Regulation of fund managers on the cards?

Regulation of the funds management industry is an issue that is starting to come into sharp focus again.

The International Monetary Fund and the World Bank are due to do a review of New Zealand's financial sector in the very near future, the Securities Commission is getting closer to producing a comprehensive report on industry practices and the Investment and Savings Insurance Association is considering the merits of regulation.

New Zealand is out of step with the rest of the world on regulation of funds management practices.

The International Organisation of Securities Commissions (IOSCO), which the Securities Commission is a full member of, promotes regulation of fund managers and advisers as best practice, but New Zealand takes the approach of self-regulation.

Securities Commission chief executive John Farrell says New Zealand has the same objectives as IOSCO, it just takes a different approach.

Farrell says the commission's review of the funds management industry, which should be published in the first half of this year, will be useful in determining future reform of securities laws and regulations.

He says the New Zealand industry is in a state of "constant evolution" and laws have to keep up with the changes.

Some trends that the commission is aware of are global investment, the trend for a greater amount of investment management to be done offshore and the increasing reliance on Internet-based marketing.

Farrell says the commission's survey shows that in a number of areas funds management practices vary from one manager to another and from what may be expected overseas.

"In light of the developments of the New Zealand funds management market and industry and their rapidly changing environment, we need to ask ourselves whether the two-pillar regulatory regime (New Zealand has) is indeed achieving the results the investing public is right to expect."

ISI chief executive Vance Arkinstall says New Zealand needs to look at the regulation issue as it is out of synch with the rest of the world.

"It might be that strong regulation in other jurisdictions has contributed to increased consumer confidence and massive funds flows.

"What is not clear is whether the industry benefits from light-handed regulation or whether we might be better off to call for a more prescriptive regime," he says.

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