Trustees up in arms over auditor disclaimers

In a speech to the association's annual review function, TCA chairman Clynton Hardy said there had been a "major improvement" in the regulatory environment for financial markets, with just the Financial Markets Conduct Bill to go.

"However TCA does have a concern that there are still two weak links in what I call the investor confidence value chain."

‘'Under the newly introduced regulatory model the spotlight has quite properly been put on all involved in the investment sector, from advisers to issuers and supervisors.

"However custodians, i.e. those responsible for holding investment assets on behalf of others are the only player in the sector that remains unlicensed, yet they hold all the assets.

"Many custodians are global firms, licensed in other jurisdictions, so are unlikely to object to being licensed in New Zealand. I cannot understand the rationale for excluding this key part of the investment chain from regulatory oversight."

The second area of weakness is the contribution to investor confidence by auditors, he said.

"TCA is firmly of the view that both issuers and the markets expect investors to be able to rely on financial information included in the prospectus and investment statement.

"If that information is accompanied by auditor audience limitation clauses, then surely this makes a moral nonsense of the new regulatory environment and the government strategy of building investor confidence.

"We hope that Parliament can address these two issues when it resumes after the election."

Comments from our readers

On 15 November 2011 at 10:19 am btw said:

I’m sorry but, with respect, could this be any more self serving? The main party that dropped the ball through the whole finco saga were the statutory trustees (even more than the fincos themselves). They were the ones responsible for protecting the investors and acting in their best interests, not the fincos.
It is equally bizarre that the TCA is highlighting the danger of unlicensed custodians, who are bare trustees, with limited responsibility. Basically they can't steal the property! Statutory trustees (TCA members) are true fiduciaries with powers, discretions and far wider obligations to look after the interests of the investors. If custodians are a weak link, the TCA members are 100 times worse. Clean up your own membership before pointing the finger at others.
The irony is compounded by the new weak remedial legislation which, after extensive lobbying, had the effect of eroding investor rights and protections even further. As long as the statutory trustee model remains in its current form as the protective structure for NZ investors the informed investor will stay away.

On 15 November 2011 at 10:48 am w k said:

may i suggest this:
1. finco shares cannot be owned by a trust where the directors are beneficiaries to it.
2. all directors must have a nett asset of at least equivalent to 5-10% the size of the loan book, in their personal names. If the finco goes under, those assets goes with it.

i bet this will be more effective than any of the crappy regulation you have.

On 15 November 2011 at 7:00 pm adam smith said:

You are absolutely right, BTW, TCAs comments are totally self-serving. It's an attempt to take the spotlight off their own PPP (...poor performance)by firing at others.

The Government recently introduced licensing for trustees. Did they examine each applicant and see how they had performed in the past - Covenant and Perpetual seemed to have a materially disproportionate share of the finance company failures.

Is it correct that rather than rule now, the regulator simply gave all existing statutory approved trustees plus any other previously approved trustees a licence for a year and told them to make a proper application before that year is up?

If that's true, then that is a disgrace.

Trustees up in arms over auditor disclaimers

The Trustee Corporations Association has taken aim at auditors, calling for the government to take action over their use of audience limitation clauses.

Tuesday, November 15th 2011, 6:49AM 3 Comments

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