Financial Markets Authority boss Rob Everett says he understands the "short-term pain" industry players are going through as a result of new regulation, but an overhaul of the rules was needed to boost market confidence and drive economic growth.
Addressing the Trans-Tasman Business Circle in Auckland this afternoon, Everett - who took the FMA's helm in February - delivered a sharp critique of the regulatory framework that existed in New Zealand when roughly 45 finance companies collapsed between 2006 and 2010.
Everett said regulation was "too general" and there was insufficient remit for ongoing oversight by regulators of the finance firms' balance sheets and risk arrangements.
He said the regulation was also aimed at the wrong target.
"Mostly, it was regulation of the retail offers that the firms were making," Everett said. "But, as I have noted, the risk - for the companies, the investors and, indeed, the risk for the country - was in high-risk balance sheets and also, in many of the fincos, serious shortcomings in company governance."
In 2011 the FMA replaced the former Securities Commission, which copped a lot of flak for the collapse of the finance firms that took place under its watch.
"Looking back, New Zealand had a fragmented and patchy legislative framework which produced uneven regulatory results, driven in some cases by choice of corporate structure rather than required investor outcomes," Everett said. "Generally it created a fuzzy regulatory picture."
He said many of the provisions in the new regulatory regime - including the Financial Markets Conduct Act, which is currently being phased in - were designed to ensure the benefits of an improving economy were put to productive uses.
"Where people have confidence in the markets and trust in the conduct of finance industry professionals they are far more likely to participate and invest in productive assets."
Given their record profits, Everett said he was "pretty unsympathetic" about "whining" from international banks about new, post-Global Financial Crisis regulation.
"That said, I do talk to management of the local banks and fund managers here, and I listen to the amount of time they are currently spending on compliance and I understand the short-term pain they are going through," Everett said. "We will need to manage that down as the new legislation and requirements bed in."