Trustee Corporations Association 2008 Review

Trustee Corporations Association 2008 Review

The Trustee Corporations Association says 2008 has been a year of turbulence in the financial sector creating market conditions that have not been seen in a generation.

The Chairman of the Trustee Corporations Association of New Zealand Inc, Clynton Hardy said, “While the turmoil currently being experienced by international markets and that is now impacting upon this country has exacerbated this situation; the recently announced deposit guarantee scheme and more robust regulation of non-bank deposit takers (NBDT) should boost investor confidence, create a more resilient NBDT sector, and promote necessary economic activity.

“This year saw many investors suffer substantial financial losses. When investors become risk adverse and lose confidence the consequences can be dramatic. While we acknowledge the personal distress experienced by many investors, recent events are not in themselves a signal that the system has failed or that it needs major changes.

“Conversely, New Zealand has a sound and well-regulated financial sector and the deposit guarantee scheme and the changes resulting from the Reserve Bank of New Zealand Amendment Act will further enhance investor protection,” Mr Hardy said.

Under the new Act NBDTs will have to be licensed by the Reserve Bank and, from 1 March 2010, it will be mandatory for them to have and disclose a credit rating from an approved rating agency. The Reserve Bank will act as prudential Regulator and Trustee Corporations will continue their role as the front line supervisors to ensure that issuers comply with the more exacting regulations.

Mr Hardy said, “The new legislation imposes minimum standards on Trust Deeds ensuring what was ‘best practice’ as set out in our Code of Practice and Guidelines becomes ‘standard practice’. It also requires all Trust Deeds to specify minimum capital adequacy ratios, limits exposure to related parties, imposes liquidity requirements, and ensures appropriate board, management and audit structures are in place.

“We are working closely with the Reserve Bank to develop the new regulations which came into effect in September of this year. These welcome measures were overdue and will considerably strengthen the ability of Trustees to carry out their role.”
During the year, the number of Personal Trusts and the funds in such Trusts under supervision increased from $6.4 billion in 25,780 Trusts in 2007, to $6.8 billion in 26,350 Trusts respectively for 2008; while investments in Corporate Trusts including finance companies fell from $120.7 billion in 2007 to $109 billion this year.

Consistent with overall market trends, total funds collectively supervised by members’ in trusts, group investment funds, managed funds, superannuation schemes, and participatory securities was $121 billion, down from $132 billion last year. Debt securities and unit trusts comprise around half of this total amount.

Other roles undertaken by the Association’s members include acting as statutory supervisor to represent and safeguard the interests of residents of Retirement Villages and as independent Trustees of KiwiSaver Schemes.

“The fact that so many Trustee Corporations are being appointed to act in these positions shows that the market values the necessary independence and experience our members bring to these roles. This is despite there being no requirement in law for either a Retirement Village’s statutory supervisor or a Kiwi Saver scheme’s independent Trustee to be a Trustee Corporation, other than for the default schemes.

“This year has seen dramatic changes ranging from new regulation and legislation to a number of exceptional and far-reaching events in investment markets. Looking ahead, the Association believes that the changes to the regulatory environment will strengthen the hand of Trustees and enable them to play a more significant role in maintaining much needed investor confidence,” Mr Hardy said.

ENDS

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