by Susan Edmunds
Paul Goldsmith wrote in response to a letter from the group representing Ross Asset Management investors, who raised concerns about the regulation of financial services participants in New Zealand.
The group said investors were not well served by legislation and wanted an assurance from the Government that the Financial Markets Authority would protect investors in the event of a future financial collapse.
It asked for clarification about aspects of the clawback regime. Investors who lost money with Ross would like to be able to claim it from those who were given payouts through the fraudulent Ponzi scheme. The liquidators for Ross Asset Management have been in talks with three former investors over $3.8 million of payments received in the two years leading up to the collapse in 2012. The group asked whether that period could be extended.
Goldsmith said shoring up investor confidence was a priority for the Government.
The new DIMS rules would help, he said.
“Given that inadequate and fraudulent custody of assets were key factors in Ross Asset Management’s fraudulent activities, the Government has introduced a number of new requirements for the custody of DIMS. New requirements mean that DIMS providers will no longer be able to hold a client’s money or property themselves. This provides a separation of duties between the safeguarding of client assets and the investment management decisions made by DIMS providers.”
He said the measures taken by the Government were an appropriate response to the collapse. “It is not possible, however, to completely remove the threat of fraudulent behaviour from financial markets.”
The investors group asked why there was not more formal protection for vulnerable investors in New Zealand, such as a fidelity fund.
Godlsmith said a fidelity fund for financial markets might sound like an appealing solution but there could be issues such as whether a levy to fund the scheme would increase costs, and whether it would incentivise investors to take more risks.
He said the courts were the appropriate forum for dealing with clawback issues but noted an aspect of the recovery action is under the Property Law Act, which has the ability to look at transactions up to six years old, rather than two. He said he would await the outcome of the case with interest.
Ross investor spokesman Bruce Tichbon said: “The Minister’s letter provides valuable insights into the Government’s thinking but the Minister seems to offer no substantive changes that would better help to unravel the uncertainty for RAM and similar investors.”
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