By Gareth Vaughan
Commerce Minister Craig Foss says the restoration of "ma and pa" retail investors' confidence and trust in the financial markets, shaken to its core by the meltdown of the finance company sector, is beginning to return.
Foss told interest.co.nz in a Double Shot interview that the recently passed Financial Markets Conduct Act was a "huge, fundamental building block" establishing the framework to rebuild investor confidence and trust.
"Their (retail investors') trust in our financial sector was whacked," Foss said. "And in the context of a country that owes the world $200 billion, is reliant on efficiently priced overseas capital, we need more certainty, as much transparency, integrity and robustness around our financial law as possible to keep the cost of that capital as low as possible and to provide certain parameters within which everyone has to operate."
"At the end of the day we can build the framework within which people can allow themselves to become more confident. That's a very subjective choice for investors," said Foss. "But (if) we look around the world, the world's loving New Zealand right now. We've got these little wins all over the show, great niches developing, and the economy is probably second or third best performer in the OECD."
"(These are) not too bad inputs to help grow and encourage investor confidence."
Pushed on whether trust in the financial markets had returned to ma and pa investors yet Foss said no, but it was coming.
"Absolute trust no. There's still a rebuild of trust that needs to happen. Reputations take a long time to gain and trust and then they're easily lost for whatever reason and circumstances."
He said confidence in the financial system had to be absolute and trust must also be there for someone to risk their investment or savings.
"All this legislation, not only this (Financial Markets Conduct Act), but the suite of legislation, the FAA (Financial Advisers Amendment) Act, other bits and pieces we've got coming, are all building blocks to that," said Foss.
Ross Asset Management 'a bit of a head slap'
Ross Asset Management, where David Ross recently pleaded guilty after being charged with operating a Ponzi scheme, had been "a bit of a head slap" to that return of trust, Foss added.
"The vast majority of investments and financial transactions go fine without any issue. But of course, at the margin, sadly there's always going to be some people, if they deliberately want to commit let's say fraud for example, sadly they probably will."
"So what we have to do is make sure the checks, balances, reporting structures are in place to make it harder for that to happen and for people to lose their capital because of an abuse of trust."
Foss said the Financial Markets Conduct Act, passed by Parliament late last month, was "right up there" with the Government's proposed Resource Management Act reforms but doesn't attract the same publicity.
"It's a whole rewrite (of securities laws), an absolute necessity. And it's actually probably up there with world's best practice now."
One thing the Act does is establish a legislative regime for crowd funding and peer-to-peer lending as fund raising sources.
"There's absolutely no reason why we can't attract offshore investors under our regulatory system and perhaps become a bit of a clearing house in this part of the world for such things as crowd funding," said Foss.
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