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University of Otago Law Theses and Dissertations |
Last Updated: 25 September 2023
A Potential Regulatory Wolf in Sheep’s Clothing:
Assessing the Financial Market Authorities Power to Exercise a Person’s Right of Action
A dissertation submitted in partial fulfilment of requirements for the degree of Bachelor of Laws with Honours at the University of Otago – Te Whare Wānanga o Otāgo
October 2022
Acknowledgments
I would like to thank my supervisor Professor Shelley Griffiths for the much needed support throughout this process, your guidance and insights have been invaluable and made this process extremely rewarding.
I would like to thank the following people for their constant support and friendship:
Fergus and Jiarun for the comradery and making my time at University so enjoyable throughout all the challenges faced.
Tunui, Aiden and Tane for the friendship over the years and the many memories made so far.
Finally I would like to thank my family, Megan, Andrew and Olivia for your love and never- ending support of my interests.
Table of Contents
Table of Abbreviations
FMA: Financial Markets Authority
ASIC: Australian Securities and Investments Commission FMA Act: Financial Markets Authority Act 2011
ASIC Act: Australian Securities and Investments Commission Act 2001 (Cth) FMCA: Financial Markets Conduct Act 2013
NZX: New Zealand Exchange
ASX: Australian Securities Exchange
I Introduction
Regulating capital markets is a difficult and complex exercise, capital markets are ever- evolving and regulating them requires an attentive and responsive regulator. Over time New Zealand has seen a significant shift in how we regulate capital markets. Today the primary regulator in New Zealand is the FMA, a government agency established in 2011 with a broad range of enforcement mechanisms.1 The FMA is a powerful agency, it has extraordinarily broad evidence gathering powers.2 Further it can bring both civil and criminal proceedings against financial markets participants for misconduct.3 This dissertation looks to assess one aspect of this enforcement framework, the FMA’s power to exercise a person’s Right of Action. Originally introduced as part of the Financial Markets (Regulators and KiwiSaver) Bill the provisions would later become part the FMA Act.4 Now contained in Part 2, Subpart 3 of the FMA Act the powers allow the FMA to “step into the investors shoes” and take their Right of Action provided certain conditions are met.5 The power wasn’t introduced without criticism however, many submitters noted their concern that the power could potentially strip people of their rights to take action without consent.6 Issues were also raised about whether the powers could increase civil liability and deter people from serving as directors.7 The powers have been in force for just over ten years with little use, so it’s time to ask, are they fit for purpose?8
This dissertation is separated into four parts. Part one seeks to chronicle the background to the introduction of the Right of Actions powers, looking at the shift in financial markets regulation in New Zealand since 1978 and outlining the changing objectives leading towards the introduction of the Right of Action powers in 2011. This part looks to the role the global
1 Financial Markets Authority Act 2011, s 6.
2 Financial Markets Authority Act 2011, s 25.
3 Financial Markets Authority, “The FMA Publishes First Annual Report Under the New Regulatory Scheme” (Press Release, 2 October 2015).
4 Financial Markets (Regulators and KiwiSaver) Bill 2010 (211-1), cl 34-41; and Financial Markets Authority Act 2011, s 34-41.
5 Financial Markets Authority Act 2011, s 34(1).
6 For example see, Chapman Tripp (Auckland) “Submission to the Commerce Select Committee on the Financial Markets (regulators and KiwiSaver) Bill 2010” (November 2010) at 3; New Zealand Business Roundtable “Submission to the Commerce Select Committee on the Financial Markets (regulators and KiwiSaver) Bill 2010” at 4-5; and Westpac New Zealand Limited “Submission to the Commerce Select Committee on the Financial Markets (regulators and KiwiSaver) Bill 2010” (10 November 2010) at 10-11.
7 See ANZ National Bank Limited “Submission to the Commerce Select Committee on the Financial Markets (regulators and KiwiSaver) Bill 2010” at 5; and Ministry of Economic Development Regulatory Impact Statement: A Power for the FMA to Exercise an Investor’s Right of Action (14 September 2010).
8 Financial Markets Authority Act 2011, s 2.
financial crisis played in changing how New Zealand regulates financial markets. Lastly this part outlines the introduction of the Right of Action powers themselves, looking at the recommendations made by Capital Markets Development Taskforce Report, similar sections in Australia’s financial markets legislation and the eventual introduction of the powers within the Financial Markets Authority Act 2011.
Part two looks at how the Right of Action powers have been used so far and the risks they pose. This part begins by looking at concerns raised during the legislative process leading up to the introduction of the Right of Action powers. Next this part outlines when the FMA has chosen to exercise the powers and outline their function to date. This part then explores when the FMA has considered exercising the Right of Action powers but decided against it.
Through illustrating the FMA’s past exercise of these powers and potential usage this section provides critical analysis of the usefulness of the Right of Action powers alongside an assessment of the issues they create.
Part three looks at how the Right of Action powers could be used in the future. This part looks at Australia’s usage of a similar sections contained in their financial market’s legislation, notably focusing on their regulation of auditors. This part also looks to assess how the Right of Action powers could be used to address contemporary issues in our financial markets by asking whether the Right of Action powers may be of use to regulate auditors and Environmental, Government, and Sustainability (ESG) investing.
Part four provides options to mitigate and to resolve the issues caused by the Right of Action powers. This part looks at a range of solutions ranging from minor statutory reform to widespread reform and potential repeal of the powers. This part also looks towards the future and seeks to assess the effect of current trends in the financial markets space might have on use of the Right of Action powers.
II Part One: History of New Zealand’s Financial Markets Regulation and Introduction of the Right of Action Power
This part details the general shift in New Zealand’s financial market regulation up to the introduction of the Right of Action powers in 2011. New Zealand has seen a gradual shift towards prioritizing enforcement of financial markets through a front-line regulator, detailing this transition is critical to understanding the reasoning underpinning the introduction of the Right of Action powers.
A A Shift in Focus from Private to Public Enforcement
New Zealand’s regulation of financial markets has undergone several phases of significant development leading up to the introduction of the Right of Action powers in 2011. As New Zealand’s financial markets regulatory scheme has changed over time a general trend of increasing power for the market regulator appears, this section seeks to detail this expanse from a market primarily regulated by private enforcement towards a market primarily regulated by a sole market regulator (in this case the FMA).
Prior to 1978 public regulation of financial markets was limited comparatively limited.9 With the introduction of the Securities Act 1978 New Zealand saw its first significant piece of financial markets legislation which established the Securities Commission (one of the precursor agencies of the FMA).10 At this time the Securities Commission was only concerned with regulating the primary market and enforcement was largely a matter for private parties.11 Secondary market regulation wasn’t present (except for the Share Brokers Act 1908) in New Zealand until the introduction of the Securities Amendment Act 1988.12 Coming in the background of Black Monday in 1987 it sought to regulate insider trading and compel disclosure of the interests of substantial securities holders.13 Enforcement was largely left to private parties, notably insider trading prohibitions and obligations were regulated by companies and shareholders themselves, enforcement remained mostly private.14 It wasn’t until 2002 when the then Securities Commission was given a significant direct enforcement
9 Shelley Griffiths A to Z of New Zealand Law (online looseleaf ed, Thompson Reuters) at [16.36.2].
10 Securities Act 1978, Part 1 in Shelley Griffiths A to Z of New Zealand Law (online looseleaf ed, Thompson Reuters) at [16.36.2].
11 Griffiths, above n 9, at [16.36.2].
12 See Securities Amendment Act 1988; and Sharebrokers Act 1908.
13 Shelley Griffiths “Securities Regulation” in J Farrar and S Watson (ed) Company and Securities Law in New Zealand (2nd ed, Thomson Reuters, Wellington, 2013) at 1027.
14 Griffiths, above n 13, at 1029 and Securities Markets Amendment Act 2002, s 16.
powers, the Securities Markets Amendment Act 2002 allowed the Securities Commission to exercise a public issuers Right of Action against an insider provided certain conditions were met for example.15 The Act strengthened secondary market regulation by implementing a statutory framework for continuous disclosure obligations.16 Broadly the Act signaled a significant shift in how financial markets in New Zealand are regulated, by putting the then Securities Commission at the forefront of a mixed public/private enforcement model and empowering it with a range of new offences and penalties across both the civil and criminal spectrum.17 A further shift in 2006 led to a change in insider trading rules, shifting them from a fiduciary obligation owed to the company towards a market harm based approach based on upholding market fairness and efficiency.18 Here a general trend to note is the shift towards empowering a public regulator to enforce obligations in the market alongside a shift in focus towards viewing financial markets and their impact from a public protection perspective. The following sections detail three significant phases of change in New Zealand’s financial markets legislation from 2005 onwards.
B The Review of Financial Products and Providers
The shift from private to public enforcement has come in many waves, one of the more significant periods of reform was when New Zealand undertook a review of all law relating to financial products and providers between 2005-2008.19 The review was broad in scope and sought to cover the regulation of “insurance, superannuation, collective investment schemes, platforms and portfolio management services, non-bank financial institutions, the offerings of securities, mutuals’ corporate governance and consumer dispute resolution and redress in the financial sector.”20 At its core the review had a stated aim of developing an “effective and consistent framework” for the regulation of all financial products.21 The then Commerce Minister Hon Lianne Dalziel MP was critical of the existing regime noting that in many instances there were unnecessary compliance costs and inadequate consumer protection.22
15 Section 13.
16 Sections 16-20.
17 Sections 16-20.
18 Securities Markets Amendment Act 2006, s 5.
19 Controller and Auditor-General The Treasury: Implementing and managing the Crown Retail Deposit Guarantee Scheme (September 2011) at 35.
20 New Zealand Government “Review of Financial Products and Providers Discussion Documents” (Press Release, 1 September 2006).
21 See footnote 24 of Capital Market Development Taskforce Capital Markets Matter: Report of the Capital Market Development Taskforce (December 2009) at 32.
22 New Zealand Government, above n 20.
This review took place during a time of significant financial turmoil, towards the end of the review the Global Financial Crisis (GFC) occurred. The next chapter discusses one important component of the review in its later stages, the regulation of Non-Bank Deposit Takers(NBDT’s).
C The Global Financial Crisis: New Zealand’s Shifting Regulatory Scheme and Concerns with Regulation of Non-Bank Deposit Takers
The GFC of 2007-2008 signaled a significant shift for the regulation of financial markets around the world. New Zealand’s concerns focused less on the core banking sector which was primarily dominated by Australian banks who had remained resilient throughout the GFC.23
In New Zealand concerns primarily focused on NBDT’s. Commonly referred to as finance companies these NBDT’s found success in the New Zealand market. Whilst their lending areas varied, they generally would take deposits and write loans, similarly to traditional banking the money would be repaid with interest at a later date.24 In a sense NBDT’s prior to the GFC were acting in a similar manner to banks but without being subject to the prudential regulation regime of the banking sector.
The NBDT sector was incredibly successful in New Zealand, from 1998-2005 the sector outpaced growth in the banking sector.25 At the height of their existence NBDT’s accounted for some 8% of all financial institution lending in New Zealand.26 This was notable due to most growth being funded by retail investors who saw finance companies offering more attractive interest yields than banks.27 The NBDT sector had previously shown issues with compliance.28 Concerns were raised that NBDT’s were making offers of debt securities to
23 Eilís Ferran, Niamh Moloney, Jennifer G. Hill and John C. Coffee Jr The Regulatory Aftermath of the Global Financial Crisis (Cambridge University Press, Cambridge, 2012) at 289.
24 Noemi Javier “New Legislation for Regulation of Non-Bank Deposit Takers” (December 2008) 71(4) Reserve
Bank of New Zealand Bulletin 40 at 40.
25 Reserve Bank of New Zealand Report for the Minister of Finance on the operation of the prudential regime for Nonbank Deposit Takers (September 2013) at 70-72.
26 Reserve Bank of New Zealand, above, n 25, at 12.
27 Reserve Bank of New Zealand, above, n 25, at 12.
28 Shelley Griffiths “Asset Preservation Orders in Securities Regulation Litigation” in Shelley Griffiths, Sheelagh McCracken, and Ann Wardrop (eds) Exploring Tensions in Finance Law: Trans-Tasman Insights 155 at 157.
raise capital placing them under differing supervision from the prudential regulatory scheme of the banking sector.29
The regulation of NBDT’s prior to the GFC was largely inadequate, deposits were regulated as debt offers under the Securities Act 1978.30 This model left Trustees as the main regulator of NBDT’s rather than the Reserve Bank as would be expected with the prudential supervision of banks.31 This came in an era of “light touch” regulation.32 As part of the wider Review of Financial Products and Providers a review of NBDT’s was undertaken from 2005- 2006.33 The review resulted in reform in two stages, first introducing the Reserve Bank of New Zealand Amendment Act 2008.34 This Act brought NBDT’s into the Reserve Bank’s prudential regulation framework.35 The second stage involved the introduction of the Non- Bank Deposit Takers Bill (Later Non-Bank Deposit Takers Act 2013), this further increased regulation of the sector including imposing a licencing scheme for NBDT’s.36
The impact of the GFC on the NBDT sector was immense. Between mid-2006 and mid-2011 a total of 45 finance companies in New Zealand failed, amounting to NZ$5.954B in deposit liability and leaving some 170,658 investors effected.37 An urgent response was required, this necessitated the introduction of the crown retail deposit guarantee scheme. The scheme was created to provide insurance for retail investors as international credit availability dropped.38 The deposit scheme was formulated and introduced with quick effect. Initially the scheme was mooted on October 10, 2008 as part of a report from the Reserve Bank and Treasury on the then worsening financial crisis.39 Shortly after this the scheme was announced on October 12, 2008.40 The scheme sought to address concerns with loss of investor confidence at the
29 Griffiths “Asset Preservation Orders in Securities Regulation Litigation” above, n 28, at 156-7.
30 Nicola Won “Regulation of Finance Companies: Coming Out of the Shadows” (2015) 21 NZBLQ 110 at 112.
31 Won “Regulation of Finance Companies: Coming Out of the Shadows” above, n 30, 112.
32 Sean Hughes, Chief Executive of the Financial Markets Authority, Presentation to the Institute of Directors (19 March 2012) in Won “Regulation of Finance Companies: Coming Out of the Shadows” above n 30, at 112. 33 Non-Bank Deposit Takers Bill 2011 (312-1) (explanatory note) at 1.
