Happy Financial Markets Conduct Day! - Now time for business

Sue Brown, corporate partner at law firm DLA Philips Fox and former FMA executive.

Sue Brown, corporate partner at law firm DLA Phillips Fox and former FMA executive says there's an important choice to be made today - when the Financial Markets Conduct Act comes fully into effect.

Here's a question for those of us working in New Zealand's financial markets - looking back in 10, 20 years will you remember where you were today?

Will you look back with pride on having been a key player in the initiative that paved the way for successful New Zealand businesses, for greater wealth and opportunity for all New Zealanders? Or look back in dismay at unproductive compliance expense and lost opportunity, at yet another generation of investors let down by your failure to earn their trust and the economic benefits that go with that confidence?'

That's the choice we all have today - Monday 1 December 2014 - the day the Financial Markets Conduct Act comes fully into effect.

"Once in a generation reforms mak[ing] up an integral part of the Government's Business Growth Agenda to restore confidence to our financial markets...Robust capital markets and investor confidence are essential to driving business growth, exports and jobs..." is how then Commerce Minister Craig Foss introduced the reforms. Lofty aspirations indeed.

The catch is that this reform is led out by a piece of legislation that makes the Complete Works of William Shakespeare look like light reading by comparison. This drives the sector's response into the basket labelled 'compliance' rather than into the basket labelled 'business opportunity', which risks a legalistic and compliance driven approach that will drive inefficient and ineffective outcomes.

Now I'm not saying that compliance teams and legal advisers are 'bad' - far from it - I'm a lawyer and have led compliance teams. I know the work they do is vital to ensuring the corporate health and well-being of any business, but at the same time it is often a thankless task.

What I am saying is that the businesses that will survive and thrive in the new environment will be those that understand that their response to these changes needs to focus on the outcomes the reforms seek to achieve -that it's about the destination, not the journey. It will be those businesses that seize the new opportunities the regime brings with both hands, .

For all its complexity, the core features of the reforms are very simple - clear information for investors, so they can make sound investment choices; financial market service providers who show through licensing that they meet base capability standards; managed fund and debt issuers who are held accountable for performing their core obligations by active supervisors; and financial product and financial service providers who don't mislead and deceive investors.

And the opportunities the reforms present are exciting. We've already seen a number of investment opportunities opened up through crowd funding and peer to peer lending platforms - an exciting new way for growth businesses to secure capital to develop and grow. And next year we'll see NZX's new NXT market open up, bringing opportunities for small high growth businesses to access growth capital through reduced complexity listing.

These reforms are unique in world terms and position New Zealand companies well to leverage the opportunities our global market place presents. Of course, they won't remove risk from the market - with risk comes return. But they can - provided we respond in the right way - restore the confidence that investors, financial market participants and their directors lost through 1980s stock market volatility, the subsequent Dotcom crash, the GFC and the failure of the finance company sector.

For directors of the issuers too, there are real benefits of moving quickly to the new regime, with its focus on civil penalties in place of the criminal sanctions that have seen directors of failed finance companies imprisoned.

So, the opportunities are there, the stakes are high, but why does FMA - which has been open to receive licence applications since April 1st and has been taking an open and consultative approach with potential applicants - say it has received only 'a few' applications for licences out of an estimated 400 managed funds providers?

Why are some providers watching and waiting?

Of course there will be genuine business reasons for some providers to wait, but perhaps others have filed the changes in the 'compliance' basket instead of the 'opportunity' basket? Or their legal advisers haven't broken through the complexity of the law changes and helped them understand in straightforward terms what they need to do. Anyone can make the reforms seem complex - they are! It takes special skill and a steady nerve to make them simple, right-sized and business savvy.

Market participants who wait are missing out on great opportunities to know their businesses and their clients better and to build healthy and vibrant businesses based on customer trust. In the meantime, individual investors and the wider economy are missing out on the benefits and the confidence boost the reforms aim to generate.

So, happy Financial Markets Conduct Day - let's get down to business...

Sue Brown is a corporate partner with DLA Phillips Fox. She is a former Financial Markets Authority senior executive where she led development and delivery of FMA's approach to the retail financial markets and to implementation of the Financial Markets Conduct Act.