Jane Diplock, CEO of the Securities Commission, writes that the lack of trust in securities in stifling the flow of capital.
Our regulatory regime should be giving domestic and international investors the confidence to invest in the local securities that provide capital for our local businesses to grow.
Clearly our current arrangements are not up to that task.
The same observation has come from the Capital Markets Development Taskforce and last year's Prada Report on the Effectiveness of the Securities Commission. This month Fran O'Sullivan added her voice to the chorus in her Herald column.
There's a clear consensus emerging - we need a single comprehensive regulatory agency with extended powers to offer real confidence to both domestic and foreign investors.
This Government has shown that it understands the role of capital markets in economic development, it is willing to consider significant changes to our regulatory framework and that it appreciates the need to speed up the process of change.
Their urgent first step to economic growth should be to consolidate New Zealand's regulators and fast track the Securities Act review this year.
The current review of the Securities Act began in 2004 before it stalled in consultation. The cost of that seven-year prevarication is a decent chunk of the $1.5 billion of investors' money that was lost in the loosely regulated finance company sector collapses of 2007 and 2008.
Those who point their fingers at the Securities Commission and the other New Zealand regulators for doing too little to prevent these collapses, should look instead at the regulatory framework in which we operate - a patchwork quilt of add-ons and bandaids cobbled together over the past eight years, none of which helped protect finance company investors.
The regulatory vacuum attracted opportunistic operators and the result was market failure of an entire industry and tragically the loss of retail investor confidence in New Zealand capital markets once again.
Despite warnings by the commission, it could do nothing to prevent this failure. A Government agency can only act within its warrant. Time has come to extend the warrant of New Zealand's regulators.
New Zealand's small capital market is overseen by four different government regulators and one listed company: the Securities Commission, the Companies Office, the National Enforcement Unit of the Ministry of Economic Development, the Government Actuary and NZX are all doing pieces of the same job.
It's not surprising that our regulatory framework is riddled with gaps and overlaps. Nor that talent is stretched.
Bringing functions under one roof would create a centre of excellence with significant economies of scope.
Market intelligence could be shared much more easily and there would be a far greater pool of skills to deal with each new situation.
To illustrate: the commission has said it is investigating the Huljich matter.
But consider the tangled web of jurisdictions overseeing KiwiSaver schemes.
Firstly, the Government Actuary has a role in the registration and regulation of KiwiSaver schemes.
The schemes have registered prospectuses and annual financial statements, lodged with the Companies Office, and investment statements that are not lodged with any regulator.
The Securities Commission can require issuers to correct disclosure and take civil or criminal actions for breaches of securities law.
The National Enforcement Unit can take criminal actions for breaches of securities law or the Financial Reporting Act.
Each regulator has powers to gather information within their own remit, but are often legally unable to share this information with other regulators.
Although we work closely to co-ordinate actions, the result is time consuming, confusing to the public and often requires duplication.
Enforcement decisions by any of the regulators are constrained by their limited remits.
No single regulator can look at the totality of disclosure, financial reporting and scheme management and make decisions on this basis.
Even with talented people dedicated to getting results, it does not make for timely or optimal regulatory outcomes.
At a time when KiwiSaver has the potential to spark a change in New Zealand's savings culture, it's critical that local investors feel confident about their investments in securities markets. Changes are under way to protect local investors - but more are needed. Financial adviser regulation, trustees regulation, auditor oversight, anti-money laundering regulations, and the fast-tracking of KiwiSaver monitoring policy by the commerce minister will all help - but gaps in the regulatory net will still remain.
Any regulatory review must consider:
* Oversight of managed funds.
Funds managers should be licensed, and the regulator empowered to oversee their performance, their reporting to investors and enforce any breaches of the rules.
* Company directors made truly accountable.
The regulator should be empowered to hold directors of companies accountable to operate in the best interest of their shareholders, or if they're a finance company, their depositors. Currently the Securities Commission can only hold directors accountable to the disclosures made in their prospectus.
* Call-in powers.
Regulators should be given powers to deal with new kinds of financial products that appear on the market from time to time that aren't covered by existing securities laws.
* Timely enforcement.
Consideration should be given to establishing a Capital Markets Tribunal which would deal with administrative remedies: bans, fines, compensation and other orders to remove the matters currently clogging up the courts. An appeal could lie with the High Court and it could include the powers currently in NZX Regulation and those of the Commissioner for Financial Advisers in that disciplinary role.
Finance-sector-led economic growth will take time to gain momentum. Great ideas, such as making New Zealand a hub for managed funds, and lifting our national savings rate are projects that will take years to realise.
But they will not even start unless we get the regulatory framework right.