34 Reserve Bank of New Zealand Amendment Act 2008, s 17 and Banking (Prudential Supervision) Act 1989, Part 5D.
35 Reserve Bank of New Zealand Amendment Act 2008, s 17.
36 Non-Bank Deposit Takers Bill 2011 (312-1) (explanatory note) at 1; and Non-Bank Deposit Takers Act 2013 s 11.
37 Reserve Bank of New Zealand, above, n 25, at 70-72.
38 Commerce Committee Inquiry Into Finance Company Failures (11 October 2011) at 10.
39 The Treasury and Reserve Bank of New Zealand Joint Report: Responding to the Prospect of a Worsening Financial Crisis (Report No T2008/2000, 10 October 2008) at 9.
40 Reserve Bank of New Zealand “Further Details of Guarantee Scheme Announced” (press release, 16 October
2008).
retail level.41 this scheme covered a wide range of financial institutions including both banks and NBDT’s. In practice banks and NBDT’s would become the most frequent users of the scheme, making up 72 of the 96 participants, 60 of these were NBDT’s alone.42 Overall New Zealand’s stimulus package in response to the GFC was significant, New Zealand was one of only five OECD nations to implement stimulus programs of more than 4% of GDP.43
Although criminal provisions in the Securities Act were used extensively in the period following the GFC, the collapse of NBDT’s posed a problem for regulators seeking to rebuild market confidence.44 In many cases shareholders would be left with a civil claim (i.e. Breach of directors’ duties) but lacked the financial means to peruse the claims. The Right of Action powers have sought to address many claims that would arise in the wake of the GFC and the collapse of many NBDT’s. The powers would allow the FMA to take over claims for breaches of directors’ duties, an area traditionally reserved for private enforcement.45 Later the collapse of a NBDT (Viaduct Capital) would become the genesis for the FMA’s first and only exercise of the Right of Action powers to date.46
D Reviewing New Zealand’s Capital Markets: The Capital Markets Development Taskforce Report
During and following the 2007-2008 GFC New Zealand undertook further review of its financial market’s legislation, as part of this process the Capital Markets Development Taskforce was created in order to review and provide recommendations for improving New Zealand’s financial markets regulatory scheme.47 The Taskforce was given a broad purview to make recommendations to improve and develop New Zealand’s capital markets.48 Its final report released in December 2009 made key recommendations that would have wide reaching
41 Reserve Bank of New Zealand, above, n 25, at 12.
42 James Weir “Relief for Taxpayers as Guarantee Ends” (29 December 2011) Stuff
<http://www.stuff.co.nz/business/6193486/Relief-for-taxpayers-as-guarantees-end> and The Treasury
“Approved Institutions Retail Deposit Guarantee Scheme” (20 January 2012).
<https://www.treasury.govt.nz/publications/information-release/approved-institutions-retail-deposit-guarantee- scheme#cbs>.
43 Eilís Ferran, Niamh Moloney, Jennifer G. Hill and John C. Coffee Jr, above n 23, at 283.
44 For example see R v Douglas Arthur Montrose Graham [2012] NZHC 575; and R v Kenith Roger Moses HC Auckland CRI 2009-004-1388, 19 May 2011.
45 For example see Companies Act 1993, s 165; Companies Act 1993, s 169(1); and Julie Cassidy and others Guidebook to New Zealand Companies and Securities Law (9th ed, CCH New Zealand, Auckland, 2018) at 285-289.
46 Financial Markets Authority v Prince & Partners Trustee Co Ltd [2017] NZHC 2059 at [6].
47 New Zealand Government “Launch of Capital Markets Development Taskforce” (press release, 22 July 2008)
48 Capital Market Development Taskforce, above n 21, at 3.
consequences for how New Zealand regulates financial markets. They identified a number of issues with New Zealand’s financial markets and recommended a review of the Securities Act in order to ensure clarity for investors to maintain “New Zealand’s reputations as an honest and transparent economy.”49 Alongside this the Taskforce recommended reviewing regulatory agencies in order to try consolidate existing market conduct regulation and fill gaps in the regulatory scheme.50 The shadow of the GFC and NBDT collapses continued for many years, in early 2010 the government responded to the report and outlined their intent to undertake further reform within the NBDT sector.51 As part of their regulatory consolidation aim the Taskforce made a recommendation to “give the regulator the power to seek civil remedies on behalf of investors and to initiate and coordinate class actions.”52 This was justified as a mechanism to justify investors access to redress.53 Notably similar powers had already been in-force in Australia for a number of years.54
E Australia’s Right of Action Powers: A Blueprint for New Zealand
New Zealand has shown a continued interest in adopting Australian solutions within our financial markets regulation framework since the beginning of the 21st century. Beginning in 2000 both nations committed to an agreement to coordinate business law.55 This agreement was renewed in 2006 and again in 2013.56 Much of New Zealand’s financial markets legislation was shaped with this goal in mind. During the first reading of the Financial Markets Conduct Bill (which would later become the FMCA) it was noted provisions in the Bill helped provide alignment with Australia’s regulatory regime.57 Further, recent changes to the NZX listing rules on continuous disclosure were partially motivated by a desire to align with existing ASX rules.58 Although the agreement is one of reciprocity in practice New
49 Capital Market Development Taskforce, above n 21, at 13.
50 Capital Market Development Taskforce, above n 21, at 13.
51 The Government of New Zealand “Govt Responds to Capital Market Recommendations” (Press Release, 19 February 2010).
52 Capital Market Development Taskforce, above n 21, at 19.
53 Capital Market Development Taskforce, above n 21, at 88.
54 Australian Securities and Investments Commission Act 2001, s 50.
55 The Government of New Zealand “New Zealand and Australia Commit to Greater Business Law Integration” (Press Release, 31 August 2000).
56 The Government of New Zealand, the Government of the Commonwealth of Australia “The Memorandum of
Understanding Between the Government of New Zealand and the Government of Australia on Coordination of Business Law” (15 April 2013).
57 (6 March 2012) 678 NZPD 874.
58 Bell Gully “Submissions in response to the NZX Listing Rule Review Consultation Paper” (8 June 2020), 7.
Zealand typically is positioned as the adopter of Australian rules rather than the originator of said rules.
Unlike New Zealand, Australia has had a long history of powers allowing a public regulator to exercise a person’s private Right of Action, notably Victoria has had a limited power to allow the Attorney-General to take a person’s Right of Action if it is in the public interest since 1958.59 Originally this was implemented in order to protect minority shareholders.60 The current Right of Action power in Australia is contained in s 50 of the ASIC Act.61 The power as it is currently written reads:62
50 ASIC may cause civil proceeding to be begun
Where, as a result of an investigation or from a record of an examination (being an investigation or examination conducted under this Part), it appears to ASIC to be in the public interest for a person to begin and carry on a proceeding for:
(a) the recovery of damages for fraud, negligence, default, breach of duty, or other misconduct, committed in connection with a matter to which the investigation or examination related; or(b) recovery of property of the person; ASIC:
(c) if the person is a company—may cause; or
(d) otherwise—may, with the person’s written consent, cause; such a proceeding to be begun and carried on in the person’s name.
This type of power allows market regulators to step in and take an otherwise private Right of Action and enforce it provided an investigation had been carried out and it was in the public interest. ASIC also has similar intervention powers in relation to the Corporations Act 2001 (Cth) which allow them to act as a party to certain proceedings.63 It posed a novel solution for the problems New Zealand had seen with NBDT’s collapsing post the GFC, given the
59 Companies Act 1958 (Vic), s 144(6).
60 Janet Elizabeth “Does the Westpoint Litigation Signal a Revival of the ASIC Section 50 Class Action?” (2008) 22 Aust Jnl of Corp Law 8 at 13.
61 Australian Securities and Investments Commission Act 2001 (Cth), s 50.
62 Section 50.
63 Joanna Bird “ASIC’s Role as Intervener: When Should the Regulator Intervene in Private Litigation” (2010) 28(7) C&SLJ 460 at 467 and Corporations Act 2001 (Cth), s 1330.
prevalence of retail investors involved with NBDT’s seeking recovery of costs through the Courts was financially unachievable for many.
In the case of Sommerville v Australian Securities Commission and Others the Federal Court of Australia discussed the purpose of s 50, Lockhart J noted: 64
“An evident function of s 50 is to permit the Commission, acting in the public interest, to cause proceedings to be taken where persons or corporations have suffered loss or harm arising from fraud, negligence or misconduct, but do not have the resources to maintain expensive and complicated litigation.”
Lockhart J in Somerville also noted that “Sections 49 and 50 thus reflect the important role of the Commission in the area of public policy and law enforcement by pursuing criminal and civil remedies for contravention of the Corporations Law.”65 Public policy was an area which New Zealand’s regulatory scheme had been prioritizing with recent reforms such as changes to the rationale underpinning insider trading prohibitions in 2006.66 It painted a stark contrast to the recommendations of the Capital Markets Development Taskforce however which had focused their recommendations around civil redress rather than promotion of the public interest.67
Australia’s Right of Action Powers presented an interesting blueprint for New Zealand where following the wake of the GFC retail investors had suffered significant losses in the NBDT sector. Many of the potential claims in the sector revolved in large part around breaches of directors and trustee’s duties, enforcement for this would have to be done privately and often investors lacked the financial means to do so.68 The FMA was left with a gap in their regulatory scheme, for the most part they lacked the ability to regulate in an area which was at the centre of GFC’s impact on New Zealand.
64 Sommerville v Australian Securities Commission and Others (1995) 131 ALR 517 at 523.
65 Sommerville v Australian Securities Commission and Others, above n 64, at 523. 66 Griffiths, above n 13, at 1029; and Securities Markets Amendment Act 2002, s 16. 67 Capital Market Development Taskforce, above n 21, at 88.
68 For example, in Financial Markets Authority and Prince & Partners Trustee Company Limited Settlement
Agreement (25 August 2017) Prince & Partners Trustee Company Limited admitted to breaching duties owed to investors.
Later the influence of Australia’s Right of Action powers in New Zealand would become clear, in their regulatory impact statement the then Ministry of Economic Development noted that the proposal to introduce a Right of Action power in New Zealand was modelled on s 50 of the ASIC Act.69 The similarity of the sections has not eluded the courts either, in ANZ the Court of Appeal noted the similarity and influence of the Australian section on New Zealand’s analogue.70 Given the willingness to adopt Australian solutions in the financial markets space throughout the 21st century the blueprint Australia laid posed an attractive option for legislators to address the issues that NBDT’s had caused.
F Introduction of the Right of Action Powers in New Zealand
Come 2010 the Right of Action Powers were introduced as part of a larger financial markets reform package.71 The Financial Markets Authority Bill came in the background of the Capital Markets Development Taskforce report which recommended the consolidation of financial markets regulation in New Zealand.72 Based on the recommendations of the Taskforce the Bill established several significant changes to securities market regulation in New Zealand. The Bill sought to consolidate various functions of the NZX Disciplinary Tribunal, the New Zealand Markets Disciplinary Tribunal, the Companies Office and the Securities Commission in the form of the FMA as a new front-line regulator.73 The Bill also sought to strengthen oversight powers for the newly formed FMA.74
The Right of Action powers arose out of concerns about a gap in regulatory mechanisms, often there would arise situations where civil claims would arise but none of the existing regulators would have power to act. This was particularly relevant in the context of the GFC and NBDT’s collapsing. The Ministry of Economic Development detailed the problem as: 75
“There are, however, situations where financial market participants, auditors and other people regulated by the FMA may have acted in a manner that gives rise to a civil Right of Action,
69 Ministry of Economic Development Regulatory Impact Statement: A Power for the FMA to Exercise an Investor’s Right of Action (14 September 2010) at 3.
70 Financial Markets Authority v ANZ Bank New Zealand Ltd [2018] NZCA 590 at [32].
71 Supplementary Order Paper 2011 (221) Financial Markets (Regulators and KiwiSaver) Bill 2010 (211-2) at 3.
72 (7 April 2011) 671 NZPD 17854 and Capital Market Development Taskforce, above n 21, at 19.
73 Financial Markets (Regulators and KiwiSaver) Bill 211-1 (explanatory note) at 1.
74 (5 April 2011) 671 NZPD 17691.
75 Ministry of Economic Development, above n 69, at 2.
but the Commission is unable to act. These include cases of negligence, breach of trust and breach of statutory duty (e.g. directors’ duties).”
