KPMG warns of Westpoint type collapse in NZ

KPMG says finance companies at the top end are very sound, but there are now well over a 100 such firms in New Zealand and some are taking big risks.

The extent of those risks is likely to be exposed if the economic slowdown lasts for a significant period.

“From my perspective I don’t have a problem with brokers or advisers getting a commission to source funds,” says KPMG deputy chairman Godfrey Boyce.

“It’s when the commission is too large it causes problems. Anything above 1.5-2% is cause for concern.” Something like the West Point scandal in Australia, where advisers and brokers steered a considerable amount of client money in return for high commissions, is “at the extreme end” but it could happen, he says.

“If someone is paying that sort of commission what does that say about their own ability to generate funds?”

KPMG chairman Andrew Dinsdale advocates for much tighter rules for finance companies, including minimum capital ratios at the same level as for banks; comparable ratings by credit ratings agencies, eg by standard and Poors or Moodys; more consistency and transparency between trustee companies, and much greater oversight of the sector by the Securities Commission.

“The key reason to subject non-bank players to a similar level of scrutiny [as banks] are the amount of depositors’ money involved, the resultant systemic risk, and the fact that customers are being promised ‘secured debentures’,” says Dinsdale.