The Financial Markets Authority (FMA) believes 2014 will be the ''turning point'' year for new regulations governing capital raising for New Zealand companies, chief executive Rob Everett says.
Speaking in Dunedin last week, he outlined what had prompted changes to the Financial Markets Conduct Act, how they will be implemented and the part directors have to play in the changes.
Mr Everett (46) is originally from England and has been FMA head for nine months, having been a director with a global regulatory consulting group, following 17 years with Bank of America-Merrill Lynch in Europe, Asia and the US.
Mr Everett said the second and final phase of the Act, which had progressively taken effect this year, would come into effect on December 1.
''The quality of boards makes a difference to outcomes for all firms that are raising funds and reporting; listed firms, private ones, large and small,'' Mr Everett said.
In an interview following his presentation, Mr Everett outlined the ''decade of turmoil'' just gone, which included the sharpest business downturn the developed world had experienced in 60 years.
He questioned what had the financial markets learnt about the role of boards, in the years following 2007.
Globally, trillions of dollars of investors' cash was lost, including $6 billion in New Zealand finance companies, and hundreds of good companies disappeared, some in New Zealand.
''Others, including the big US car makers and big banks across the developed world are afloat today only because taxpayers were forced to underwrite them,'' Mr Everett said.
Boards found themselves faced with litigation initiated by disappointed shareholders, by out-of-pocket creditors, and by regulators, including in New Zealand.
Mr Everett said when the Act came into full effect, it would provide New Zealand with some of the most modern financial services and securities law in the world.
There were three aspects to be considered.
Firstly, it was written to explicitly recognise the rights of investors, companies, and directors, and to ensure the distribution of those rights provded justice for all three groups.
''Writing law like that is harder than it might sound. Many countries struggle to get it right.''
Secondly, the Act was written with three related objectives, which were to grow the capital stock of New Zealand, provide investors with more choice of regulated investments and equip them to make better investment decisions.
''I know that regulation got a bad name in New Zealand in the 1970s and the 1980s. Partly because some of it was regulation in the interests of groups that were good at lobbying governments,'' Mr Everett said.
And thirdly, the new law was written to make capital-raising easier, recognising that, generally, New Zealand firms were smaller than the world average.
The Act also allows for two new categories of licensed financial services - crowd-sourced equity funding and peer-to-peer lending.
''They are both truly 21st-century categories, in that they are financial services developed post-internet,'' Mr Everett said.
On the question of peer-to-peer lending and crowd-funding, he said these new types of funding were riskier than any previous methods.
''They're at the opposite end of the risk scale, from Spark and Auckland International Airport [shares].
''They [peer and crowd funding] should be part of a portfolio. People have to think carefully how much they can afford to lose,'' Mr Everett said.
In peer-to-peer lending, which is effectively a consumer-finance product, the FMA had licensed one lending platform so far.
''We're watching peer-to-peer as it develops, with a lot of interest.''
In the US and UK, peer-to-peer was taking off as a competitor to the traditional high street banks.
The other imminent change to the New Zealand markets is a new NZX ''growth'' platform, about to be launched, to trade shares of small companies, which already has a disclosure exemption from the FMA.
Mr Everett was asked how having fewer disclosure requirements for these small companies would aid investors in making decisions.
He conceded that investors had to take into account ''they can't expect the same protections as [from] the main trading board'' and so ''would have to exercise more care''.
The ''growth'' platform was looking to raise capital for the smaller companies, which might not be able to list on the NZX main board, and he noted companies on the NZX' existing ''alternate'' board and even main board companies could opt for the growth platform.
He said capital-raising had to be easier and lower-cost and with lower regulatory thresholds, relative to the main board, for the so-called ''stepping stone markets''.
On directors' roles, Mr Everett emphasised governance made a big difference to how companies were run, the outcomes, and its contribution to the economy.
Directors were there to exercise ''independence of mind'', otherwise a major part of the role was being overlooked.
''They have to be able to challenge business strategy . . . and especially when it comes to taking money from investors.
''Don't let auditors and lawyers make [an offer document] into a bible,'' he said of the now large, complicated documents.
A board exerts influence over what happens, from the chief executive's corner office to the call centre, where customers are ringing in.
''We're going to challenge boards, in the financial service sectors we regulate, on what their firms deliver in terms of outcomes for customers,'' Mr Everett said.