It was argued that giving the FMA the power to act in those instances was necessary to “facilitate the development of fair, efficient and transparent financial markets.”76 As part of this the Ministry of Economic Development outlined three intermediate objectives:
They noted a conflict between the first two and last of the objectives, although the proposed power would not impose any new liabilities on directors it would open up the class of potential litigants leading to increased risk.80 Nonetheless the Ministry supported the immediate introduction of a power for the FMA to exercise an investors Right of Action.81
The Right of Action powers ware framed around promotion of the public interest, similarly to Australia.82 Further the Commerce Committee made recommendations that they viewed as better aligning New Zealand and Australia’s regulatory regimes.83 The proposed Bill contained a number of protections to make sure any exercise of the power would be in the public interest, this was done with the addition of a public interest requirement for the exercise the Right of Action powers.84 In order to make this determination the Bill contained a list of factors the FMA must consider when determining if exercise of the power is in the public interest.85 The explanatory note to the Financial Markets (Regulators and KiwiSaver)
76 Ministry of Economic Development, above n 69, at 2 and Financial Markets Authority Act 2010, s 8.
77 Ministry of Economic Development, above n 69, at 2. 78 Ministry of Economic Development, above n 69, at 2. 79 Ministry of Economic Development, above n 69, at 2. 80 Ministry of Economic Development, above n 69, at 3. 81 Ministry of Economic Development, above n 69, at 6.
82 Financial Markets (Regulators and KiwiSaver) Bill 2010 (211-1) (explanatory note) at 4.
83 Financial Markets (Regulators and KiwiSaver) Bill 2010 (211-2) (select committee report) at 4.
84 Financial Markets Authority Act 2011, s 34(1).
85 Financial Markets (Regulators and KiwiSaver) Bill 2010 (211-1), cl 34(4).
Bill reiterates the public interest focus of the powers, it describes the primary objective of the power as being “to promote the public interest rather than to obtain redress for investors, although redress (for example, damages) would often follow if the FMA’s action were successful.”86 This showed a notable shift from the Capital Markets Development Taskforce recommendations which focused on redress for investors rather than prioritising public interest.87
Further insight into the motivations underpinning the introduction of the Right of Action powers can be gained by reference to Parliamentary debates surrounding its introduction. Discussions made it clear that the focus of the powers was to help protect retail investors, the power was noted as a “tremendous advance in terms of the interests of the mum and dad investors.”88 This came following the disproportionate effect the GFC and collapsing
NBDT’s had on retail investors. At the time of the Bills introduction many NBDT’s insured under the crown retail deposit guarantee scheme had recently failed, from March 2009 until the Bill’s introduction in early September 2010 eight NBDT’s had failed under the scheme.89 This included largest NBDT failure (The collapse of South Canterbury Finance) which occurred in late August 2010.90 In the months following the Bill’s introduction a ninth and final NBDT under the scheme would fail.91 Although the legislation is not explicitly limited to the NBDT sector given the growth of NBDT’s was largely funded by retail investors it became a prime political target.92
Parliamentary records also show contemplation about how the Right of Action powers interlink with the other powers of the FMA, more specifically the information gathering powers of the FMA. Ms Dalziel made note of this when the Bill reached the committee of the whole house, she said the powers:93
“enable(s) people to take some comfort from the fact that when avoidance techniques are used to ensure that companies’ assets are not traced back to those who have taken them
86 Financial Markets (Regulators and KiwiSaver) Bill 2010 (211-1)(explanatory note) at 4.
87 Capital Market Development Taskforce, above n 21, at 88.
88 (5 April 2011) 671 NZPD 17704.
89 Controller and Auditor-General The Treasury: Implementing and managing the Crown Retail Deposit Guarantee Scheme (September 2011) at 25 and (15 September 2010) 666 NZPD 13971.
90 Controller and Auditor-General, above n 89, at 25.
91 Controller and Auditor-General, above n 89, at 25. 92 Reserve Bank of New Zealand, above, n 25, at 12. 93 (5 April 2011) 671 NZPD 17704.
inappropriately for themselves, the searching can carry on regardless of the interests that would otherwise be protected by our company laws.”
When contextualised against the background of NBDT’s collapsing post-GFC the usefulness of this power becomes clearer. Often when an NBDT collapses claims for breaches of directors duties will arise, these must be perused privately. Most investors in the NBDT sector could be classed as “retail” investors who lack the same financial means to pursue claims as institutional investors do placing them in a particularly vulnerable position. Notably the only instance where the Right of Action powers have been exercised was in relation to the trustee of a failed NBDT (Viaduct Capital).94 This does create some issues however, the FMA’s powers are far beyond the capacity of any civil litigant. 95 The FMA using these powers to carry out an otherwise private Right of Action creates an unfair playing field.
Whilst one market participant might be subject to private litigation another market participant might see similar litigation but carried out by the FMA. Given the expansive nature of the FMA’s investigative powers the latter party has been placed into an inferior position from the former.
Despite these concerns in 2011 the provisions were passed as part of the FMA Act after some minor amendments, the core objective of the powers (i.e. Promotion of the public interest) remained nonetheless.96 The FMA Act and with it the Right of Action powers came into force on May 1, 2011.97 At the core of the powers is s 34(1), that section reads:98
34 FMA may exercise person’s Right of Action
(1) If, as a result of an inquiry or investigation carried out by the FMA, the FMA considers that it is in the public interest for it to do so, the FMA may, in accordance with this subpart,—
(a) exercise the Right of Action that a person (person A) has against a person who is or has been a financial markets participant by commencing and controlling specified proceedings against the person who is or has been a financial markets participant; or
94 Financial Markets Authority v Prince & Partners Trustee Co Ltd, above n 46, at [6] and The Treasury “Non- Bank Deposit Takers Approved Institutions in the Deposit Guarantee Scheme” (17 November 2009).
<https://www.treasury.govt.nz/treasury-z/legacy-migrated-pages-about-treasury/non-bank-deposit-takers- approved-institutions-0>
95 For example the Financial Markets Authority has extensive evidence gathering powers, see Financial Markets Authority Act, s 25.
96 Section 34(1).
97 Section 2.
98 Section 34(1).
(b) take over specified proceedings that have been commenced by a person (person
- against a person who is or has been a financial markets participant for the purpose of continuing the proceedings.
Ultimately this Power reflects the deep concerns raised about the regulation of financial markets following the GFC, in particular the concerns surrounding the stability of the NBDT sector and the effects it had on retail investors. In the eyes of Parliament this fear has necessitated the introduction of a broad “catch-all” power in an attempt to cover up any gaps in regulation. Ultimately this power is best viewed as part of a shift from private to public enforcement in financial market regulation from 1978 onwards and the rapid acceleration of this shift post the GFC. This power is one which invites the FMA into the realm of private enforcement in a capacity previously not seen, in many ways it is the culmination of the broader shift from private to public enforcement.
III Part Two: Contemporary issues with the exercise (and potential exercise) of the Right of Action power
The passage of the Right of Action powers came with significant controversy, this part outlines key issues identified throughout the legislative process. This part then looks at the exercise of the Right of Action powers to analyse whether they are fit for purpose.
A Overview: Issues Identified During the Introduction of the Right of Action Powers
The introduction of the Right of Action powers in New Zealand didn’t come without controversy. Notably a number of submitters to the Bill raised issues.99 Previously the then Ministry of Economic Development (currently the Ministry of Business, Innovation and Employment) had raised issues in their regulatory impact statement on the Right of Action
99 See Bell Gully “Submission to the Commerce Select Committee on the Financial Markets (regulators and KiwiSaver) Bill 2010”; AXA New Zealand “Submission to the Commerce Select Committee on the Financial Markets (regulators and KiwiSaver) Bill 2010”; New Zealand Bankers Association “Submission to the Commerce Select Committee on the Financial Markets (regulators and KiwiSaver) Bill 2010” (10 November 2010); New Zealand Business Roundtable “Submission to the Commerce Select Committee on the Financial Markets (regulators and KiwiSaver) Bill 2010”; Westpac New Zealand Limited “Submission to the Commerce Select Committee on the Financial Markets (regulators and KiwiSaver) Bill 2010” (10 November 2010); and Chapman Tripp (Auckland) “Submission to the Commerce Select Committee on the Financial Markets (regulators and KiwiSaver) Bill 2010” (November 2010).
powers. A key risk identified by the Ministry of Economic Development was the potential effect introducing a Right of Action power might have on the willingness of directors to serve.100 They reasoned that the Right of Action powers could heighten the likelihood of civil cases being taken against directors.101
It is difficult to prove if this fear has been realised, although evidence suggests risk to directors has steadily increased in New Zealand. The Institute of Directors recently noted a 157% premium increase in directors and officers insurance rates for New Zealand listed issuers from 2018-2020.102 They also report some 78% of directors of listed issuers saw premium increases in 2020.103 Notably New Zealand and Australia, two countries with similar Right of Action powers have experienced one of the most volatile directors and officers insurance markets in the world.104 To a certain degree the Right of Action powers will always increase risk to directors. Whilst they do not create any substantive responsibilities for directors by widening who could potentially bring a claim in certain circumstances overall risk of a claims being pursued ought to increase.
The Bill saw significant opposition from submitters.105 Most of this criticism focused around the potential for the FMA to forcibly acquire a person’s Right of Action.106 Criticism also revolved around ideas of “public interest” in the Bill, significant criticism was directed towards the lack of mandatory consideration for the interests of those whose Right of Action is being exercised.107
100 Ministry of Economic Development, above n 69, at 3.
101 Ministry of Economic Development, above n 69, at 4.
102 Institute of Directors New Zealand “Submission on the Law Commission’s Issues Paper on Class Actions and Litigation Funding”, (11 March 2021), 7.
103 Institute of Directors New Zealand, above n 102, at 7.
104 Institute of Directors New Zealand, MinterEllisonRuddWatts, and Marsh Under pressure: D&O insurance in a hard market (September 2020) at 3.
105 See Bell Gully “Submission to the Commerce Select Committee on the Financial Markets (regulators and KiwiSaver) Bill 2010”; AXA New Zealand “Submission to the Commerce Select Committee on the Financial Markets (regulators and KiwiSaver) Bill 2010”; New Zealand Bankers Association “Submission to the Commerce Select Committee on the Financial Markets (regulators and KiwiSaver) Bill 2010” (10 November 2010); New Zealand Business Roundtable “Submission to the Commerce Select Committee on the Financial Markets (regulators and KiwiSaver) Bill 2010”; Westpac New Zealand Limited “Submission to the Commerce Select Committee on the Financial Markets (regulators and KiwiSaver) Bill 2010” (10 November 2010); and Chapman Tripp (Auckland) “Submission to the Commerce Select Committee on the Financial Markets (regulators and KiwiSaver) Bill 2010” (November 2010).
106 ANZ National Bank Limited “Submission to the Commerce Select Committee on the Financial Markets (regulators and KiwiSaver) Bill 2010” at 5 and Westpac New Zealand Limited “Submission to the Commerce Select Committee on the Financial Markets (regulators and KiwiSaver) Bill 2010” (10 November 2010) at 10. 107 See Westpac New Zealand Limited “Submission to the Commerce Select Committee on the Financial Markets (regulators and KiwiSaver) Bill 2010” (10 November 2010) at 10.
(5) The FMA must, when considering whether exercising a power under this section is in the public interest, have regard to—
(a) its main objective under section 8; and(b) the likely effect of the proceedings on the future conduct of financial markets participants in connection with the financial markets; and
(c) whether exercising the powers is an efficient and effective use of the FMA’s resources; and
(d) the extent to which the proceedings involve matters of general commercial significance or importance to the financial markets; and
(e) the likelihood of person A commencing the proceedings (if those proceedings have not yet been commenced) and diligently continuing the proceedings; and
(f) any other matters it considers relevant.
By contrast the FMA is not compelled to consider the interest of the party whose action is being exercised, consideration in this regard is optional.109 Westpac was particularly critical of the definition of “public interest” in the Bill, they said in their submission: 110
“the requirement for the FMA to take into account its objectives, the likely effect of the proceedings on financial markets participants, whether the proceedings are of commercial significance or importance and any other matters it considers relevant, change the nature of the power from that of one enabling individuals to take action, to one which is more akin to a statutory enforcement power.”
This raises particularly important concerns, the FMA currently has a broad range of statutory enforcement mechanisms ranging from lower level civil enforcement up to criminal enforcement.111 The broad and open ended nature of the considerations forming the “public interest” (such as considering “any matters relevant”) give the FMA an extremely broad
108 Section 34(5).
109 Financial Markets Authority Act 2011, s 34(3)
110 Westpac, above n 107, at 10.
111 See Financial Markets Authority Regulatory Response Guidelines (August 2016) 10-19; Financial Markets Conduct Act 2013; and Financial Markets Authority Act 2011.
scope when making their determination.112 This broad scope inevitably transforms the Right of Action power beyond what the Capital Markets Development Taskforce intended, the factors relevant to the “public interest” under the Act show little focus on obtaining redress for investors and allowing them to take action but rather are another statutory power for the FMA to uphold its own objective.
Further concerns were raised in submissions about whether the “public interest” test was sufficient enough to limit issues the power could cause, various submitters noted that the investors interest and the “public interest” will often not overlap.113 Situations will often arise where the private party would prefer a quick settlement of the issue in order to avoid significant Court costs yet the FMA would rather seek a finding of wrongdoing from the Court in order to uphold the “public interest.” In these situations investors are often not concerned with findings of wrongdoing, from an economic perspective it is irrelevant, for the most part these investors are evaluating their success in purely financial terms. When a settlement offers adequate compensation without significant legal cost investors will often find themselves inclined to take it. By contrast this is largely unacceptable from the FMA’s perspective, settlements without admission of wrongdoing do little to further the “public interest.” When faced with this compromise the question becomes to what extent is the FMA willing to compromise the personal rights of investors to achieve its objectives, this power clearly represents a significant compromise in this regard. Making such a compromise seems inappropriate, if the FMA lacks the statutory ability to regulate this space effectively there is nothing precluding Parliament from passing legislation that allows them to do so without encroaching on the rights of private parties. For example Parliament could give the FMA the power to seek a declaratory judgment that directors duties have been breached (presumably without a costs award) whilst leaving an investors Right of Action intact.
