Dalziel explains why APB model canned
Public confidence in the financial services industry has been "shaken to the core" by recent events in financial markets, Commerce Minister Lianne Dalziel admitted.
Tuesday, July 29th 2008, 5:45AM
by Maria Scott
Dalziel's comments came days after Hanover Finance, one of the largest finance companies in New Zealand, became the latest of more than 20 in its industry to get into difficulties. It froze payments on more than $550 million of investors' funds and the Commerce Commission announced that it was to investigate the company.
"It is true that what is happening in New Zealand is occurring overseas," said Dalziel, "but that is cold comfort to those New Zealanders who have either lost their hard-earned money or have seen it frozen, for how long they can only guess, and with no guarantee that they will get it all repaid. Winning back confidence off the back of this experience is going to be very hard indeed."
Dalziel said that the Government could not rebuild confidence solely through its own efforts. It had established the Capital Markets Development Taskforce so that the private sector could work in partnership with the Government to find solutions to enable the capital markets to grow.
She said that legislation for prudential supervision of finance companies by the Reserve Bank would be passed before the next election. She also wanted to see legislation to regulate financial advisers, proposed in the Financial Advisers Bill passed before the election but said she could not guarantee this.
The bill is currently being considered by the Finance and Expenditure Select Committee which is due to report on September 1.
Dalziel said: "I can give you an absolute assurance that even after the bill is reported back to the House, my officials and I will continue to work with industry to ensure we get it right."
She explained why she had decided to abandon her original proposal for regulating advisers through a series of approved professional bodies (APBs). Several industry organisations had been gearing up to apply for recognition as APBs but Dalziel said she had not envisaged the impact of the failure of several finance companies on the advice industry.
"All of a sudden the organisations that were so keen to be approved professional bodies could see that they couldn't sustain the level of disciplinary work that might arise each year, with a fragmented APB system. I agreed, but rather than limit the number of APBs I decided to go back to Cabinet and get approval for the discussion document that signalled a shift to a single regulator, namely the Securities Commission.
"A co-regulatory outcome could not have survived the level of mistrust and anger that exists amongst an investing public who feel they have been betrayed. My regret is that I wasn't alert to this before the Financial Advisers Bill was drafted."
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