Govt acts to improve finance company regulations

The government acted today to ensure trustees will have the tools they need to supervise the activities of finance companies on behalf of investors.

Cabinet made the changes, which were suggested less than two weeks ago by the Securities Commission, to Trust Deeds governing finance companies. Cabinet waived the usual 28-day rule so the amended regulations will come into force at the end of this week (21 September 2007).

Commerce Minister Lianne Dalziel expressed concern that some commentators seem to think the sector is currently completely unregulated simply because the government has announced a major overhaul of the regulatory framework that will take some time to implement.

"The sector is regulated, but as the submissions in the Review of Financial Products and Providers identified, the framework is not as strong as it could be. However, I don't want anyone to be under the illusion that the reforms when implemented will eliminate all risk. It will remain important for investors to do their homework before making any investment decisions.

"The decisions that I announced in June coupled with the detailed announcements around prudential regulation that Finance Minister Dr Cullen announced last week, as well as the improvements in the planned timetable for implementation show that the Labour-led government is getting on with what is the most substantial reform of the finance sector ever.

"In the meantime, today's announcement reflects the Labour-led government's determination to ensure that the existing regulatory framework is as strong as it can be. Investors can take heart from this latest announcement, which makes best practice standard practice."

The regulations amend the Securities Regulations 1983 to provide additional clauses that are deemed to be included in the trust deeds of finance companies. The finance companies affected are issuers that continuously offer debt securities to the public and either lend money or provide financial services, but that are not a building society, credit union, or co-operative company. The new deemed clauses apply to both existing and future trust deeds.

Under the new clauses, finance companies must:

• provide regular reports to the trustee about the issuer's financial position and to regularly certify compliance with the trust deed; and
• keep the trustee informed of matters relevant to the trustee's duties; and
• have the borrowing group's half-yearly financial statements audited or, if that requirement is waived by the trustee, have them reviewed; and
• provide the trustee with copies of the borrowing group's annual and half-yearly financial statements; and
• consult the trustee on the appointment of auditors and inform the trustee if an auditor resigns or declines appointment or reappointment; and
• include specific conditions in the terms of appointment of auditors, which will give auditors responsibilities vis-à-vis the trustee.

The new clauses will also give the trustee power to:

• appoint an independent auditor to audit the financial statements of the borrowing group; and
• appoint an expert to assist the trustee to determine the true financial position of an issuer, and recover the fees and expenses from the issuer.

Contact: Elspeth (Ellie) McIntyre, Press Secretary, ph 04 471 9397 cell 021 227 9397
All Lianne Dalziel's media statements and speeches are at www.beehive.govt.nz/dalziel