The decision to retain corporate trustees as the frontline supervisors of debt and collective investment scheme issuers under a new regulatory regime is welcome, say Chapman Tripp lawyers, Tim Williams and Penny Sheerin.
They were commenting on a suite of proposed regulatory reforms announced on Wednesday by Commerce Minister Simon Power.
“The changes should address a call from the IMF and World Bank in their Financial Sector Assessment Programme 2004 for greater checks and balances on trustees and are likely to be more efficient and effective than the alternative of imposing a government regulator to directly supervise issuers.
“The threat of penalties, licensing limitations and, as a last resort, removal should provide a ‘Sword of Damocles’ to motivate improved performance from the trustee companies criticised in connection with finance company failures,” they said. The Securities Commission will be responsible for reviewing each trustee or statutory supervisor’s competence, infrastructure, monitoring systems and processes, and financial strength. Licenses will be tailored to the level of risk associated with the issuers being supervised.
Trustees and statutory supervisors will be subject to ongoing monitoring by the Commission. There will be new minimum standards for matters that must be addressed in trust deeds, and the Commission will have enhanced enforcement powers. The proposals will prevent trustee companies competing in the same market as the issuers they act for. Potentially this could require some significant changes to the industry, as trustee companies currently manage some significant group investment funds which compete with other investment products.
The review will not affect the operation of superannuation schemes, so an opportunity will be lost to modify the Securities Act to reflect the commonly adopted trustee/manager model by appropriately making the manager the issuer.