These powers need to strike a balance between upholding public and private interests if they are to be beneficial for our financial markets. Market confidence is built, in large, by rules and regulation, importantly the enforcement of those rules and regulations is critical to building investor confidence in financial markets. These rules range from offences in the
112 Financial Markets Authority Act 2011, s 34(5)(f).
113 Chapman Tripp (Auckland) “Submission to the Commerce Select Committee on the Financial Markets (regulators and KiwiSaver) Bill 2010” (November 2010) at 3 and Bell Gully “Submission to the Commerce Select Committee on the Financial Markets (regulators and KiwiSaver) Bill 2010” at 5.
FMCA through to private enforcement. The Right of Action powers try to address this by providing an alternative to ensure private enforcement is being upheld when doing so would help forward the FMA’s core objective.114 However the FMA must balance this by limiting the encroachment of private interests that can occur through exercise of the Right of Action powers. Market confidence is built in part by the ability to enforce private rights, if the Right of Action powers encroach on this territory too much investors will lose confidence.
In their submission on the Bill the Legislation Advisory Committee was critical of the balance between the “public interest” and private rights. They discussed key differences with the Australian Right of Action power that in their view struck a better balance, notably they focus on the more restrictive nature of ASIC’s analogue power such as the inability of ASIC to seek the recovery of costs from persons who’s right is being exercised, the inability of ASIC to take over proceedings that have already commenced and ASIC’s inability to exercise a person’s Right of Action without consent unless that person is a company.115 The limits on ASIC’s power in this regard provide some remedy to the tension created by overlapping interests, by curtailing the scope of the Right of Action powers situations requiring the compromise of public and private interests arise less often.
This compromise raises questions of whether the FMA exercising the Right of Action powers would actually be “helping” investors. It is difficult to claim that investors are being “helped” when their interests could potentially be undermined as part of the FMA’s promotion of the “public interest.” These powers in their current form require a compromise between the personal interests of investors and the interests of the FMA to uphold the “public interest” as part of their wider goal to protect the market. At a certain point this compromise begins to lose sight of who makes up the market. Whilst the powers seem willing to compromise the rights of individual investors it fails to recognize that the market is made up primarily by these individuals. The best way to help individual investors would be to support their interests yet the powers compromise this by prioritizing the “public interest” in a quest to support the wider market. If this were to continue to a significant degree investor confidence could fall due to fear that individual interests could be undermined.
114 Financial Markets Authority Act 2011, s 8.
115 Legislation Advisory Committee “Submission to the Commerce Select Committee on the Financial Markets
(regulators and KiwiSaver) Bill 2010” at 2.
C Forcible Acquisition a Person’s Right of Action
One of the more significant issues with the Right of Action powers in their current form is the ability for the FMA to exercise a person’s Right of Action despite any objections that person may have provided leave is granted by the High Court (provided the person who’s Right of Action is being exercised is not an individual). The FMA Act sets out two ways for the FMA to commence proceedings, either with or without the leave of the High Court.116
For the FMA to take a person’s Right of Action without the leave of the High Court they are required to provide a person with written notice that they seek to exercise their Right of Action under s 34(1)(a) of the FMA Act under s 35(1) of the FMA Act.117 If the person objects and provides the FMA with written notice within 30 days the FMA cannot commence proceedings without leave of the High Court.118 This allows the FMA to only commence proceedings under s 34(1) without the leave of the High Court if there is either express consent from the party who’s Right of Action is being exercised or no reply is received within 30 days. However with the leave of the High Court the FMA can exercise a person’s Right of Action irrelevant of their consent.119
The High Court must grant leave if it is satisfied that it is in the public interest for the FMA to take exercise their powers under s 34(1)(a) or s 34(1)(b) and it is in the public interest for the FMA rather than the person who’s Right of Action is being exercised to conduct proceedings.120 The High Court is not precluded from granting leave in circumstances outside of those where it is compelled to do so.121 Leave can only be given in circumstances where persons are not an individual, in essence leave can only be granted if the party in question is a company or body corporate.122 This is similar to Australia’s provisions which only allow forcible acquisition in the case of companies.123
The requirement for the High Court to grant leave provided it is in the public interest for the FMA to control the proceedings is flawed, for the FMA to take proceedings under s 34 it
116 Sections 35-36.
117 Section 35(1).
118 Section 35(1)(c).
119 Section 36.
120 Section 36(2).
121 Section 36(1).
122 Section 36(3).
123 Australian Securities and Investments Commission Act, s 50.
must be in the public interest to do so.124 The requirement under s 36(2)(a) will always be satisfied with any legitimate exercise of s 34, they both require the proceedings to be in the public interest. This makes the requirements placed on the FMA to gain the consent of the Court reasonably circular, provided they are justified in exercising s 34 alone they will almost always satisfy the criteria for the High Court to grant leave. This renders the requirement to gain leave in most cases as a formality. Requiring leave of the Court is clearly intended to balance the very serious nature of the FMA forcibly acquiring a person’s Right of Action yet the current requirements for the Court to grant leave do not provide adequate room for the Court to properly scrutinise the FMA’s proposed actions.
Originally this provision was much broader, previous iterations allowed leave to be granted in relation to individuals. This provision was heavily scrutinised throughout the parliamentary process, the Commerce Committee’s report of the original Bill made their discontent for this provision clear, they recommended an additional clause that would prevent the High Court from granting leave to the FMA under s 36 provided the person was an “individual.”125 The provision would not have applied to companies or other body corporates, the committee reasoned that this was necessary to allow the FMA to take action against negligent directors on behalf of shareholders.126 This provision was eventually adopted.127
This provision is not a fix all however, it does not preclude the High Court from stripping a company or body corporate of their Right of Action. Treating a company (and other non- individuals) as fundamentally different from an individual seems odd given that both can be shareholders who otherwise share the same substantive rights and protections. For example take a situation where the FMA wished to take a shareholder class action through the use of the Right of Action powers and the relevant shareholders were a mix of individuals and companies. The FMA in this instance could apply and if successful forcibly acquire the Right of Actions of some shareholders, but not all. This has seemingly inadvertently created two sets of rights for shareholders of otherwise equal standing. On one hand the individual who is a shareholder is protected from having their Right of Action taken without their consent, on the other the company who is a shareholder does not receive the same protections and could
124 Financial Markets Authority Act, s 34.
125 Financial Markets (Regulators and KiwiSaver) Bill 211-2 (select committee report) at 4 and 39.
126 Financial Markets (Regulators and KiwiSaver) Bill 211-2 (select committee report) at 4.
127 (5 April 2011) 671 NZPD 17706.
be subject to forcible acquisition of their rights. It is clear that Parliament has not overlooked this issue, their amendments show they paid particular attention to the wording and scope of s 36.
Parliament has clearly intended to create two classes of investors, those who are protected from forcible acquisition of their Right of Action (Individuals) and those who are not afforded the same protection (Non-individuals). Beyond the issue of forcible acquisition itself this inequity is rather unprecedented, shareholders for all other purposes hold the same substantive right irrelevant of whether they are an “individual” or not.
Here we encounter what is fundamentally a rights issue, the Act allows a person to have their Right of Action (i.e. their property) stripped from them without their consent in certain circumstances. Although property rights are not expressly listed in the New Zealand Bill of Rights Act the purview of what rights exist is not limited to the express provisions of the aforementioned Act.128 The simple solution to this issue would be to extend the protections of s 36(3) to non-individuals. Although the courts are yet to encounter a request to strip a person of their Right of Action the mechanics of the Act still allow them to do so, this risk is unacceptable and creates significant risk to the long term stability of our financial markets.
This issue amplifies the tension between the interests of the FMA in pursuing action through the Right of Action powers and the interests of investors who’s Right is being exercised.
Forcible acquisition of a person’s Right of Action represents a clear compromise of private interests and if it were to become widespread would create heightened uncertainty in financial markets.
D Other Issues Raised During the Legislative Process
Other issues raised during the passage of the original Bill led to significant amendment prior to passage. Initially it was noted in a submission by NZX that it was possible for the FMA to have the High Court order costs be paid by the party who’s Right of Action is being exercised.129 This would still be possible even if that person had had their Right of Action taken forcefully.130 Later this clause was amended following a recommendation from the
128 New Zealand Bill of Rights Act 1990, s 28.
129 NZX Limited “Submission to the Commerce Select Committee on the Financial Markets (regulators and
KiwiSaver) Bill 2010” at 19.
Commerce Committee.131 Now the clause allows the FMA to apply for costs paid by the defendant to be redirected in order to cover their “actual costs.”132
E Previous Uses of the Right of Action Powers in New Zealand
As noted the Right of Action power has seen limited exercise in New Zealand, to date the FMA has only filed civil proceedings in accordance with s 34 only once.133 This led to the only case where the senior Courts have dealt with the direct exercise of the powers.134 By contrast ASIC has been far more active in using similar sections contained in the ASIC Act.135 This section seeks to review previous uses of the Right of Action powers in both New Zealand and analyse their usefulness and any dangers they may present.
In their regulatory response guidelines the FMA outlines where they may use the Right of Action power, they list the criteria as when “There is a serious contravention of the legislation. Taking action progresses the FMA’s regulatory objectives, our strategic priorities and the statutory criteria under the FMA Act.”136 The FMA also outlines their aims with exercising s 34, they list them as:
Of note here is the FMA’s aim to secure compensation, this is in seeming contradiction to the explanatory note of the original Bill which prioritised public interest over redress for
131 Financial Markets (Regulators and KiwiSaver) Bill 211-2 (select committee report) at 4.
132 Financial Markets Authority Act, s 38(1)(d).
133 Financial Markets Authority “FMA Files Civil Proceedings Against Trustee” (Press Release, 20 August
2014).
134 Financial Markets Authority v Prince & Partners Trustee Co Ltd, above n 46, at [6].
135 Jeremy Cooper, Deputy Chairman of the Australian Securities and Investments Commission “Corporate Wrongdoing: ASIC’s Enforcement Role” (paper presented to the International Class Actions Conference 2005, Melbourne, 2 December 2005).
136 Financial Markets Authority Regulatory Response Guidelines (August 2016) at 14.
137 Financial Markets Authority, above n 136, at 14.
138 Financial Markets Authority, above n 136, at 14.
139 Financial Markets Authority, above n 136, at 14.
140 Financial Markets Authority, above n 136, at 14.
investors.142 As noted the FMA has only used their powers under s 34 once.143 In that instance the FMA filed civil proceedings against the principle trustee for Viaduct Capital Limited, Prince and Partners Trustee Company Limited.144 The FMA alleged that Prince and Partners had breached obligations which it owed to Viaduct Capital investors and the Treasury under the retail crown deposit guarantee scheme.145 The FMA alleged that “Prince failed to carry out its functions with the care, diligence and skill expected of a reasonably competent and prudent trustee.”146 The FMA noted that they were pursuing civil action to recover costs for those who were not covered by the retail crown deposit guarantee scheme following the collapse of Viaduct Capital.147 In this instance the retail crown deposit guarantee scheme covered deposits made to Viaduct Capital prior to the crown withdrawing the guarantee from Viaduct Capital in April 2010.148 Eventually this case would make it to the High Court for approval of the settlement.149 The FMA Act requires all settlements for proceeding taken under s 34 to be approved by the High Court.150 In a brief judgment Van Bohmen J authorized the settlement of NZ$4.5 million to be paid to the FMA, in doing so he discussed s 34. Whilst there is limited discussion as to the interpretation of s 34 in the judgment he notes that s 34(1), s 34(3), and s 35(5) ensure the decision to take civil action under s 34 is made “with the broader interests of the public and the market in mind.”151 He also notes that s 34(3) allows the FMA to take the interest of private persons into account but does not compel them to do so.152 This commentary reaffirms the “public interest” focus underpinning the introduction of the powers, broadly this is consistent with the shift in financial market regulation towards public enforcement seen in New Zealand.
This case paints an interesting picture for how the FMA is willing to use the Right of Action powers. The use of the power in this manner fits well with concerns about NBDT’s during and after the GFC. However the FMA has turned down the opportunity to use the Right of
142 Financial Markets (Regulators and KiwiSaver) Bill 211-1 (explanatory note) at 4.
143 Financial Markets Authority “FMA Files Civil Proceedings Against Trustee (Press Release, 20 August 2014).
144 Financial Markets Authority v Prince & Partners Trustee Co Ltd, above n 46, [1].
145 Financial Markets Authority v Prince & Partners Trustee Co Ltd, above n 46,at [1].
146 Financial Markets Authority “Prince & Partners Admits Failings as Viaduct Trustee, FMA Recovers $4.5 Million” (Press Release, 28 August 2017).
