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A Response to Finance Company Failures - The Financial Markets Authority (FMA)

The failure of a large number of finance companies has had a devastating and on-going impact for a number of people.

Indeed many thousands of New Zealanders have lost their life savings. Other than for those few investments that fell within the Government Retail Investment Guarantee Scheme there has been very little recovery or recourse available for investors to date. Turner Hopkins is actively engaged in assessing the prospects of obtaining recovery by investors in some finance companies from organisations that have failed them. It is possible that this may, in some cases, include a corporate trustee which may have failed to take reasonable steps to ensure that the finance company acted within the limits of the trust deed and the appropriate legislation. We are hopeful that we will be able to make an announcement concerning the prospect of such a claim or claims being made very shortly. Turner Hopkins is working in conjunction with the Australian class action specialist firm Slater & Gordon. Further details of this project can be found on our website http://www.turnerhopkins.co.nz/claimsagainst- trustees-70/

The failing of the finance companies and a general inadequacy in the management of financial markets which led to the global financial crisis ("GFC") has resulted in the Government revamping New Zealand's 30-year-old securities law. The issues encountered during the crisis highlighted the need for better enforcement and an overarching regulatory body to better preserve the integrity of our financial markets. The Financial Markets Authority ('FMA') was thus established as the 'catch-all' Government agency responsible for financial regulation, consumer protection and enforcement. The FMA came into force on 1 May 2011 and is governed by the Financial Markets Authority Act 2011 ('the Act'). Upon implementation of the Act, the FMA usurped all functions and duties of the Securities Commission and Crown Actuary, which have since been disestablished.

Functions of the FMA

The demise of finance companies during the GFC significantly damaged the confidence of investors in our financial markets. As such, a key objective of the FMA is to rebuild confidence through the promotion and "development of fair, efficient and transparent financial markets." Other key functions of the FMA (as provided for in Section 9 of the Act) include:

  • to promote confident and informed participation in financial markets;
  • to monitor compliance and investigate conduct that constitutes or may constitute a contravention of the Act;
  • to monitor and conduct enquiries and investigations in relation to any matter concerning the financial markets or its participants; and
  • to keep under review all law and practices relating to financial markets.

The FMA has also been granted a greater range of enforcement powers than its predecessors. One such power (conferred pursuant to Section 29 of the Act) grants the FMA "power to enter and search a place, vehicle or thing" including computer files and systems for the purpose of investigating misconduct.

Another key purpose of the FMA is the provision of advice to the Government on financial policy matters that form the basis of new legislation. As well as ensuring compliance with all financial market-related legislation, the FMA also possesses the power to grant exemptions from the law in certain circumstances.

Other Changes

The enactment of the Auditor Regulation Act 2011 means that auditors will also soon be falling under the FMA's regulatory umbrella (at a date yet to be appointed by the Governor-General). The FMA is due to take over responsibility for the following:

  • accreditation of professional accounting bodies;
  • quality review of auditor practices;
  • setting minimum licensing standards; and
  • enforcement functions.

The Financial Markets Conduct Bill is also a significant development in the reformation of New Zealand's securities laws. It was introduced to Parliament in October 2011 and is expected to become law by 2013. The functions of this bill are largely consistent with the FMA's main objectives. The Bill also incorporates elements of the Fair Trading Act 1986 by prohibiting misleading or deceptive conduct in relation to financial products. Enforcement of these provisions will be the responsibility of the FMA as opposed to the Commerce Commission.

For more information on the FMA please visit www.fma.govt.nz

No doubt the investing public will watch with interest to see whether the establishment of the FMA and its wide ranging powers will have a positive effect on New Zealand financial markets.

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