Govt to tidy up finance company scene
UPDATED: Commerce Minister Lianne Dalziel has announced she will be taking steps pending proposed law changes aimed at reforming the non-bank finance sector.
Friday, August 24th 2007, 5:10AM
Minister of Commerce Lianne Dalziel outlined, yesterday, four areas where change could be made, with the most important, arguably being the strengthening to trust deeds and information disclosure to trustees.
She says it appears that in some cases information required by trustees under the deeds has "not been forthcoming."
"I have asked the Securities Commission to call the trustee companies together to determine whether the existing terms of the trust deeds are adequate," she says.
Her view is that the government could move quickly in this area as changes could be made by regulation rather than legislation.
Dalziel repeatedly made the point that some finance companies were not providing appropriate returns for the risk investors are taking on.
"Many investors simply don't understand the level of risk they are taking when making investments."
She also suggested some have had poor advice.
An advisers should read the prospectus and understand level of risk, ask clients what their risk profile, and must disclose any "pecuniary gain" such as commission.
If and adviser isn't doing these things then they are not acting in a professional way, she says.
Another concern she has is around companies writing letters to investors that are giving a level of comfort which isn't there.
A number of media reports have noted Nathans wrote to investors recently reassuring them the company was in good shape, when in fact it ended up falling over.
"That is one thing that greatly concerns me," Dalziel says. While no plans were announced yesterday on mandatory credit ratings for finance companies, but it will happen. Cabinet is due to get a paper from the Reserve Bank on the subject and legislation is planned to be introduced to Parliament before the end of the year and passed before next year's general election.
Dalziel's view is that ratings should be done by top credit rating companies, rather than what she calls the "Joe Blogs" credit ratting companies.
Some thought had been given to a full investigation of the sector, however that is unlikely to happen as other investigations are already underway. These include investigations into whether there have been breaches of the Securities Act, insider trading allegations and whether there has been criminal liability in any of the collapses.
Dalziel says the four proposals floated yesterday are meant as an immediate fix and the work being done of the Review of Financial Products and Providers continues.
Dalziel has:
- Asked the Securities Commission to call the trustee companies together to determine whether the existing terms of the trust deeds are adequate;
- Undertaken to give priority to the need for independent audit regulation and oversight;
- Asked the Securities Commission to move ahead on a public information campaign that will foster greater understanding of the risks and returns; and
- Will consider reprioritising parts of the Review of Financial Products and Providers to enable particular concerns to be addressed first.
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