IMF wants tougher penalties for rogue advisers

The quality of New Zealand's financial sector regulation has received a qualified tick from the International Monetary Fund - but it wants a tougher regime, including criminal penalties for financial advisers who breach the law.

Friday, May 7th 2004, 3:44AM

by Rob Hosking

This is already under consideration by the government.

The Fund's Financial Sector Assessment Programme (FSAP) released its report yesterday and gave a thumbs up to how New Zealand regulates, its banking sector, and also to the New Zealand Superannuation Fund.

The IMF assessors have however urged the government forward with its programme of regulatory changes to the non-banking financial sector.

While the report does not contain the strong criticism some were expecting, it does conclude however that New Zealand has several weak points. These include the small market, dominance by Australian institutions, along with "a liberal disclosure-based regime, with limited supervisory intervention" and a low savings rate which creates a large dependence on funding from overseas.

"In the absence of appropriate controls, these structural features have the potential to engender vulnerabilities."

Essentially, however, the IMF assessors conclude that the government is on the right track with its planned programme of reform.

However for financial advisers specifically, it recommends implementation of the penalties and remedies regime put up in a Cabinet paper by the then Commerce Minister Lianne Dalziel last June.

That paper - which is one of the many pieces of official work going into the next phase of financial sector reform due for launching later this year - canvasses criminal penalties for breaches of insider trading and market manipulation and tags on similar penalties for investment advisers who recommend illegal offers of securities.

The paper recommends a fine not exceeding $300,000.
Investment advisers and brokers could also be caught by new "aiding and abetting" provisions relating to insider trading and market manipulation - this could see them imprisoned for up to five years or a fine not exceeding $100,00, or both.

Criminal penalties for breaches of the continuous disclosure regime is however specifically ruled out as being not sufficiently serious to meet such a punishment.

Rob Hosking is a Wellington-based freelance writer specialising in political, economic and IT related issues.

« Adviser regulation slips back

Sovereign takes regulation bull by the horns »

Special Offers