147 Financial Markets Authority, above n 146.
148 The Treasury “Crown's Guarantee Scheme Covers Viaduct Capital Limited Depositors” (Press Release, 14 May 2010).
149 Financial Markets Authority v Prince & Partners Trustee Co Ltd, above n 46, at [5].
150 Financial Markets Authority Act, s 41.
151 Financial Markets Authority v Prince & Partners Trustee Co Ltd, above n 46, at [10].
Action power in similar high profile circumstances relating to NBDT’s. Notably in the wake of the South Canterbury Finance (SCF) collapse the FMA chose not to take action against Allan Hubbard rather preferring to assist the Serious Fraud Office in their prosecution.153 SCF was the largest finance company failure seen in New Zealand, liabilities at the time of the collapse totalled some ~NZ$1.7B.154 Similarly to the circumstances in Prince & Partners Trustee, SCF was part of the retail crown deposit guarantee scheme.155 The FMA could have pursued him on behalf of investors for breaches of directors duties but chose not to do so.Recently the FMA has expressed their focus on ensuring clarity in their regulatory approach, in 2021 the FMA’s acting general counsel remarked that it is “critical that industry should not be surprised by our approach to regulation, supervision and enforcement.”156 The lack of consistency in pursuing claims through the exercise of the Right of Action powers undermines this objective.
In totality the limited usage of the powers under s 34 must lead to one or more of the following conclusions:
Current indications point towards the latter conclusion, in their 2020/2021 annual report the FMA details extensive enforcement activity at both the civil and criminal level.157 The report notes investor confidence has increased since the FMA began surveying investor confidence
153 Victoria Heine “A Regulator with Teeth: The Enforcement Capabilities of the FMA: Part 3” (13 July 2011) Mondaq <https://www.mondaq.com/newzealand/corporate-finance/138656/a-regulator-with-teeth-the- enforcement-capabilities-of-the-fma-part-3>
154 Reuters “New Zealand’s South Canterbury Finance Collapses (31 August 2010)
<https://www.reuters.com/article/southcanterbury-idUSWLF00479420100830>
155 (8 September 2010) 666 NZPD 13754.
156 Radio New Zealand “Financial Services Providers Warned of FMA’s Hard Line Approach” (4 November 2021) <https://www.rnz.co.nz/news/national/454936/financial-service-providers-warned-of-fma-s-hard-line- approach>
in 2013, they note that in 2021 investor confidence levels were 72%, up from 58% in 2013.158 This has come with the limited exercise of the Right of Action powers to date, if investor confidence remains high despite the limited usage of these powers it seems clear the FMA is satisfied that it has sufficient regulatory power beyond the Right of Action powers.
F Case Study: The ANZ and FMA Saga
Although a number of potential issues with the Right of Action powers were raised during the legislative process issues have since arisen they have come into force. One of these instances occurred during the recent saga between the FMA and ANZ Bank New Zealand (ANZ) who engaged in litigation over proposed disclosures. Financial Markets Authority v ANZ Bank New Zealand Ltd is currently the leading case in interpreting s 34 and the broader Right of Action powers regime. Although s 34 was not invoked by the FMA in this case the Court of Appeal’s judgment examines the scope of the s 34 powers alongside associated sections allowing disclosure of confidential information held by the FMA.159 This section outlines the judgments delivered in relation to this case by the High Court and Court of Appeal alongside the Supreme Court’s decision to not grant leave to appeal. This section will then move into analysis about the potential dangers the Court of Appeals interpretation of the FMA Act could have, notably the effect allowing of disclosure of confidential information gathered by the FMA by reason of potentially exercising the Right of Action powers.
The circumstances leading up to the judgments revolve around the collapse of the Ross Asset Management (RAM) ponzi scheme.160 The FMA sent notices under s 25 of the FMA Act to major banks in New Zealand seeking to identify who held accounts for RAM.161 Section 25 of the FMA Act gives the FMA broad information gathering powers including requiring persons to supply information “If the FMA considers it necessary or desirable for the purposes of performing or exercising its functions, powers, or duties under this Act or any provision of the financial markets legislation.”162 ANZ responded and provided information as they had held accounts for RAM for a number of years.163
158 At 4.
159 See Financial Markets Authority v ANZ Bank New Zealand Ltd, above n 70. 160 Financial Markets Authority v ANZ Bank New Zealand Ltd, above n 70, at [3]. 161 Financial Markets Authority v ANZ Bank New Zealand Ltd, above n 70, at [4]. 162 Section 25.
Eventually the FMA considered using s 34 to take action against ANZ on behalf of the shareholders of RAM.164 As part of considering the exercise of the Right of Action powers the FMA sought to engage with the shareholders of RAM, in this case the liquidation committee of RAM was to be used as a proxy between the shareholders and the FMA.165 As part of this process the FMA said they would disclose material they had gathered to the liquidation committee of RAM.166 This was despite s 59 of the FMA Act prohibiting disclosure or publication of “information and documents supplied or disclosed to, or obtained by, the FMA under this Act or any financial markets legislation.”167 The FMA, in this instance, claimed that the information could be disclosed in accordance with exceptions contained in s 59(3), namely "the publication or disclosure of the information or document is for the purposes of, or in connection with, the performance or exercise of any function, power, or duty.”168
The FMA listed three reasons for why s 59(3) would allow disclosure of the information. Firstly “obtaining responses to the information received from ANZ and any additional information from the RAM investors.”169 Secondly, “determining the next steps that should occur to enable the RAM investors to evaluate the merits of a claim against ANZ and to consider their position with respect to any such claim.”170 Lastly and most relevant here they claimed their proposed disclosure was permissible as it was part of “enabling the FMA to consider and determine whether to exercise its powers under s 34 of the FMA Act.”171
The FMA’s claim here argued that since the exercise of s 34 is a power of the FMA and considering the likelihood of whether a person will commence proceedings is a relevant factor for determining the public interest in taking a claim under s 34 then disclosure should be permitted under s 59(3).172 The documents were to be presented to the liquidation committee of RAM after they had signed confidentiality agreements.173 ANZ sought to review this proposed disclosure as they feared that documents that could be potentially
164 Financial Markets Authority v ANZ Bank New Zealand Ltd, above n 70, at [7].
165 Financial Markets Authority v ANZ Bank New Zealand Ltd, above n 70, at [12].
166 ANZ Bank New Zealand Ltd v Financial Markets Authority [2018] NZHC 691, 3 NZLR 377 at [46].
167 Section 59(1)(a).
168 Section 59(3)(c).
169 Financial Markets Authority v ANZ Bank New Zealand Ltd, above n 70, at [2]. 170 Financial Markets Authority v ANZ Bank New Zealand Ltd, above n 70, at [2]. 171 Financial Markets Authority v ANZ Bank New Zealand Ltd, above n 70, at [2]. 172 Financial Markets Authority v ANZ Bank New Zealand Ltd, above n 70, at [1].
173 Confidentiality agreements are required under s 59(3) of the Financial Markets Authority Act 2011.
incriminating would be shown to the people who might have a claim against them.174 To date the FMA has not exercised its s 34 powers in relation to potential claims against ANZ. Later shareholders of RAM took a claim against ANZ, a confidential settlement was reached in August 2021.175
1 The High Court judgment in ANZ Bank New Zealand Ltd v Financial Markets Authority
Similar legislation to s 59 has been implemented in the United Kingdom. Notably s 18 of the Commissioners for Revenue and Customs Act 2005 (UK) prevents disclosure of information gathered by His Majesty’s Revenue and Customs (HMRC) unless an exception applies.176 The aforementioned Act contains a number of exceptions including when disclosure “is made for the purposes of a function of the Revenue and Customs.”177 It is difficult to escape the similarity of this section with s 59(3)(c) of the FMA Act. The Court here turned to the leading case of R (Ingenious Media Holdings plc) v Revenue and Customs Commissioners where the United Kingdom Supreme Court discussed the interplay between interpretation and specific provisions relating to confidentiality. In that judgment Lord Toulson outlined a longstanding duty of confidentiality owed to persons who HMRC collected informationfrom.178 This principle however was overridden by statue in this case leaving Lord Toulson to
rely on the “principle of legality.”179 Lord Hoffman in R v Secretary of State for the Home Office, ex parte Simms outlined this principle as:180
“Fundamental rights cannot be overridden by general or ambiguous words. This is because there is too great a risk that the full implications of their unqualified meaning may have passed unnoticed in the democratic process. In the absence of express language or necessary implication to the contrary, the courts therefore presume that even the most general words were intended to be subject to the basic rights of the individual.”
174 Financial Markets Authority v ANZ Bank New Zealand Limited, above n 70, at [1].
175 Tamsyn Parker “ANZ Reaches Settlement Agreement with Ross Asset Management Investors” the New
Zealand Herald (online ed, Auckland, 23 August 2021).
176 Commissioners for Revenue and Customs Act 2005 (UK), s 18(1).
177 Commissioners for Revenue and Customs Act, s 18(2)(a)(i).
178 R (Ingenious Media Holdings plc) v Revenue and Customs Commissioners [2016] UKSC 54, [2016] 1 WLR 4164 at [17] in ANZ Bank New Zealand Ltd v Financial Markets Authority, above n 166, at [75].
179 ANZ Bank New Zealand Ltd v Financial Markets Authority, above n 166, at [81].
180 Per Lord Hoffman in R v Secretary of State for the Home Office, ex parte Simms [1999] UKHL 33; [2000] 2 AC 115, [1999] 3 All ER 400 at 412 in ANZ Bank New Zealand Ltd v Financial Markets Authority, above n 166, at [81].
Based off this Lord Toulson gave the provision a narrow construction finding disclosure was only permitted “to the extent “reasonably necessary” for HMRC to fulfil its primary function.”181 Fitzgerald J noted the seeming approval of this reasoning from New Zealand Courts.182 Following this reasoning Fitzgerald J outlines a test for disclosures made under s 59(3), that reads:183
(a) when disclosure is reasonably necessary for the purposes of the performance or exercise of any function, power or duty conferred or imposed on the FMA by the Act or any other enactment; or
(b) where there is a close connection or nexus between the disclosure and the performance or exercise of the FMA’s relevant function, power or duty.
This painted a striking similarity to the test formulated by Lord Toulson. When applying this test the High Court found that the proposed disclosure was outside of the scope of s 59(3) and as such the proposed disclosures would be unlawful.184 At [103] Fitzgerald J outlines why the requirements of s 34(5) do not sufficiently justify the proposed disclosure, that reads:185
[103] I do not accept it is implicit in having regard to the “likelihood” of Person A commencing the proceedings that the FMA must consult with that person and, even if it does, that the FMA is required or permitted to disclose to Person A information obtained through the exercise of its statutory powers. Section 34 does not expressly refer to or require such engagement. Section 35, which provides Person A the right to object to the FMA’s intention to bring proceedings under s 34, only requires the FMA to give written notice of the FMA’s intention to commence proceedings. Further, the only express duty to consult with Person A arises under s 40, after the FMA has made a decision under s 34 and has commenced proceedings. Moreover, the FMA having regard to the “likelihood” of Person A commencing the proceedings, is different to the FMA knowing whether Person A will (or will not) commence the proceedings
181 ANZ Bank New Zealand Ltd v Financial Markets Authority, above n 166, at [82]. 182 ANZ Bank New Zealand Ltd v Financial Markets Authority, above n 166, at [83]. 183 ANZ Bank New Zealand Ltd v Financial Markets Authority, above n 166, at [99]. 184 ANZ Bank New Zealand Ltd v Financial Markets Authority, above n 166, at [160]. 185ANZ Bank New Zealand Ltd v Financial Markets Authority, above n 166, at [103].
(only the latter requiring some form of engagement, in the absence of a public statement on those matters by Person A).
Since the FMA Act allows the FMA to begin the exercise the Right of Action powers without direct consultation the disclosure was not reasonably necessary for the FMA to decide whether to take action under s 34. This test presents a very narrow and strict construction of s 59(3). The Court also discussed a divide between the public functions of the FMA and the private interests of investors seeking civil remedy, Fitzgerald J said: 186
[135] There is no doubt that the FMA is a public body and that its core objectives and functions are public in nature. Ultimately its functions, powers and duties are aimed at driving its main public objective, namely promoting and facilitating the development of fair, efficient and transparent financial markets. It is not a primary objective or function of the FMA to drive or promote purely private interests.
Fitzgerald J found that if the party viewing material disclosed under s 59(3) was to a person with wholly private interests then disclosure should be disallowed.187 Since Fitzgerald J had determined disclosure for the purpose of evaluating whether to exercise s 34 was not permitted the RAM liquidation committee did not have a “proper interest” in receiving the disclosure.188 This strict construction of s 59(3) imposed a significant limit of the FMA’s power, in particular it would require the FMA to make their decision about exercising s 34 with limited consultation with RAM investors.
2 The Court of Appeal judgment in Financial Markets Authority v ANZ Bank New Zealand Ltd
The FMA appealed the High Court’s decision, on appeal the Court of Appeal overturned the decision of the High Court finding that s 34 and s 59 contemplate the FMA working with investors (ie. Person A in the Act) and the proposed disclosures would be permitted.189 The Court of Appeal discussed how s 34 fits within the FMA’s regulatory scheme. They see two key ways which the FMA fulfils their statutory objective, first by the Act providing checks and balances on financial markets participants, secondly by providing the FMA with specific
186 ANZ Bank New Zealand Ltd v Financial Markets Authority, above n 166, at [135]. 187 ANZ Bank New Zealand Ltd v Financial Markets Authority, above n 166, at [138]. 188 ANZ Bank New Zealand Ltd v Financial Markets Authority, above n 166, at [143]. 189 Financial Markets Authority v ANZ Bank New Zealand Limited, above n 70, at [77].
enforcement mechanisms.190 Section 34 falls under the latter.191 The Court of Appeal also rejected the idea of a public/private divide, they found that s 34 clearly contemplated that private action could serve the public interest, at [66] Asher J notes: 192
“the scheme of the Act, and in particular s 34, recognises that civil redress against financial markets participants may help to meet the public interest in promoting and facilitating the development of fair, efficient and transparent financial markets. That the FMA has an ability, under s 34, to bring or take over a civil Right of Action indicates Parliament’s recognition that such claims are in the public interest.”
