Financial markets face ‘regulation risk’

AUCKLAND: New Zealand’s financial markets face what analysts call ‘‘regulation risk’’ this year and beyond from potentially farreaching industry reviews.

A raft of reviews are under way, covering telecommunications, petrol, dairy and banking. In aviation, the Commerce Commission completed its final report on pricing last year.

‘‘Regulatory risk is front and centre for a number of our largest listed companies in 2019,’’ Josh Wilson, senior portfolio manager at NZ Funds, said.

Mr Wilson said it ‘‘feels like’’ there were an unusually high number of regulatory reviews in progress at present, some of them stemming directly from the change in government in 2017.

‘‘The market expectation is for relatively benign conclusions to these reviews, but there is always the chance of a rogue decision, like we saw with Chorus earlier in the decade,’’ he said.

In 2013, Chorus’ share price was punished by investors, falling as low as $1.27 as the government struggled with a legislative response to Telecommunications Commissioner Stephen Gale’s proposal to regulate price cuts.

Here are some industry reviews now under way.

Telecoms

The pricing and terms on which Chorus delivers copper and fibre access services from 2020 onwards have been the subject of a lengthy review.

Under the proposed new framework, Chorus’ recent fibre investment will be regulated in much the same way as other utility businesses such as electricity lines and gas networks.

The legislation has been passed and the Commerce Commission has been tasked with developing the rules which will determine what Chorus can charge for access to its fibre network.

Power

The Ministry of Business, Innovation and Employment review is looking at whether the current electricity market delivers a fair and equitable price to consumers.

The review released its first report late last year and expects to publish a preliminary options paper near the end of February.

The panel expects to deliver its final recommendations to the Minister of Energy Megan Woods by mid2019. The review potentially could have implications for the power companies, Meridian, Genesis, Contact, Mercury and Trustpower.

Airports

Last November the Commerce Commission released its final reports on Christchurch and Auckland Airports’ pricing decisions for the period July 1, 2017 to June 30, 2022.

Deputy chairwoman Sue Begg said the commission’s view remained the returns targeted by Christchurch Airport were generally acceptable, but Auckland’s targeted returns were not fully justified.

As it stands, the airports are not regulated and can set prices as they see fit, but must consult with big customers, such as airlines, on charges and any major capital expenditure plans.

Petrol

The Commerce Commission is undertaking a retail fuel market study to establish whether Kiwis are paying a fair price at the pump.

A final report from the commission is due by December 5.

Dairy

The Ministry for Primary Industries’ final report to the Government on Fonterra’s enabling legislation, DIRA, is due early this year.

The DIRA legislation — which allowed for the creation of Fonterra through a merger between the two dominant dairy cooperatives of the time and the New Zealand Dairy Board — has been under review since May.

Banking

The Reserve Bank has been reviewing bank capital rules since early 2017, and is consulting on a proposal to raise the amount of capital banks must hold.

The deadline for feedback is late March and banks will be given five years to make the transition to the new regime, which could potentially have farreaching implications for the sector, which is dominated by Australia’s big four banks. — NZME