Challenge to Financial Markets Authority’s proposed “draconian” power
By Pattrick Smellie
Dec. 1 (BusinessDesk) – A draconian power allowing the new “super-regulator” Financial Markets Authority to forcibly take over an individual investor’s legal action in the public interest looks unlikely to survive the select committee process.
The issue was raised repeatedly by heavy-weight submitters to Parliament’s commerce select committee, prompting committee chair and former Commerce Minister under Labour, Lianne Dalziel, to foreshadow likely change.
The chairman of the New Zealand Business Roundtable, Roger Partridge, and chief executive of the Bankers’ Association, Sarah Mehrtens, attacked the provision of the Financial Markets (Regulators and Kiwisaver Bill) on property rights, natural justice and privacy grounds.
The provision allows the FMA, which the bill establishes, to take over an investor’s “cause of action” if the action is deemed to be in the public interest, irrespective of the individual’s agreement and in the expectation that the individual would still bear the cost of their involvement.
The proposed power was drafted in response to concerns that individual investors lack the means to pursue, for example, the string of finance companies that have recently collapsed.
A cause of action against “a finance company (that) commits a wrong which leads to a fall in the value” becomes the investor’s property and may be the most valuable remaining asset in the case of a major apparent loss, said Partridge, who is also chairman at law firm Bell Gully.
At the very least, the law should follow the Australian example and require an investor’s consent to having their cause of action taken over.
Mehrtens argued that some investors would be “mortified” or “terrified” at the prospect of becoming the centre of media attention in a test case that would involve them laying out their personal financial affairs, including potentially large investment losses.
“It all leads to a person at the centre of it, and I wouldn’t want to be that person,” said Mehrtens, who said the law may also extinguish alternative routes for redress such as the Banking Ombudsman and other such industry-backed dispute resolution schemes.
Dalziel said the ability for the FMA to take over causes of action on behalf of investors was something “I really want,” said Dalziel, but she appeared to accept that it would be fairer and more likely to be accepted if there was an opt-out clause.
She had imagined it being used in the case of class actions, a practice rarely used in New Zealand owing to the lack of formal High Court Rules governing them.