By Pattrick Smellie
Securities law reform will be a “necessary but not sufficient” condition for improving investor confidence, unless New Zealand’s weak securities analysis sector and financial media improve, the New Zealand Institute of Finance Professionals heard at its conference yesterday.
“Till something is done to address that market failure, we will have gone a long way but not far enough to make people feel they understand that they are buying,” Lloyd Kavanagh, from law firm Minter Ellison Rudd Watts said. “We are missing analysis from institutional commentators and media.”
His comments came in a panel discussion on the forthcoming Financial Markets Conduct Bill, which will completely revamp the Securities Act and a clutch of related laws regulating investment markets.
Describing the proposed new regime as the “Prospectus Abolition Bill”, Kavanagh also warned that New Zealand regulators and intermediaries should anticipate having to explain to international observers why the move to a standard short form Product Disclosure Statements and online registers of material information were an improvement on the prospectus approach.
While the changes represented a leap “from the 19th to the 21st century”, the implications of the change were only just becoming apparent, with the investment community scrambling to furnish initial submissions on the draft bill, released last month, by next Tuesday, Sept. 6.
“The PDS and register approach may create a sucking in of breath in some other markets,” said Kavanagh.
His concerns were endorsed by Ross Pennington of Chapman Tripp.
“Without a strong analytical and intermediary sector, we will never win the game and will always by ‘3 + T’ years away from our next systemic failure.”
He was concerned by “a sense of Big Brother” in the draft bill, which risked creating a “traffic cop mentality while ignoring the need for strong institutions and strong reputational intermediaries who won’t take a bad issue to market because it would hurt their reputation to do so.”
The new approach also offered “huge opportunities” by allowing for classes of cashed up, experienced, or closely associated parties to avoid the PDS and register process.
“That there are more opportunities for people to look after themselves is potentially very good for small and medium enterprise financing,” Pennington said.
The senior Ministry of Economic Development official leading the law change, Bryan Chapple, said the new legislation was intended to provide an enduring framework, and for that reason would rely heavily on regulation of key elements, to allow them to be updated swiftly as time went on.
The Financial Markets Conduct Bill is expected to be introduced to Parliament before the election, and officials intended to “keep talking to stakeholders” during the select committee process, if permitted.