This finding raises some interesting questions. Whilst true that often investors interest and the “public interest” can align (i.e. The actions taken in Prince & Partners) this shows little consideration to the tension that arises when these conflict. At this point it becomes a question of how far is the FMA willing to compromise the private interests of investors in order to further the “public interest” objective of the powers. If the FMA is willing to disregard the private interest of investors in order to serve their “public interest” objective a real risk arises that market participants will lose confidence over time out of fear that their interests will not be upheld, this would undermine the FMA’s objective.
The Court found that the proposed disclosure was justified as it served the main objective of the FMA, they note at [76]: 193
“In pursuit of fair and transparent markets it is appropriate for the FMA to provide information to investors so the FMA can get their feedback to aid the FMA’s investigation, and to consult with investors in the exercise of its decision-making powers under s 34, provided proper steps are taken to ensure confidentiality.”
To summarise the Court found that:
190 Financial Markets Authority v ANZ Bank New Zealand Limited, above n 70, at [29]. 191 Financial Markets Authority v ANZ Bank New Zealand Limited, above n 70, at [29]. 192 Financial Markets Authority v ANZ Bank New Zealand Limited, above n 70, at [66]. 193 Financial Markets Authority v ANZ Bank New Zealand Limited, above n 70, at [76]. 194 Financial Markets Authority v ANZ Bank New Zealand Limited, above n 70, at [77].
The Court however lacked consideration about whether use of the Right of Action powers in this way could undermine market confidence. In their annual report the FMA made note of the outcome saying the Court had “established the right for us to share information about ANZ’s role as banker to Ross Asset Management during the period David Ross was operating a Ponzi scheme.”197 This statement seems slightly misguided however, the Court allowed the sharing of information but only for a limited purpose. The FMA have also noted the Courts findings “allowed investors to make their own informed decisions about whether to pursue their own claim against ANZ.”198 It appears clear the FMA is comfortable with disclosing information to investors in order to help them determine whether to take private action. Given the disclosure was for the purpose of assessing whether the FMA was going to take action under s 34, this statement seems misguided but nonetheless the FMA’s actions were validated by the Courts. On one hand the FMA is looking to the Right of Action powers as enabling investors to pursue a sense of justice yet on the other they compromise the interests of other market participants to the point of detriment to the whole market. The Right of Action powers were set out to balance these interests, in practice this balance has not been struck.
3 The Supreme Court judgment in ANZ Bank New Zealand Ltd v Financial Markets Authority
The Supreme Court denied ANZ leave to appeal citing failure to meet the criteria for appeals to the Supreme Court set out in the Senior Courts Act 2016.199 The Senior Courts Act 2016 requires that appeals to the Supreme Court must be “necessary in the interests of justice for the court to hear and determine the appeal.”200 To meet this standard the appeal must fall into one of three categories, “matters of general or public importance”, or “a substantial
195 Financial Markets Authority v ANZ Bank New Zealand Limited, above n 70, at [66]-[67].
196 Financial Markets Authority v ANZ Bank New Zealand Limited, above n 70, at [78].
197 Financial Markets Authority Annual Report 2018/19 (30 October 2019) at 5.
198 Financial Markets Authority, above n 197, at 5.
199 ANZ Bank New Zealand Ltd v Financial Markets Authority [2019] NZSC 40 at [15].
200 Senior Courts Act 2016, s 74(1).
miscarriage of justice” or if an appeal “involves a matter of general commercial significance.”201
It seems the Supreme Court has not adequately appreciated that the commercial significance this case holds, the effect of allowing disclosure in this manner could have widespread consequences on how businesses communicate, the undermining of business confidentiality could heighten risk to shareholders and preclude the FMA from being able to effectively investigate and prosecute wrongdoing within our financial markets. Certainly that appears to fit the bill of being “commercially significant.”
Although speculative there seems to be no reason to suggest that if the Supreme Court had granted leave to appeal the eventual result would be any different, here the issue is primarily one of Parliament being mis-intended, leaving such a “clean up” job to the courts would be improper and potentially venture towards judicial activism.
G Potential Negative Effects the ANZ and FMA Saga Might Have of Business Confidentiality
It is foreseeable that the FMA collecting documents that would be considered confidential and disclosing them as proposed in ANZ could have the effect of undermining business confidentiality in the future. Whilst true that having the FMA exercise civil Rights of Action can fulfil the “public interest” at a certain point undermining individual interests will have a negative effect on market confidence, permitting disclosure in the manner the FMA sought to do here illustrates a real risk to the transparency of financial markets.
Allowing disclosure could lead to a change in how financial markets participants communicate. Following the Court of Appeals decision there remains the distinct possibility that the FMA could gather information in accordance with its powers and then show that information to people who may have a private claim against the party who’s information was gathered. Although agreements remain in place to ensure confidentiality the fact remains that the potentially aggrieved party knows of the existence of the information and that the FMA has a belief that it may amount to a successful claim. In response to this market participants may begin prioritise forms of communication that don’t leave an evidential trail in order to
201 Senior Courts Act, s 74(2).
prevent confidential information being shared, this could be as simple as omitting information from emails and communicating it in person or over the phone.
The degradation of confidentiality would pose a real and significant long term risk to the FMA’s ability to properly regulate the market. Conceivably if financial markets participants begin to alter communications to avoid potential disclosure of information they viewed as otherwise confidential then the FMA’s ability to carry out investigations, gather evidence, and prosecute will be significantly undermined. This could potentially undermine the transparency of Financial Markets, a key objective of the FMA under s 8 of the FMA Act.202
Although the FMA noted in this instance that they would limit disclosure and ensure confidentiality agreements would be in place it still seems somewhat insufficient. It would not be unreasonable to infer that if the party to whom disclosures were made were to may seek to gather the documents through the discovery process.
The mere knowledge of the existence of information cannot be absolved by a confidentiality agreement, whilst disclosure of the contents or existence of information is not directly permitted it is conceivable that the same information could be obtained and used in a civil case in accordance with the rules of discovery. For example if the FMA were to disclose potential information of continuous disclosure breaches under confidentiality agreements to shareholders of said company as part of considering whether to take action under s 34 the shareholders could launch a claim substantiated on a constructive knowledge and then gain the same information that was otherwise confidential through the discovery process. This seeks to illustrate that despite protections being in place to protect confidentiality true business confidentiality could nonetheless be undermined due to s 59(3) permitting disclosure of the information.
This judgment illustrates that the Right of Action powers seem to lack proper balance between protecting the interests of the market as a whole and protecting the interests of individual market participants. The disclosure as proposed here shows a significant encroachment on the interests of ANZ whilst providing little benefit to the overall health of
202 Section 8.
the market, further, the negative effects that are likely to flow on from permitting this disclosure risk substantial harm to the fairness and transparency of financial markets.
IV Part Three: What Does the Future of the Right of Action Powers Look Like?
This part seeks to address where the Right of Action powers could be used in New Zealand. This part first looks at previous uses of similar powers in Australia. Lastly as a case study this part looks at a contemporary issue in financial markets regulation, integrated financial products.
A Use of Right of Action powers in Australia
Australia has seen far broader usage of similar Right of Action powers. They were used some 21 times between 1990 and 2007.203 Although the Courts have noted similarity between s 50 of the ASIC Act and s 34 of the FMA Act the two sections have some notable differences.First s 50 of the ASIC Act empowers ASIC to take claims for breaches of directors duties, this is broader than s 34 which could only be exercised if directors duties were breached within the purview of the FMA’s regulatory role.204 Alongside this the Australian power lacks an express provision defining public interest, however the Full Federal Court in Australian Securities Commission v Deloitte Touche Tohmatsu inferred a number of factors relevant to defining public interest.205 The Full Federal Court found that the reference to “public interest” in the legislation invited a wide value judgment and the factors relevant to defining the “public interest” should not be closely confined.206 The Court listed some factors it found relevant to the public interest determination, in ANZ Bank New Zealand Ltd v Financial Markets Authority, Fitzgerald J summarised some of the factors identified in Deloitte as:
- The nature of the alleged breaches and the strength of the claim.207
203 Victoria Heine and Matthew Yarnell “Taking Up Arms for the Investor – FMA’s Power to Litigate” (23
September 2010) Mondaq.
<https://www.mondaq.com/newzealand/finance-and-banking/110940/taking-up-arms-for-the-investor-fmas- power-to-litigate>
204 Australian Securities and Investments Commission Act, s 50 and Financial Markets Authority Act, s 34.
205 Australian Securities Commission v Deloitte Touche Tohmatsu [1997] FCA 158; (1996) 70 FCR 93, (1996) 138 ALR 655
(FCAFC) at 682-686.
206 At 682.
207 Australian Securities Commission v Deloitte Touche Tohmatsu, above n 205, at 124–127 in ANZ Bank New Zealand Ltd v Financial Markets Authority, above n 166, [94].
Broadly many of these factors mirror what can be found in s 34(5), this was noted by the High Court.212 Some of these factors are analogous, for example the likelihood of the person bringing proceedings is a relevant factor for determining “public interest” under s 34(5).213 Further ASIC’s objective (although broader than the FMA) encompasses fairness, efficiency, and transparency in financial markets just as the FMA’s does.214 The nature of the breach and strength of the claim are relevant to the FMA’s inquiry into “the likely effect of the proceedings on the future conduct of financial markets participants in connection with the financial markets.”215 Overall there is a strong similarity between the what the FMA Act defines as “public interest” and what the Courts in Australia have interpreted in relation to the public interest requirement of s 50 of the ASIC Act. Given the clear influence of s 50 on the drafting of New Zealand’s Right of Action powers and the similarity in defining public interest assessing ASIC’s use of their powers gives significant insight into how the FMA could use their powers.
ASIC has been particular willing to use s 50 to pursue class actions. ASIC’s use of s 50 in class actions dates back to 1992, shortly after the powers introduction.216 From 1992 to 1999 ASIC commenced eleven class actions under s 50.217 ASIC’s usage of s 50 decreased significantly in the early 2000’s however, from 2000-2008 s 50 was only used in class actions three times.218 It is difficult to isolate the reason for this drop but some have noted a
208Australian Securities Commission v Deloitte Touche Tohmatsu, above n 205, at 124–127 in ANZ Bank New Zealand Ltd v Financial Markets Authority, above n 166, at [94].
209Australian Securities Commission v Deloitte Touche Tohmatsu, above n 205, at 124–127 in ANZ Bank New Zealand Ltd v Financial Markets Authority, above n 166, at [94].
210 Australian Securities Commission v Deloitte Touche Tohmatsu, above n 205, at 124–127 in ANZ Bank New Zealand Ltd v Financial Markets Authority, above n 166, at [94].
211Australian Securities Commission v Deloitte Touche Tohmatsu, above n 205, at 124–127 in ANZ Bank New Zealand Ltd v Financial Markets Authority, above n 166, at [94].
212 ANZ Bank New Zealand Ltd v Financial Markets Authority, above n 166, at [94].
213 Financial Markets Authority Act, s 34(5)(e).
214 Australian Securities and Investments Commission Act, s 1(2).
215 Financial Markets Authority Act, s 34(5)(b).
216 Elizabeth, above n 60, at 28.
217 Elizabeth, above n 60, 28-29.
218 Elizabeth, above n 60, 28-29.
correlation between the drop in s 50 uses and increased power for ASIC to seek civil penalties.219 Similarly the FMA has seen an increase in powers to seek civil remedy, notably under the FMCA this ability increased dramatically.220 Australia has also seen a strong rise in private class actions in the securities space, from 2013 to 2018 37% of all class action claims filed at the federal level were in relation to shareholder claims.221 The high availability of litigation funding in Australia has been noted as a contributing factor in this increase.222 Broadly similar trends are appearing in New Zealand, the FMCA gave the FMA broad civil enforcement powers and recently the Law Commission released their report into class action reform.223 The prioritization of the FMA’s other civil remedy provisions already appears to be limiting the use of the Right of Action powers, perhaps the recent dormancy of their Right of Action powers is a bellwether that they have run their course in New Zealand.
B Overview: Potential Uses of the Right of Action powers
As illustrated New Zealand has seen little exercise of the Right of Action powers since their introduction in 2011, despite this the scope of the powers remain broad. This section seeks to look at the potential uses for the Right of Action power, more specifically focusing on two areas, firstly looking into ASIC’s use of their powers to regulate auditors and secondly looking at contemporary issues within the environmental, social, and governance (ESG) investing space.
1 Regulating auditors
The potential use of the Right of Action powers to regulate auditors has long been contemplated. The Ministry of Economic Development mentioned auditors as a potential target for the Right of Action powers.224 Further ASIC has previously perused claims of negligent conduct by auditors through s 50 actions. Notably large auditors Deloitte Touche Tohmatsu (Deloitte) and KPMG have been implicated in s 50 litigation. In the 1990’s Deloitte was implicated as part of their role as auditors of Adsteam which collapsed in 1990,
219Tony Johnson “Public Interest Litigation Under s 50 of the Australian Securities and Investments Commission Act 2001 (Cth): The Case for Amendment” (2015) 33(8) C&SLJ 528 at 529; and Australian Securities and Investments Commission Act 2001 (Cth), s 12GBA.
220 See Financial Markets Conduct Act 2013, s 38 and (27 August 2013) 693 NZPD 12987.
221 Australian Law Reform Commission, Inquiry into Class Action Proceedings and Third-Party Litigation Funders (Discussion Paper 85, June 2018) at 29.
