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Securities Commission ‘nodded off’ on finance companies

Securities Commission ‘nodded off’ on finance companies, says Bell Gully head

By Pattrick Smellie

Dec. 1 (BusinessDesk) – The Securities Commission “nodded off” and failed to use a wide range of existing legal powers to tackle inadequate disclosure to investors by finance companies before many of them collapsed, says the head of one of New Zealand’s largest law firms.

Appearing before Parliament’s commerce select committee as chair of the New Zealand Business Roundtable, Bell Gully chairman Roger Partridge gave several “personal views” challenging the Securities Commission’s assertions that it had too few powers to move on errant finance companies.

While he accepted that the commission could not move to prosecutions before criminal justice agencies such as the Serious Fraud Office first completed their investigations, there was no shortage of legal powers available under existing law for the commission to have acted.

“As a practicing litigator, I would very much like the powers that the regulator has,” he told the committee in submissions on the Financial Markets (Regulators and Kiwisaver) Bill, which will establish the new super-regulator, the Financial Markets Authority.

The Roundtable is arguing along with NZX Ltd. and other financial market heavyweights that the Bill goes too far in giving the FMA new regulatory powers prior to the conclusion of a review of the Securities Act, which is currently under way.

“You never feel the regulator doesn’t have enough armour,” said Partridge. “With finance companies, regulators can suspend a prospectus, a power which has existed since the 1970’s in the Securities Act. They can stop advertisements.”

It could also summon evidence and pursue criminal charges.

The “perceived regulatory failure” in relation to finance companies reflected existing laws not being used rather than a lack of laws, Partridge said, noting the Securities Commission had reported on its concerns about finance companies in 2005, and stated they would be keeping investment statements under review for breaches of the Securities Act, including failure to declare related party transactions.

“The Securities Commission seems then to have nodded off.”

While the commission had a difficult job, “from my perspective, the regulators have had all the powers they need for certainly the last decade and for longer.

“We should be cautious before introducing new powers. They may not work, they may not be needed, and they may come with some cost,” Partridge said.


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