Restoring investor confidence in New Zealand's financial markets is a long-term proposition. But Sean Hughes, the outgoing Financial Markets Authority chief executive, has shown how much can be achieved in just three years. He has proved to be an inspired choice as the regulator's first head in a country reeling from the domino-like collapse of finance companies.
Perhaps Mr Hughes' effect can best be gauged by assessing the situation when he arrived from stints in senior positions on Australia's Securities and Investment Commission against that pertaining today. In 2010, the capital markets were at a low ebb, not least because investors had lost confidence in the Securities Commission's ability as a financial watchdog. This sentiment had triggered a taskforce which, among other things, determined that the surveillance and enforcement work of the commission and that of the stock exchange's regulatory arm and parts of the Companies Office should be folded into a beefed-up super-regulator.
As much as this was an obvious response to those bodies' individual failings, the Financial Markets Authority could easily have inherited some of their shortcomings. That would be avoided only if it engaged effectively with all sides of the market.
This was probably Mr Hughes' major achievement. He succeeded in treading a line that addressed investor concerns without being unnecessarily harsh on the business community. Importantly, this was accomplished in an open, consultative manner.
Much of Mr Hughes' time was taken up initially with the fall-out from the finance companies debacle. But as much as litigation undertaken by the authority delivered some succour for investors, he made it clear that he regarded investigating and prosecuting misconduct as only part of its job. The more important task was to promote and facilitate the development of fair, efficient and transparent financial markets. A core part of this top-of-the-cliff approach was addressing what he termed New Zealanders' "appalling" levels of financial literacy.
Such blunt language and an openness to the media were other parts of Mr Hughes' make-up, although he never showed any particular relish for a high profile. He told New Zealanders what they needed to be told: that whatever the failings of corporate governance, they had to take responsibility for their financial decisions and stop blaming the market regulator every time something went wrong. Investors needed to do their homework, get proper financial advice, ask questions and not adopt a set-and-forget policy on investments. It was not, he said, the authority's role "to hold the hand of every investor".
The authority's ultimate goal is a vibrant market of informed investors who understand there is a valid and nationally beneficial option to investment in property. In that context, the low public take-up of Mighty River Power shares could be seen as a setback. Alternatively, however, it could be argued that one of Mr Hughes' key messages - the understanding of financial risk and return - was starting to be heeded as people assessed the potential consequences of the Labour-Greens energy policy and the future of the Bluff aluminium smelter.
Mr Hughes' departure at the end of the year means New Zealand has lost both the architect of much of its financial market reform, former Commerce Minister Simon Power, as well as its major orchestrator. That is unfortunate. But the pair have ensured that, unlike the ineffective response to the 1987 sharemarket collapse, there has been a strong reaction to the latest financial trauma. Much work remains to be done, especially in ushering in the Financial Markets Conduct Act, with its far-reaching disclosure and director liability clauses. The groundwork has, however, been well laid.