Tougher financial regulation needed urgently
A survey published earlier this week expressly reveals the extent of the lack of financial literacy among Kiwis. An overwhelmingly large percentage of working people who have KiwiSaver accounts said they genuinely believed the scheme had the government’s guarantee. There is none, as only a minority of the respondents seemed to be aware.
In the run up to the establishment of the scheme, this issue was discussed in some detail in the media and it should have been fairly well known by now that the scheme came with no government guarantee. Investors were either not listening then or they have simply forgotten. This is a perilous state of affairs in any investment environment, certainly from the investors’ point of view.
The survey came just after a financial journalist revealed that discredited promoters of a financial company that has already gone bust were still collecting money from the public. Even the Securities Commission seemed to be caught unawares. The company in question, FAI money, which was earlier FAI Finance run by Mark Hotchin and Eric Watson of Hanover notoriety.
It would be inconceivable in any country with better developed and efficient financial regulatory systems for promoters of a failed scheme to come up with another and operate it with impunity and without a reference to the earlier mess its promoter was involved in. It was only after the whistle was blown that FAI announced that it would cease collecting deposits and pay back investors early.
In the past couple of weeks, irregularities were also reported in the way KiwiSaver service provider, Hujlich KiwiSaver, ran its fund. It had apparently put in some funds in questionable investments and when this was discovered, a senior management member “topped up” the funds lost with his own money. Investors are indeed fortunate that the damage was contained in time and not allowed to blow into another crisis, especially after revelations from an eminent board member that investors were misled as regards a true picture of the fund’s performance.
The management member has since stepped down and been replaced by another board member, former Reserve Bank governor and National Party leader Don Brash. If the level of investors’ financial literacy is alarming, the ignorance of the company’s board while this was happening is shocking. It took a journalist to bring the irregularity to its notice. Obviously, the company did not have efficient reporting systems: the board, comprising such eminent citizens as Dr Brash and Auckland Mayor John Banks, who was the executive director, had no clue of what was happening in the company they were responsible for.
With such low financial literacy and high corporate apathy, which indeed seems quite commonplace in New Zealand as these incidents reveal, it is small wonder that so many so-called finance companies successfully pulled the wool over so many thousands of investors’ eyes, leaving them collectively out of pocket for hundreds of millions of dollars. Many have no hope of recovering any of their money and only a few lucky ones may get back a few cents in each dollar of their investment at some stage.
No one would be surprised if the international investor community looked at New Zealand as one of the last outposts of a financial wild west in the developed world – a financial environment with toothless regulatory mechanisms: a view that could prove extremely damaging for the country.
The decision of Commerce Minister Simon Power to fast track KiwiSaver legislation is a step in the right direction. As well as this legislation, there is an urgent need for regulating the financial sector far more efficiently and in a manner that boosts small investors’ confidence.
The need is even more urgent if Prime Minister John Key is serious about following through on his dream of turning New Zealand into a financial hub in the region – something that can happen only with a regulatory system that the financial world can trust implicitly, especially in the aftermath of the global financial meltdown and that of New Zealand’s own financial company disasters.
A survey published earlier this week expressly reveals the extent of the lack of financial literacy among Kiwis. An overwhelmingly large percentage of working people who have KiwiSaver accounts said they genuinely believed the scheme had the government’s guarantee. There is none, as only a...
A survey published earlier this week expressly reveals the extent of the lack of financial literacy among Kiwis. An overwhelmingly large percentage of working people who have KiwiSaver accounts said they genuinely believed the scheme had the government’s guarantee. There is none, as only a minority of the respondents seemed to be aware.
In the run up to the establishment of the scheme, this issue was discussed in some detail in the media and it should have been fairly well known by now that the scheme came with no government guarantee. Investors were either not listening then or they have simply forgotten. This is a perilous state of affairs in any investment environment, certainly from the investors’ point of view.
The survey came just after a financial journalist revealed that discredited promoters of a financial company that has already gone bust were still collecting money from the public. Even the Securities Commission seemed to be caught unawares. The company in question, FAI money, which was earlier FAI Finance run by Mark Hotchin and Eric Watson of Hanover notoriety.
It would be inconceivable in any country with better developed and efficient financial regulatory systems for promoters of a failed scheme to come up with another and operate it with impunity and without a reference to the earlier mess its promoter was involved in. It was only after the whistle was blown that FAI announced that it would cease collecting deposits and pay back investors early.
In the past couple of weeks, irregularities were also reported in the way KiwiSaver service provider, Hujlich KiwiSaver, ran its fund. It had apparently put in some funds in questionable investments and when this was discovered, a senior management member “topped up” the funds lost with his own money. Investors are indeed fortunate that the damage was contained in time and not allowed to blow into another crisis, especially after revelations from an eminent board member that investors were misled as regards a true picture of the fund’s performance.
The management member has since stepped down and been replaced by another board member, former Reserve Bank governor and National Party leader Don Brash. If the level of investors’ financial literacy is alarming, the ignorance of the company’s board while this was happening is shocking. It took a journalist to bring the irregularity to its notice. Obviously, the company did not have efficient reporting systems: the board, comprising such eminent citizens as Dr Brash and Auckland Mayor John Banks, who was the executive director, had no clue of what was happening in the company they were responsible for.
With such low financial literacy and high corporate apathy, which indeed seems quite commonplace in New Zealand as these incidents reveal, it is small wonder that so many so-called finance companies successfully pulled the wool over so many thousands of investors’ eyes, leaving them collectively out of pocket for hundreds of millions of dollars. Many have no hope of recovering any of their money and only a few lucky ones may get back a few cents in each dollar of their investment at some stage.
No one would be surprised if the international investor community looked at New Zealand as one of the last outposts of a financial wild west in the developed world – a financial environment with toothless regulatory mechanisms: a view that could prove extremely damaging for the country.
The decision of Commerce Minister Simon Power to fast track KiwiSaver legislation is a step in the right direction. As well as this legislation, there is an urgent need for regulating the financial sector far more efficiently and in a manner that boosts small investors’ confidence.
The need is even more urgent if Prime Minister John Key is serious about following through on his dream of turning New Zealand into a financial hub in the region – something that can happen only with a regulatory system that the financial world can trust implicitly, especially in the aftermath of the global financial meltdown and that of New Zealand’s own financial company disasters.
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