222 Australian Law Reform Commission, above n 221, at 28.
223 See Te Aka Matua o te Ture/Law Commission Ko ngā Hunga Take Whaipānga me ngā Pūtea Tautiringa/Class Actions and Litigation Funding (R147, 27 June 2022); and Financial Markets Conduct Act. 224 Ministry of Economic Development, above n 69,at 2.
eventually this case would make its way to the Federal Court of Australia to become the leading authority of interpreting s 50.225 ASIC claimed that Deloitte were aware of “aware of the acts and omissions giving rise to the overstatement of Adsteam's profit by at least $539 million.”226 Further as part of their s 50 proceedings against various companies in the Westpoint group ASIC perused KPMG for negligent conduct as part of their role as the auditor of various Westpoint companies.227 Later KPMG would file to have the High Court hear a case challenging the constitutionality of s 50, these proceedings were eventually discontinued as part of a last minute settlement agreement between ASIC and KPMG.228
These cases present an interesting question for New Zealand’s regulatory environment. Auditors are considered to be “financial market participants” under the FMA Act provided they meet the meaning of “qualified auditor” under the FMCA.229 The FMA already plays a significant role in the regulation of auditors in New Zealand under the Auditor Regulation Act 2011 also.230 Given the critical role of auditors in upholding the integrity of New Zealand’s financial markets the FMA might find use for the Right of Action powers here.
The FMA has yet to use the Right of Action powers in relation to an auditor. Given the wide range of regulatory controls the FMA has outside of the Right of Action powers it seems unlikely that cases would often arise leaving the Right of Action powers as the FMA’s only mechanism to regulate.
2 Regulating environmental, social, governance (ESG) investment
The FMA has recently completed a report looking into managed funds who chose to integrate non-financial considerations into their investment strategies (they call these integrated financial products).231 Most of these funds focus on integrating environmental, and other ethical factors into their investment strategy.232 Broadly these products fall under the umbrella of Environmental, Social, Governance (ESG) investments. ESG investments appeal to investors for a variety of reasons, principally supporting ethical investment. The report
225 Johnson, above n 219, at 529; and Elizabeth, above n 60, at 26.
226 Australian Securities Commission v Deloitte Touche Tohmatsu, above n 205, 659.
227 Patrick Durkin “ASIC Sues KPMG Over Westpoint Audit” (14 October 2008) Australian Financial Review.
<https://www.afr.com/politics/asic-sues-kpmg-over-westpoint-audit-20081014-j8x7g>
228 KPMG (a Firm) v Commonwealth of Australia & Anor [2011] HCATrans 9, 1 February 2011.
229 Financial Markets Authority Act, s 4(1).
230 Auditor Regulation Act 2011, s 5.
231 Financial Markets Authority Integrated Financial Products: Review of Managed Fund Documentation (July 2022), at 3.
232 Financial Markets Authority, above n 228, at 3.
found that the quality of information for investors about these ESG investment products was lacking, in particular relevant information was not consolidated properly and ESG fund managers were not adequately explaining how their products functioned.233 Poor quality information could lead to significantly damaging consequences as well as undermining the objective of the FMA to maintain transparent markets.234
As a new regulatory challenge for the FMA the Right of Action powers could be of use here. In particular there is a lack of cases surrounding ESG investments making it less likely for investors to take cases due to uncertain outcomes. It would be beneficial if the FMA were to voluntarily acquire persons rights of actions to take test cases in this area. By assisting in the development of the law in this field the FMA could help create clarity in the law, this would solidify expectations in financial markets conduct in relation to ESG investment. This would help forward the FMA’s objective, by creating a clear and consistent set of obligations for ESG investment they would allow for more efficient, transparent, and better informed investment in the field. The popularity of ESG investments shows strong growth potential into the future, maintaining the integrity of these financial products is paramount to protecting the health of financial markets in the future. However the FMA already has a wide range of civil enforcement tools that they have been actively using.235 The FMA should prioritize using their civil enforcement powers in the FMCA where possible in order to avoid potential issues the Right of Action powers can create.
C Are the Right of Action Powers Fit for Purpose?
On balance there seems to be a number of issues with the Right of Action powers in their current form. They allow forcible acquisition of a person’s Rights of Action in certain circumstances, they have been used to justify the degradation of business confidentiality, they create a largely avoidable tension between private and public interests and they threaten to undermine market confidence. Further a number of use cases predicating the introduction of the powers no longer pose the same threat they did prior to 2010. The risk that NBDT’s posed in the wake of the GFC was largely a result of poor regulation.236 NBDT’s are now under the prudential supervision of the Reserve Bank mitigating the threat of collapse and
233 Financial Markets Authority, above n 228, at 3.
234 Financial Markets Authority Act, s 8.
235 Financial Markets Authority, above n 157, at 14-15.
236 Commerce Committee, above n 38, at 10-11.
adverse outcomes.237 The FMA also has broader enforcement powers then when the Right of Action powers were introduced, primarily the FMCA has expanded the FMA’s regulatory tools.238
The Right of Action powers have the potential to create significant uncertainty in financial markets, yet to date have been of little use. Justifying the existence of the Right of Action powers in their current form requires an assessment of the balance between upholding the individual interests of market participants and the interests of the FMA in pursuing the “public interest.” Cases such as ANZ show a significant compromise being made to the individual interests of market participants alongside having the net effect of undermining the transparency of financial markets. Further the ability of the FMA to forcibly acquire a person’s Right of Action (provided the criteria in the Act are met) has the potential to undermine private interests. If the Right of Action powers are seeking to find a balance between private and public interests to date they have failed in this objective. The Right of Action powers in their current form are inadequate, many of the negative effects they create are unnecessary and easily avoidable. If there is a problem with access to redress for investors the solution is to make the exercise of their private rights easier, this can be done without compromising their private interests. Reform of the Right of Action powers is well justified.
V Part Four: Potential solutions to mitigate the risks associated with the Right of Action power
This part looks to solutions to mitigate the risks associated with the Right of Action powers first looking at the use of class actions as an alternative and then discussing statutory reform options.
A Are Class Actions a Viable Alternative?
The feasibility of representative actions as an alternative to using s 34 has been long contemplated. Bell Gully noted in their submission on the Financial Markets (Regulators and KiwiSaver) Bill 2010 that representative actions and litigation funding were already available
237 Non-Bank Deposit Takers Act, s 7.
238 See for example, Financial Markets Conduct Act, s 38.
if shareholders were seeking to enforce director’s duties, they questioned whether the FMA should play a role in enforcing directors duties given this.239
Representative actions seem to solve many of the issues that the Right of Action powers seek to address. In general, litigation funding and representative actions reduce the individual cost to shareholders seeking to take a claim, many of the use cases for the Right of Action powers revolve around the significant expense involved in litigation. Alongside this the Law Commission recently completed a review into representative actions, in their report published in May 2022 they recommended the creation of a statutory class action regime focused on improving access to justice and efficient management of multiple claims.240 If implemented the cost of taking on a class action would likely decrease, further questioning the effectiveness of the Right of Action powers.
Australia’s reform of class actions and similar regulatory scheme help illustrate what the future of class actions may look like in New Zealand. Australia reformed their federal class action regime in 1992 with the addition of Part IVA to the Federal Court of Australia Act 1976.241 At the core of their reform was improving access to justice by way of lowering court costs for low value claims.242 A similar impetus was key in the Law Commissions recent report on class actions and litigation funding.243 Australia has seen issues with their class action regime, notably with high rates of shareholder claims, a plurality (37%) of federal class actions in Australia from 2013-2018 were shareholder claims, most of these claims related to breaches of continuous disclosure obligations.244 These issues however would arise irrelevant of ASIC’s s 50 powers as pre-2020 breaches of continuous disclosure in Australia could be substantiated without proving actual fault or recklessness.245 The effectiveness of class actions in New Zealand has been questioned as part of the Law Commissions review, they noted that New Zealand’s small population size could affect class sizes and the
239 Bell Gully “Submission to the Commerce Select Committee on the Financial Markets (regulators and
KiwiSaver) Bill 2010 at 15.
240 Te Aka Matua o te Ture/Law Commission, above n 223, at 21.
241 Federal Court of Australia Act 1976 (Cth), s 33A-33ZJ.
242 Commonwealth, Hansard, Second Reading Speech, 14 November 1991, 3174-3175 (Duffy) in Australian Law Reform Commission, Integrity, Fairness and Efficiency - An Inquiry into Class Action Proceedings and Third-Party Litigation Funders (Australian Law Reform Commission, Report 134, December 2018) at 22.
243 Te Aka Matua o te Ture/Law Commission, above n 223, at 64-65.
244 Australian Law Reform Commission, Inquiry into Class Action Proceedings and Third-Party Litigation Funders (Discussion Paper 85, June 2018) at 29.
245 See TPT Patrol Pty Ltd (As Trustee for Amies Superannuation Fund v Myer Holdings Limited (2019) FCA 1747, (2019) 140 ASCR 38 at [1121].
economic viability of litigation.246 Ultimately a class action regime that is more effective in allowing low-value claims to be pursued will limit the use-cases for the Right of Action powers, at the very least it seems appropriate to review the Right of Action powers following the impending class action reform in New Zealand.
B Reforming s 59(3) of the FMA Act
Reforming s 59(3) to expressly prevent the FMA from disclosing information gathered under s 25 if it is for the reason of considering taking a claim under s 34 would prevent many of the issues the current legislative framework creates. Provided this amendment is drafted with the specificality required it would prevent disclosure of the kind seen in ANZ whilst leaving the rest of New Zealand’s securities legislation intact. For example, the amendment could read:
“Disclosure is not permitted when assessing the likelihood of person A commencing proceedings under section 35(5)(e)”
This amendment would be minimally invasive, it would preserve the FMA’s ability to disclose in relation to the exercise of all its other powers. This amendment would be beneficial to the function of financial markets, by ensuring confidential information remains truly confidential it eliminates the risk that market participants may take steps to conceal information in a manner that would impede any investigation by the FMA. However alone this would not resolve other issues seen with the Right of Action powers but does help restore the balance between public and private interests.
C Removing the Ability of the FMA to Forcibly Take a Person’s Right of Action with Approval from the High Court
One option to mitigate the potential negative effects of the Right of Action powers would be to amend s 36 and s 38 of the FMA Act in order to remove the ability of the FMA to exercise a person’s Right of Action without their express consent. Currently a similar exemption applies to individuals but not companies or body corporates.247 Not granting this exemption to non-individuals was primarily predicated on allowing the FMA to peruse directors on
246 Te Aka Matua o te Ture/Law Commission IP45 Class Actions and Litigation Funding/Ko ngā Hunga Take Whaipānga me ngā Pūtea Tautiringa (IP45, December 2020) at 164.
247 Financial Markets Authority Act, s 36(3).
behalf of companies.248 The legislative solution here is an outright repeal of the section, it creates significant inequity between otherwise equal classes of shareholders.
D Repealing the Right of Action Powers and Creating a Public Interest Claims Funding Pool
Ultimately the best solution to resolve all the issues the Right of Action powers pose is to repeal the provisions in their entirety. Given the limited use of the section to date this option would arguably have a minimal impact on the operations of the FMA. However, a complete repeal would re-open the gap in the FMA’s regulatory powers that led to the introduction of the powers in the first place. In this circumstance a better solution would be for the FMA to create a funding pool for lawsuits which meet the public interest criteria. Funds could be paid to cover legal fees and the litigation would continue as any other private litigation would.Stringent eligibility criteria would need to be created to ensure the selection process is equitable and transparent. This would achieve the purpose of the powers (ie. Public interest claims being pursued) whilst preventing the FMA from using its investigative powers to gain an unfair advantage over any other civil litigant. This solution would preserve the individual interests of market participants who under the current legislative scheme could have been subject to compromised interests due to the FMA seeking to fulfil the “public interest” objective of the Right of Action powers.
This solution provides the best overall outcome, it avoids the conflict between the FMA upholding the “public interest” and private interests whilst still allowing the FMA to play a role in regulation through civil claims. Minor statutory reform may be effective in addressing some issues with the Right of Action powers but anything short of complete repeal will still raise issues of conflicting rights and interests, the best way to avoid this is to leave the pursuit of private Rights of Action to private parties.
VI Conclusions and Final Analysis
As illustrated the Right of Action powers, although well intended, have created (and have the potential to create) significant issues ranging from unequitable treatment to potentially increasing risk in our financial markets. The Right of Action powers seek to balance the
248 (22 March 2011) 671 NZPD 17514 and Financial Markets (Regulator and KiwiSaver) Bill (211-2)(select committee report) at 4.
pursuit the “public interest” with encroaching on the private rights of market participants, in their current form the powers do not strike this balance adequately, this poses significant risk to the long-term safety and function of our financial markets.
So, it begs the question, if these powers are so flawed than why has criticism been somewhat limited? This seems to be as a result of the FMA’s limited exercise of the powers to date alongside the lack of critical commentary from the Courts in New Zealand who have yet to encounter a case where the Right of Action powers have been exercised without the express consent of the party whose action is being exercised.
The best solution to all the issues created by the Right of Action powers is to repeal them and replace them with a litigation funding pool, regulated by the FMA, in order fund litigation the FMA believes is in the public interest. This would prevent the FMA’s interest in pursuing a case from interfering with a person’s private interests alongside serving the public interest objective the powers have sought to uphold. Further this would prevent the disclosure of confidential information as seen in ANZ alongside preventing the FMA from forcibly acquiring a person’s Right of Action. The issues created by the Right of Action powers can be remedied whilst maintaining the FMA’s ability to be involved with “public interest” claims, although not possible for market participants and the FMA to have their cake and eat it too in this regard this solution comes close.
