New Zealand looks to weaken financial reporting rules
Sydney (15 July)
The New Zealand Government will consult on proposals to weaken financial product disclosure rules and continuous disclosure-related penalty rules until 25 August, in a bid to promote increased public listings.
“The Government’s objective is straightforward: capital markets that are trusted, competitive, and focused on supporting economic growth,” Minister of Commerce and Consumer Affairs Cameron Brewer said on 14 July.
It aims to maintain investor protections while challenging regulations that are too costly, uncertain, or outdated, Brewer added.
The Government has proposed a range of possible changes to Product Disclosure Statement (PDS) rules to reduce listing delays and encourage public listings, according to a consultation paper. Its proposals include reducing the amount of information declared in PDSs and replacing them with simplified disclosures.
Financial Market Authority (FMA) surveys indicate that current PDS rules could limit financing options and investment opportunities, according to the Government.
“Investors often struggled to pick out the [PDS] information most relevant to their decision-making,” FMA found in a 2018 survey. But 45% of investors view PDS disclosures as more relevant than other offer documents – and just 11% view them as less relevant than other documents – FMA survey data show.
FMA interviews and surveys also indicate that most investors do not read entire PDSs. Only 18% of investors read entire PDSs, according to the FMA’s 2018 survey. But 43% of investors read most of the documents.
The New Zealand Government has also proposed measures to change liability standards for issuers and directors that break continuous disclosure rules. These include tightening the meaning of director involvement and weakening corporate liability standards.
Stakeholders have suggested that strict liability rules could promote costly overcompliance with disclosure rules and make it harder to recruit corporate directors, according to the Government.
Sanctions-based continuous disclosure systems often promote regular corporate disclosures and forecasts. Australian non-disclosure sanctions enforcement boosted non-routine disclosures after 2000 – following penalty reforms in the mid-1990s – according to a 2008 working paper by researchers at Victoria University of Wellington.
By Avinash Govind