Super regulator's power of civil action set to remain on books

Rob Cameron. Photo / Mark Mitchell

The new super regulator's power to take legal action on behalf of investors left out of pocket in corporate failures looks set to remain in legislation establishing the Financial Markets Authority, in spite of industry opposition.

Parliament's commerce committee has been hearing submissions on the Financial Markets (Regulators and KiwiSaver) bill which establishes the Financial Markets Authority (FMA) as a one-stop regulator with responsibility for market surveillance and enforcement duties currently performed by the Securities Commission, Companies Office, NZX and other agencies.

But a number of submitters, including NZX, the Bankers Association, law firm Chapman Tripp and even investment banker Rob Cameron - who advocated for the creation of the super regulator - have raised concerns about the bill's provisions giving FMA the power to take civil action on behalf of investors who might not be able to fund it themselves.

Cameron - who headed the Capital Markets Development Taskforce - submitted that the civil action powers had not been sufficiently thought through. He argued it should be carved out of the bill for further analysis and consultation, a view shared by Chapman Tripp and NZX.

The Bankers Association said nine of its 10 member banks objected to the provision on a number of grounds, including that it imposed a regime where investors may be forced to forgo their rights to take action on their own behalf.

However the Shareholders Association said it strongly supported the proposal "and consider it essential for effective regulation and discipline in the securities markets".

It argued for amendments that would reduce opportunities for companies who may be the subject of such litigation to delay or put up obstacles.

Speculation has mounted that a number of provisions in the bill will be carved out or removed for later consideration before it is reported back from the committee in February.

But during sessions last week, committee chair and Labour MP Lianne Dalziel said she regarded the civil action provision as an important one and "unfinished business" from her time as Commerce Minister.

"When shareholders don't have the ability to take action against the company because they're under-resourced or they've lost a lot of money or everything's frozen or in receivership and there has been wrongdoing, not allowing a regulator to take that action on their behalf has actually enabled people to get away with a lot."

Yesterday she told the Herald her personal view was that the provision should remain in the bill.