
As you point out, as Minister of Commerce it is
my role to focus my attention on the regulatory infrastructure, to improve investor confidence, increase market participation, and strengthen our international profile as we align our laws with international best practice. And that is what I have been doing.
Your letter suggests you are not aware of the three bills currently before Parliament that have been designed to address the regulatory challenges you highlight in your letter.
We are in the process of requiring non-bank deposit takers (including finance companies) to comply with minimum prudential requirements which will be set by the Reserve Bank. That bill has been reported back from the Select Committee and will be passed soon.
The other bills relate to, first, the requirement to register all financial service providers and, second, to make financial advisers directly accountable to the Securities Commission. I announced the Government's decisions on the Review of Financial Products and Providers (RFPP) that led to these bills in June 2007, less than a month before Bridgecorp collapsed.
So, I suppose the real question you are asking is the one you would pose to Lazarus - what took you so long?
Since 1999, this government has implemented the greatest single reform agenda related to our non-bank finance sector and capital markets that New Zealand has ever seen.
We had a Takeovers Panel but no code for it to enforce, and thus no internationally accepted standard for protecting minority shareholders in a takeover situation. We fixed that. We then turned to the need for Securities Markets legislation, introducing a co-regulatory framework for supervising registered exchanges.
Next, we introduced continuous disclosure obligations, strengthened rules relating to insider trading, market manipulation, and disclosure requirements for investment advisers.
We've made technical changes to our international tax policy, and introduced new rules to encourage retail investment in managed funds and we have introduced world leading limited partnership legislation which is already proving to be a successful vehicle for raising equity.
The truly significant change has been the development and introduction of KiwiSaver, which I believe will be seen as a watershed initiative that began the shift from our historic reliance on property-based investment to a much broader portfolio of investments. I hope this will encourage higher levels of financial literacy that our country requires if we are to see a generation of savers take advantage of this broader range of investment opportunities.
And the latest bills we mentioned before are bringing in registration for financial service providers, introducing occupational regulation for financial advisers, and registering and supervising non-bank deposit takers.
Despite your assertions, we have funded the Securities Commission to enable it to enforce the law. Although there was no admission of liability in the particular case, last year we saw the largest out of court settlement ever achieved by the Securities Commission - $20 million. Further, we have given the Securities Commission the power to bring criminal as well as civil prosecutions.
With the benefit of hindsight I would have introduced a financial advisers bill into Parliament ahead of the RFPP. But as it happens that would have meant the Approved Professional Bodies regime would have proved inadequate before it got off the ground and not one investor who relied on inadequate advice from a financial adviser would have been better off than they were.
In terms of the future, this new legislative framework will be an important element in the task of restoring confidence to our markets - confidence that has been shaken to its core. Winning back confidence off the back of this experience is going to be very hard indeed and it is not something that the Government can do alone.
That is one reason why we have established the Capital Markets Development Taskforce, so that the private sector can partner with government to seek solutions that will enable our capital markets to grow. They will consult broadly and the input of all the people you have mentioned is welcomed. I should note that since I announced the taskforce last week I, along with the taskforce members, have been inundated with emails, letters and phone calls from people suggesting names of people they thought should have been included. Everyone has a different view.
We made our selection based on a desire to get a diverse input of skills and expert opinion. I have also offered to the taskforce the opportunity to return to me to seek additional participants if they feel that would add strength.
Regardless of who is on the taskforce, the members are well aware that they will need to consult broadly as they go about their work - both to capture a range of insights and to ensure that their recommendations are broadly shared by the industry. I am mindful that members of the taskforce are volunteers, and I am very grateful that everyone who was asked was willing to participate.
The taskforce is not going to wave a magic wand any more than I can. But it will provide me with an assessment of our current capital markets and the regulatory framework they operate within and I am confident that it will come up with ideas that will enable government to play its part in contributing to an environment within which our capital markets can grow.
I will continue to do what I can to get the regulatory framework right and, while that is in the process of being implemented, I believe the time is right to get on with the bigger picture.
I don't think you are suggesting, as some have, that the Government should step into the market and protect in retrospect everyone who invested in every finance company that has failed. Some have repaid their investors in part or in full, or have realistic plans to do so.
Some directors of individual companies are facing serious charges by the National Enforcement Unit and others are still being investigated by the Securities Commission, the Commerce Commission and the Serious Fraud Office. Receivers are going through the books of others seeking every way to recover investors' money.
Financial advisers are still being blamed even though it is clear that there are question marks over some of the prospectuses they relied on. I have been saying ever since the collapses began that people should only take advice from advisers who can be held to account by a professional body. But even that can't protect against fraudulent behaviour.
I say that because the Government cannot legislate to eliminate risk. And even if we could, we wouldn't, because without it we would have no entrepreneurship, no investment, no innovation and no growth to ignite our transformational ambitions for New Zealand.
In the 1990s New Zealand had a "wild west" reputation driven off the laissez-faire policies that left everything to the market. When I think back to the deficiencies in the frameworks we inherited, I think we have achieved a lot.
However, the job is by no means finished. We will continue to systematically work through the remaining elements of the programme that is designed to deliver a responsible regulatory framework that encourages innovation and protects investors. It is a question of balance and I remain determined to get the balance right.
