Finally, the one-stop financial regulator

Simon Power announced his intention to set-up a `super regulator' at the recent NZ Herald Infinz Awards. Photo / Richard Robinson

Minister Simon Power believes his reforms will restore much-needed confidence in the financial markets.

If responsibility for the biggest shake up of New Zealand's investment rules in more than 30 years is weighing heavily on Commerce Minister Simon Power, it doesn't show much.

Power seems genuinely enthused about the process of overseeing the establishment of a new "super regulator" - the Financial Markets Authority (FMA). It is hoped the new body, formed by the merger of the Securities Commission, parts of the Companies Office and the stock exchange's regulatory arm will help restore investor confidence and halt a slide in the value and relevancy of our financial system. If that isn't enough, it will be done as a long running review of the Securities Act is completed.

"This is a significant overhaul with the FMA as its centrepiece," says Power who points out with more than a touch of gusto, the Securities Act review - its first rewrite in 32 years.

"I enjoy the process of reform and change and as a policymaker, obviously legislation is the tool that's available to me. I don't believe just because something's always been the way it is, means it should always be that way."

But there are good reasons why he should relish the challenge, not least of all the fact the Government has a pretty clear mandate for the change.

Though retail or "mum and dad" investors in finance and property companies will regard a tougher regulatory regime as well overdue, it is safe to assume there is a large section of the National Government's supporters in the business world who want the overhaul. Given recent events involving Huljich Funds, the wider public, more than one million of whom now have over several billion dollars worth of KiwiSaver investments, are also probably happy to see oversight of that sector improved.

But Power is presiding over the business end of a reform process which included investment banker Rob Cameron's Capital Markets Development Taskforce and a review of the Securities Act. The taskforce last year identified the need for a powerful effective market regulator as a key prerequisite for restoring badly damaged investor confidence, and some sorely needed new vitality to New Zealand's investment markets and wider economy.

Given the signals he was sending out during the four months the Government took to consider the report, it wasn't so much of a surprise Power and Cabinet chose to adopt its key recommendation. What is remarkable, however, is the speed they have chosen to implement it.

Power said Cabinet decided on that timetable "quite deliberately".

Though the worst of the finance company meltdown appears to have passed, the debacle has for months been in a different phase, where investors get more of an idea just exactly how much or how little of their $6 billion they will get back.

With the property market still beset by uncertainty it remains a fluid situation, complicated by the influence of the Crown's retail deposit guarantee which arrested the string of finance company failures but probably merely postponed the inevitable for some.

So it's hardly surprising Power says he and the Government were "strongly of the view that getting confidence back into the market was critical".

So critical in fact, that the Government chose to establish the new regulator before the review of the Securities Act, which it will enforce, has been completed.

"Had we waited until the Securities Act legislation passed, that would effectively mean another 18 months and I wasn't prepared to do that. My view is that a vacuum in the confidence space may well have appeared and I'm not interested in having oversight of a financial market that has that kind of gap appear in it."

There will be some, including the likes of securities law expert and former Act MP Stephen Franks, who believe the problems being addressed by the suite of changes were not so much with the existing regime itself but with the way it was applied. That in turn begs the question why has Power and the Government have opted for such a comprehensive, and accordingly expensive, overhaul rather than trying to fix the existing regime?

"We're ready for a new mandate, a new culture, a one stop regulator."

What's more, he prefers to leave recriminations over who was responsible for the shortcomings in the existing regime to others.

"Through no fault of any of the existing regulators, the legislation that covered off different responsibilities during the collapse of the finance companies in recent years meant it was very unclear to investors where resp onsibility for oversight ultimately lay."

While the new regulator may well be built from the ground up, Power says there are offshore models likely to inform the establishment board's design.

"We're looking at a range of options: the reality is Asic (Australian Securities and Investment Commission) in Australia acts with a broader umbrella as a regulator and that's something we could look to for a bit of guidance, but there's a much smaller market here and there will be some uniquely New Zealand aspects to it. There are lots of options." A lot of options, and a lot of work, he acknowledges, to complete between now and the beginning of next year when the FMA is scheduled to begin operations.

In spite of his record as an energetic minister across multiple portfolios over the past two years and his nine years as an opposition MP before that, Power's professional career amounts to six years practicing law in Palmerston North. That has seen some questions over his ability to manage the complexities, pressures and powerful interests and personalities involved in the capital markets.

But it will be the FMA's establishment board that will have the task of designing the new regulator. "I'd expect they will be talking directly with me about how they see the authority shaping up, what powers are needed and how it should exercise its jurisdiction."

The appointments - "experts across the investment spectrum" - will be crucial in establishing confidence in the new model. The plan may hit speed bumps early on if appointments include public figures considered to have contributed to the problems the new regulator is intended to address.

But one of the first questions asked - within hours of his announcement of the FMA, Power says - was would the new regulator be based in the political capital - Wellington, or the commercial capital - Auckland.?

"It's a very interesting question and I'll take advice from the establishment board on that. I'm not going to get ahead of them other than to say I'm open-minded on it."

Although he has rebuffed Securities Commission boss Jane Diplock's complaints that the commission had been hamstrung by insufficient resources, Power says he is mindful of views that adequate funding is a prerequisite for the success of the new regulator.

The organisation will receive all the money its existing component entities get at present and Power sees the extra resources required for the initial set-up being reallocated to other areas as required once that work is complete.

But perhaps the most critical aspect of the new watchdog is the appointment of its chair, its board and its chief executive.

Those selections will need to underline "a renewed emphasis" for New Zealand's market regulation.

"They need to be people who are regarded by the market as doing what they say they're going to do. It will be as much about sending a signal that enforcement and surveillance have become the catch-cry of the new regulator."