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NZSA argues for clear regulation of markets

Friday 3rd December 2010

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Clear and concise regulation with appropriate powers of investigation and sanction is an advantage both to NZX and New Zealand, the New Zealand Shareholders' Association said.

The shareholder lobby group today released its submission to the commerce select committee considering the Financial Markets (Regulators and Kiwi Savers) Bill. It supports the new Financial Markets Authority (FMA) and wants it be to able act in a timely manner and is critical of those arguing against the bill.

"Comments have been made that the FMA bill will result in the NZX becoming uncompetitive compared to other jurisdictions. In our view this is nonsense.

"The ASX and LSX are subject to much more stringent regulation than is currently the case in New Zealand. Compliance costs in both jurisdictions are much higher."

Regulation has the dual purpose of promoting an orderly market and providing appropriate protections for investors.

The association further argues that regulation of financial markets is important because many New Zealanders have become investors via their KiwiSaver contributions. These indirect investors expect that regulatory settings and sanctions will be sufficient to protect their savings.

New Zealand Business Roundtable chairman Roger Partridge told the commerce select committee this week that the Securities Commission had "nodded off" and failed to use a wide range of existing legal powers to tackle inadequate disclosure to investors by finance companies before many of them collapsed. This was disputed by the commission.

Given the same returns, sensible investors will always place their funds in a soundly regulated environment in preference to one where "cowboys" are allowed to operate and enforcement is weak, the association said.

"In our view a number of submitters to the select committee have motives of self interest or patch protection. We are confident the select committee will see these submissions for what they really are."

The association submitted that a clear issue in the recent past has been the inability of the commission to take unilateral action for the public good. The section 34 clauses in the FMA bill allows this via a prescribed process that requires leave of the court.

The association said the section 34 provision has been available to the Australian Securities and Investments Commission for decades and is rarely used.

"In our view the same will apply in New Zealand because the very existence of these powers will deter activities that might result in their use."

The association is strongly of the view that the section 34 provision is required.

The bill also allows the FMA to take over existing action if it is not proceeding within a reasonable time. The NZSA has suggested a minor amendment to better balance liability for costs in these situations.



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