VII Bibliography:
A Cases
ANZ Bank New Zealand Ltd v Financial Markets Authority [2018] NZHC 691, 3 NZLR 377
ANZ Bank New Zealand Ltd v Financial Markets Authority [2019] NZSC 40 Financial Markets Authority v ANZ Bank New Zealand Ltd [2018] NZCA 590 Financial Markets Authority v Prince & Partners Trustee Co Ltd [2017] NZHC 2059 R v Douglass Arthur Montroe Graham [2012] NZHC 575
R v Kenith Roger Moses HC Auckland CRI 2009-004-1388, 19 May 2011
2. Commonwealth of Australia:
Australian Securities Commission v Deloitte Touche Tohmatsu [1997] FCA 158; (1996) 70 FCR 93 (FCAFC)
Carey v Australian Securities and Investments Commission (2008) FCA 963
KPMG (a Firm) v Commonwealth of Australia & Anor [2011] HCATrans 9, 1 February 2011 Schlaepfer v Australian Securities and Investments Commission (2017) FCA 1122 Sommerville v Australian Securities Commission and Others (1995) 131 ALR 517
TPT Patrol Pty Ltd (As Trustee for Amies Superannuation Fund v Myer Holdings Limited
(2019) FCA 1747, (2019) 140 ASCR 38
3. United Kingdom of Great Britain and Northern Ireland:
R (on the application of Ingenious Media Holdings plc and another) v Commissioners for Her Majesty's Revenue and Customs [2016] UKSC 54
R v Secretary of State for the Home Office, ex parte Simms [1999] UKHL 33; [2000] 2 AC 115, [1999] 3 All ER 400
B Legislation
Auditor Regulation Act 2011Banking (Prudential Supervision) Act 1989 Companies Act 1993, s 169
Financial Markets (Regulators and KiwiSaver) Bill 2010 (211-1)
Financial Markets (Regulators and KiwiSaver) Bill 2010 (211-1) (explanatory note) Financial Markets (Regulators and KiwiSaver) Bill 2010 (211-2)
Financial Markets (Regulators and KiwiSaver) Bill 2010 (211-2) (select committee report) Financial Markets Authority Act 2011
Financial Markets Conduct Act 2013 New Zealand Bill of Rights Act 1990 Non-Bank Deposit Takers Act 2013
Non-Bank Deposit Takers Bill 2011 (312-1) (explanatory note) Reserve Bank of New Zealand Amendment Act 2008 Securities Act 1978
Securities Markets Amendment Act 2002 Securities Markets Amendment Act 2006
2. Commonwealth of Australia:
Australian Securities and Investments Commission Act 2001 (Cth) Companies Act 1958 (Vic)Corporations Act 2001 (Cth)
Federal Court of Australia Act 1976 (Cth)
Treasury Laws Amendment (Strengthening Corporate and Financial Sector Penalties) Act 2019 (Cth)
3. United Kingdom of Great Britain and Northern Ireland:
Commissioners for Revenue and Customs Act 2005 (UK) Financial Services and Markets Act 2000 (UK)
C Books and Chapters in Books
Eilís Ferran, Niamh Moloney, Jennifer G. Hill and John C. Coffee Jr The Regulatory Aftermath of the Global Financial Crisis (Cambridge University Press, Cambridge, 2012) Kern Alexander and Niamh Moloney (eds) Law Reform and Financial Markets (Edward Elgar, Cheltenham, 2011)
Julie Cassidy and others Guidebook to New Zealand Companies and Securities Law (9th ed, CCH New Zealand, Auckland, 2018)
Shelley Griffiths “Asset Preservation Orders in Securities Regulation Litigation” in Shelley Griffiths, Sheelagh McCracken and Ann Wardrop (eds) Exploring Tensions in Finance Law: Trans-Tasman Insights 155
Shelley Griffiths “Securities Regulation” in J Farrar and S Watson (ed) Company and Securities Law in New Zealand (2nd ed, Thomson Reuters, Wellington, 2013)
D Journals
Benjamin Liu “From ‘Bond Trustee’ to ‘Supervisor’: A Critical Review of the Bond Trust Regime Under the Financial Markets Conduct Act 2013” (2016) 22 NZBLQ 100 Fitzgerald J “ANZ Bank New Zealand Ltd v Financial Markets Authority (FMA)” (2018) CSLB 66
Janet Elizabeth “Does the Westpoint Litigation Signal a Revival of the ASIC Section 50Class Action?” (2008) 22 Aust Jnl of Corp Law 8
Joanna Bird “ASIC’s Role as Intervener: When Should the Regulator Intervene in Private Litigation” (2010) 28(7) C&SLJ 460
Julie Cassidy “Wake up New Zealand: Directors’ Duties Reform Responses to the Global Financial Crisis” (2014) 20 NZBLQ 181
Nicola Won “Regulation of Finance Companies: Coming Out of the Shadows” (2015) 21
NZBLQ 110
Noemi Javier “New Legislation for Regulation of Non-Bank Deposit Takers” (December
2008) 71(4) Reserve Bank of New Zealand Bulletin 40
Suki Xiao “Enforcement of Securities Laws and the Role of the State: An Examination of the Financial Markets Authority’s Powers to Take Action on Behalf of Investors” (2012) CSLB 27
Tony Johnson “Public Interest Litigation Under s 50 of the Australian Securities and Investments Commission Act 2001 (Cth): The Case for Amendment” (2015) 33(8) C&SLJ 528
E Parliamentary and Government Materials
ANZ National Bank Limited “Submission to the Commerce Select Committee on theFinancial Markets (regulators and KiwiSaver) Bill 2010”
AXA New Zealand “Submission to the Commerce Select Committee on the Financial
Markets (regulators and KiwiSaver) Bill 2010”
Bell Gully “Submission to the Commerce Select Committee on the Financial Markets (regulators and KiwiSaver) Bill 2010”
Bell Gully “Submissions to the NZX Listing Rule Review Consultation Paper” (8 June 2020)
Chapman Tripp (Auckland) “Submission to the Commerce Select Committee on the Financial Markets (regulators and KiwiSaver) Bill 2010” (November 2010)
Legislation Advisory Committee “Submission to the Commerce Select Committee on the
Financial Markets (regulators and KiwiSaver) Bill 2010”
New Zealand Bankers Association “Submission to the Commerce Select Committee on the Financial Markets (regulators and KiwiSaver) Bill 2010” (10 November 2010)
New Zealand Business Roundtable “Submission to the Commerce Select Committee on the
Financial Markets (regulators and KiwiSaver) Bill 2010”
New Zealand Law Society “Submission to the Commerce Select Committee on the Financial
Markets (regulators and KiwiSaver) Bill 2010”
NZX Limited “Submission to the Commerce Select Committee on the Financial Markets
(regulators and KiwiSaver) Bill 2010”
Westpac New Zealand Limited “Submission to the Commerce Select Committee on the
Financial Markets (regulators and KiwiSaver) Bill 2010” (10 November 2010)
2. Hansard
Commonwealth, Hansard, Second Reading Speech, 14 November 1991, 3174-3175 (Duffy) (8 September 2010) 666 NZPD 13754(15 September 2010) 666 NZPD 13971
(22 March 2011) 671 NZPD 17514
(5 April 2011) 671 NZPD 17704
(5 April 2011) 671 NZPD 17691
(7 April 2011) 671 NZPD 17854
(27 August 2013) 693 NZPD 12987
3. Government Materials
Australian Law Reform Commission, Inquiry into Class Action Proceedings and Third-Party Litigation Funders (Discussion Paper 85, June 2018)
Australian Law Reform Commission, Integrity, Fairness and Efficiency - An Inquiry into Class Action Proceedings and Third-Party Litigation Funders (Report 134, December 2018) Capital Market Development Taskforce Capital Markets Matter: Report of the Capital Market Development Taskforce (December 2009)
Commerce Committee Inquiry Into Finance Company Failures (11 October 2011)
Controller and Auditor-General The Treasury: Implementing and managing the Crown Retail Deposit Guarantee Scheme (September 2011)
Financial Markets (Regulators and KiwiSaver) Bill (211-2)(select committee report) Financial Markets Authority and Prince & Partners Trustee Company Limited Settlement Agreement (25 August 2017)Financial Markets Authority Annual Report 2018/19 (30 October 2019) Financial Markets Authority Annual Report 2020/2021 (16 December 2021)
Financial Markets Authority Integrated Financial Products: Review of Managed Fund Documentation (July 2022)
Financial Markets Authority Regulatory Response Guidelines (August 2016)
Ministry of Economic Development Regulatory Impact Statement: A Power for the FMA to
Exercise an Investor’s Right of Action (14 September 2010)
Reserve Bank of New Zealand Report for the Minister of Finance on the operation of the prudential regime for Nonbank Deposit Takers (September 2013)
Supplementary Order Paper 2011 (221) Financial Markets (Regulators and KiwiSaver) Bill 211-2
Te Aka Matua o te Ture/Law Commission IP48 Class Actions and Litigation Funding: Supplementary Issues Paper (IP48, September 2021)
Te Aka Matua o te Ture/Law Commission IP45 Class Actions and Litigation Funding/Ko
ngā Hunga Take Whaipānga me ngā Pūtea Tautiringa (IP45, December 2020)
The Treasury and Reserve Bank of New Zealand Joint Report: Responding to the Prospect of a Worsening Financial Crisis (Report No T2008/2000, 10 October 2008)
F Speeches
Jeremy Cooper, Deputy Chairman of the Australian Securities and Investments Commission “Corporate Wrongdoing: ASIC’s Enforcement Role” (paper presented to the International Class Actions Conference 2005, Melbourne, 2 December 2005)Sean Hughes, Chief Executive of the Financial Markets Authority, Presentation to the Institute of Directors (19 March 2012)
G Press Releases
Financial Markets Authority “FMA Files Civil Proceedings Against Trustee (Press Release,20 August 2014)
Financial Markets Authority “Prince & Partners Admits Failings as Viaduct Trustee, FMA
Recovers $4.5 Million” (Press Release, 28 August 2017)
New Zealand Government “Government announces ‘super-regulator’ for financial markets”
(press release, 29 April 2010)
New Zealand Government “Govt Responds to Capital Market Recommendations” (rress
Release, 19 February 2010)
New Zealand Government “Launch of Capital Markets Development Taskforce” (press
release, 22 July 2008)
New Zealand Government “New Zealand and Australia Commit to Greater Business Law Integration” (Press Release, 31 August 2000)
New Zealand Government “Review of Financial Products and Providers Discussion Documents” (Press Release, 1 September 2006)
Reserve Bank of New Zealand “Further Details of Guarantee Scheme Announced” (press
release, 16 October 2008)
The Treasury “Crown's Guarantee Scheme Covers Viaduct Capital Limited Depositors”
(Press Release, 14 May 2010)
H Reports
Institute of Directors New Zealand, MinterEllisonRuddWatts, and Marsh Under pressure: D&O insurance in a hard market (September 2020)
I Newspaper and Magazine Articles
Tamsyn Parker “ANZ Reaches Settlement Agreement with Ross Asset Management Investors” the New Zealand Herald (online ed, Auckland, 23 August 2021)
J Laws of New Zealand
Jenny Cooper Laws of New Zealand Power of Financial Markets Authority to Exercise a
Person’s Cause of Action (online ed)
K Online Commentaries and Looseleaf Text
Rodney Craig Morisons Company Law (NZ) Shareholders’ Actions and Remedies:
Introduction
Shelley Griffiths A to Z of New Zealand Law (online looseleaf ed, Thompson Reuters)
L Internet Materials
James Weir “Relief for Taxpayers as Guarantee Ends” (29 December 2011) Stuff<http://www.stuff.co.nz/business/6193486/Relief-for-taxpayers-as-guarantees-end> Patrick Durkin “ASIC Sues KPMG Over Westpoint Audit” (14 October 2008) Australian Financial Review.
<https://www.afr.com/politics/asic-sues-kpmg-over-westpoint-audit-20081014-j8x7g>
Radio New Zealand “Financial Services Providers Warned of FMA’s Hard Line Approach”
(4 November 2021)
<https://www.rnz.co.nz/news/national/454936/financial-service-providers-warned-of-fma-s- hard-line-approach>
Reuters “New Zealand’s South Canterbury Finance Collapses (31 August 2010)
<https://www.reuters.com/article/southcanterbury-idUSWLF00479420100830>
The Treasury “Approved Institutions Retail Deposit Guarantee Scheme” (20 January 2012)
<https://www.treasury.govt.nz/publications/information-release/approved-institutions-retail- deposit-guarantee-scheme#cbs>
The Treasury “Non-Bank Deposit Takers Approved Institutions in the Deposit Guarantee Scheme” (17 November 2009)
<https://www.treasury.govt.nz/treasury-z/legacy-migrated-pages-about-treasury/non-bank- deposit-takers-approved-institutions-0>
Victoria Heine “A Regulator with Teeth: The Enforcement Capabilities of the FMA: Part 3”
(13 July 2011) Mondaq
<https://www.mondaq.com/newzealand/corporate-finance/138656/a-regulator-with-teeth-the- enforcement-capabilities-of-the-fma-part-3>
Victoria Heine and Matthew Yarnell “Taking Up Arms for the Investor – FMA’s Power to Litigate” (23 September 2010) Mondaq
<https://www.mondaq.com/newzealand/finance-and-banking/110940/taking-up-arms-for-the- investor-fmas-power-to-litigate>
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