KEY POINTS:
New finance company rules allowing better trustee surveillance would have stopped some recent collapses, says one of the industry's leading players.
Commerce Minister Lianne Dalziel is stressing the Government has moved quickly on the new rules, which are supposed to ensure trustees have the tools they need to supervise the activities of finance companies on behalf of investors.
The new rules, suggested by the Securities Commission earlier this month, come into force on September 21 after Cabinet waived the usual 28-day delay period.
"In my view the horse has bolted. It's good but late," says Strategic Finance's CEO, Kerry Finnigan.
"This should have been in place some time ago. What it has done is create a level playing field for all finance companies.
"Would it have prevented the failures we have seen? I think so."
Dalziel says there is no way of knowing this with recent failures. "We don't know until the investigations [on finance companies] are undertaken," she says. "We have found some common threads. There are some things that make them quite different in some cases.
"Bridgecorp's finances were quite unusual - they required a great degree of assessment."
Concern that the finance companies' accounts are being appropriately overseen has led to a new clause for trustees to give them the power to initiate an independent audit of the group's financial statements.
Dalziel is concerned some seem to think the sector is unregulated. It is regulated, she says, but the framework is not as strong as it could be.
"However, I don't want anyone to be under the illusion the reforms will eliminate all risk. It will remain important for investors to do their homework before making decisions."
Under the new rules, trustees will also be able to appoint an expert to help determine the financial position of the finance company, and recover fees and expenses from the issuer.
There will be more regular reporting with six-monthly audited accounts (or reviewed by auditor if the trustee permits) within three months of the year end; monthly management accounts and a quarterly certificate from directors that the prospectus is up to date and there have been no breaches of the trust deed.
One concern brought to Dalziel's attention was the top four accountancy firms were barely evident as finance companies' auditors.
"The Big 4 weren't in the room," says Dalziel, unusual bearing in mind the top four - Ernst & Young, Price-WaterhouseCoopers (PWC), Deloitte and KPMG - audit 83 per cent of NZSX firms. It is likely now trustees will be inviting companies such as PWC and Deloitte to carry out these independent audits.
Dalziel wants assurance the accountancy company appointed is doing this kind of work on a regular basis. "Liability is strongly on the trustees if they have not played their supervisory role the way I've discussed," she says.
"If there had been this level of reporting in place, I don't think Bridgecorp would have got into the position it ended up," says Finnigan, because its investment positions would not have been allowed.
Finnigan would like to see more regulation - common sense things such as fit and proper directors would be valuable. Dalziel says these issues will be dealt with in the legislation, which will also address capital requirements, the need for a capital ratio and minimum capital.
Meanwhile, the country's main trust companies, such as Guardian Trust, Perpetual and Trustees Executors, are working overtime to help keep finance company clients afloat.
"Most trustees are getting a higher level of information and are monitoring closely," says Clynton Hardy, chairman of the Trustees Corporations Association of NZ. "The trustee is basically a watchdog and when something goes wrong the dog barks.
"In these times, when there are issues of liquidity and asset quality, it is prudent for trustees to be looking closer, asking for more information as trustees have always been able to do."
Sam Stubbs, CEO of the Hanover Group, whose finance companies are monitored by both NZ Guardian Trust and Perpetual, is confident that the regulations for finance companies, such as the new legislation which will have them reporting to the Reserve Bank and the Securities Commission, will bring the non-bank deposit takers more in line with banks.
