Standards crunch coming

Several straws in the wind were apparent from speeches to a New Zealand Society of Investment Professionals lunch yesterday from the new head of the Securities Commission, Jane Diplock, and the visiting senior vice-president of the US based global Association for Investment Management and Research, Patricia Walters.

Diplock is, this week, off to a conference on how the licensing regime for investment advisers has worked in Australia.

"I'm not running up the flag for a licensing regime in this country," she says. However she had an open mind on the issue.

Internationally there had been much talk of the impact of the collapse of Enron as the catalyst for tighter requirements on reporting for listed companies.

However in this part of the world the collapse of Australian insurer HIH was likely to have as great an impact, she said.

The Royal Commission of Inquiry into the collapse of that company is due to report soon.

"The ramifications on the way the regulatory framework could be strengthened are considerable," she says.

The HIH failure had had a massive impact on Australian investors – both the Australian bar association and surgeons’ group had insured with the company.

"The night it collapsed surgeons did not want to carry out operations the next morning for fear they were not insured," she says.

The closeness of New Zealand to the Australian market meant that any regulatory changes coming out of the HIH affair – "and it was a clear case of regulatory failure, it is just a question of what form that regulatory failure took" – is likely to have a flow on effect for New Zealand.

She also said the New Zealand government’s Securities Markets Bill, currently before a select committee, "will bring about greater co-ordination between the New Zealand and Australian regulatory regimes."

Further moves coming down the track are new rules on insider trading and market manipulation, including tougher penalties. A discussion document is to be released later this year on these, she said.

Meanwhile, Dr Walters told the association that the driver for greater standards of disclosure had picked up since the Enron collapse.

There is strong anecdotal evidence that US investors are now much more leery of equities since Enron fell over.

"Everyone got burned by Enron, whether they know it or not, because it was tied in to so many indexed funds. But US investors really don’t have the option about being in the market – if you’re going to save, then one way or another you have to be exposed to the sharemarket."

AIMR is a standards setting body which also acts as an advocate for higher accounting standards and greater disclosure to investors.

This goes beyond the simple matter of accounting standards and to more wider ethical matters. A major issue for the association at present is the behaviour of analysts at investment banking firms.

"De-linking the research house arm of the company from the investment banking side, and having some sort of Chinese wall between them, is becoming more important."

Rob Hosking is a Wellington-based freelance writer specialising in political, economic and IT related issues.

Commenting is closed