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Govt unveils major work programme from Capital Markets Development Taskforce

Thursday 18th February 2010

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Business cases are being developed for new venture capital funds and the creation of a "financial hub" project, as part of the government's extensive response to the 60 recommendations of the Capital Markets Development Taskforce.

The response was unveiled today by Commerce Minister Simon Power, and includes the creation of a joint working group involving the Department of Prime Minister and Cabinet, the Ministry of Economic Development, and unnamed external advisers with international capital markets experience, who will report on the financial hub concept by May 31. 

The idea centres on positioning Auckland as providing a low-cost, high quality, multi-lingual workforce providing banking "back-office" services to the Asia-Pacific financial community from a law-abiding country with a sound banking system.

Meanwhile, further government support for a public-private partnership approach to venture capital funding will require "a persuasive business case for more capital" and will be addressed in the Budget, on May 20.

And Economic Development Minister Gerry Brownlee is expecting a report in April on the recommendation to replace some business grants with investments of equity, convertible debt, and "other more commerical instruments" delivered by a government agency such as the New Zealand Venture Investment Fund.

Many of the taskforce's detailed recommendations will be wrapped into the review of the Securities Act already under way, with publication of a discussion document in April, and potential reforms in place by October 2011.

Key areas covered by the Securities Act review will include allowing the NZX to run unregistered markets where capital-raising for smaller companies could occur; clearer, broader regulatory exemptions for certain types of sophisticated investor; compulsory annual declaration of duties and restrictions by financial advisers to clients; standardising performance statements from managed funds to make them clear and comparable.

The replacement of investment statements and prospectuses with a new two-part disclosure document "that aids understanding and comparability" and includes a two page summary will also be part of the Securities Act review.

The Securities Act review will also pick up work on to impose a heavier duty on market overseers to enforce regulations and the inclusion of "warning labels" on risky or complex investment offers.

Recommendations that would improve the access of agricultural cooperatives to access public capital markets for equity were kicked for touch, with a review scheduled in 2011 "taking into account Fonterra's capital structure discussions".

However, a report is due in April on whether the absence of foreign-owned banks listed on the NZX is caused by "prudential impediments", while Cabinet decisions are due this month on the recommendation that there be "greater clarity and certainty around the Overseas Investment Office regime to protect property rights".

Meanwhile, changes to Takeovers Act thresholds are supported in principle and will be progressed in the Regulatory Reform Bill to be introduced in August.

However, the government is not yet convinced that the term "independent adviser" should be regulated or that a clear fiduciary duty should be imposed on such advisers, and will wait for a June reportback on a rewrite of the Code of Professional Conduct for financial advisers.

In one of the few recommendations completely kicked for touch is one to direct schools to focus on financial literacy. As self-managing entities, schools could choose to prioritise financial literacy if they chose to and there are educational standards available for this area.

Recommendations that local and central government assets should be partially listed on the local stockmarket were also fended off. That was a matter for the local governments concerned. Power stressed at press conference that there would be no state asset sales in this term of Parliament and reiterated that if that policy were to change, it would be campaigned on in the 2011 election.

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