The time for tougher rules is now, David Mayhew tells Karyn Scherer.
The fact that David Mayhew has only recently returned to New Zealand after nearly three decades in London may explain why he is utterly wrong about a crucial Kiwi trait.
"I always thought New Zealanders weren't afraid to speak their minds," he proffers.
Although he was born and bred in Dunedin, he appears to have forgotten our "she'll be right" attitude to almost everything, including our financial markets. And clearly, he is not a typical Kiwi.
"If you ask me what struck me when I got back, the answer is: the job that I'm doing," he mutters incredulously. "We're regulating financial advisers for the first time - in 2010. Where have we been for the last 20 years?"
The Securities Commission hired Mayhew in September last year to oversee a new regulatory regime for financial advisers. The job description couldn't have been more apt. His CV includes a stint as the lead advocate and acting head of enforcement for Britain's Financial Services Authority (FSA) - the equivalent of our Securities Commission.
Cynics might note that's not necessarily something to be proud of, given that the FSA - like most public watchdogs around the world - has something of a mixed reputation. One of its nicknames is the Fundamentally Supine Authority.
However, he insists he took on the job because he wanted to give something back, and that's also why he has come back to New Zealand.
Mayhew admits to some regrets that he didn't apply for the permanent position as head of enforcement for the FSA. He chose to return to the private sector instead.
But nor has he put himself forward to be head of the new Financial Markets Authority (FMA), which is expected to replace the Securities Commission in New Zealand early next year.
"To be brutally frank, it's not really my skillset. Lawyers are not good managers, by and large," he chuckles.
However, he confirms he is likely to put his hand up for the chairman's job - especially as he only recently found out that his five-year contract with the commission has been reduced to two, thanks to the restructuring that is about to take place at our main market regulator.
But he also sees a potential opportunity to make an even greater contribution, and has some very definite ideas on what needs to be done next.
"What I don't want to see is people thinking: 'Oh well we've got the FMA now, that's enough'. What more we need to do with the Securities Act review by way of identifying where the gaps still lie must be part of the agenda between now and 2012."
It was while walking the Milford Track during a visit in April last year that Mayhew realised he'd like to return to the country of his birth. His friends were astonished that he would even consider giving up his well-paid career in London, where he worked for some of the city's leading law firms, and was a part-time judge.
But when someone sent him a Herald clipping which mentioned the vacancy for a new Commissioner for Financial Advisers, he applied.
"It was like coming home. I do feel this is my tribe, and I do feel very comfortable with New Zealand people," he enthuses. "Of course it's changed a lot since I've been away. The cities have changed beyond recognition, but there's still that Kiwi character there."
A Google search of his name turns up very little worth repeating, other than a description of him in a legal journal as "urbane" and "highly esteemed".
Given that we're slowly losing our cultural cringe, his OE is probably less important than it once might have been. But Mayhew is still intent on trying to persuade local politicians that New Zealand has fallen far behind many of our peers when it comes to restoring public confidence in our capital markets.
He notes that the International Monetary Fund, as far back as 2003, compiled a report pointing out that we still had much work to do.
"Clearly you've had some forces at work which were dragging the chain. 'No, no, no, we don't want to do that - it's just what those bureaucrats over in New York want'. And then you get the finance companies as a result, or people advising about finance companies."
Clearly, Mayhew is not your typical lawyer, either - he's likeable for a start, and he's still got his ideals.
Not that those ideals prevented him from defending some of the corporate world's most infamous individuals over the years. Only 18 months ago he appeared on the cover of the satirical magazine Private Eye, clearly visible behind one of the most hated men in Britain - the former head of the Royal Bank of Scotland, Sir Fred Goodwin.
Mayhew was one of the lawyers who helped the bank survive a parliamentary inquiry into its massive meltdown - the biggest corporate failure in British history.
It led to a multibillion-pound taxpayer bailout, and was one of Britain's main contributions to the global financial crisis.
"I had long, long discussions with Sir Fred about how it all went pear-shaped," he recalls.
As it happened, his 24-year-old daughter also played an important role in the GFC - as a junior lawyer at the Bank of England, she got to personally serve a notice of default on Lehman Brothers.
But it bothers him that not enough lessons appear to have been learned from the crisis.
He points out that apart from his five-year stint at the FSA, he has always worked in the private sector. "I've seen it from the point of view of individuals; I've seen it from point of view of institutions and how they operate and the pressures that are on them; and I've seen it from the point of view of markets and regulation, both within London but also across Europe."
But after years of dealing with "rapacious" financiers, both inside and outside their organisations, he is convinced it's time we got serious about stimulating the "real economy", rather than pandering to the people FSA head Lord Turner once famously described as "socially useless".
"They really didn't like that phrase, but it's true. And the worry at the moment is they are rebuilding in New York and London and elsewhere with exactly the same behaviour patterns."
Mayhew left New Zealand in 1981 after a brief stint working for Treasury, a Dunedin law firm, and then Russell McVeagh. Like many people who remember the 1975 election ads featuring dancing Cossacks, he finds it slightly odd that it is National that is now toying with the idea of compulsory superannuation. But he is not yet convinced that the post-Rogernomics era has got it right.
"The other extreme [to Muldoonism] is not healthy either, and there are still pockets of that which I find slightly disturbing."
Former British Labour MP Bryan Gould, a Kiwi who also returned home, to head Waikato University, got it right when he suggested that the real key to politics was economics, he says.
"Bryan Gould is very good on this, because he went through that experience in the UK, coming in as a lawyer then realising that economics is what really matters. You can have all your prejudices and wear them on your sleeve if you want, and be a bleeding heart liberal, but actually if you don't deal with the economy - forget it. And I think that's been a problem on the left, and on the right it's been too much belief in the free market."
Just mentioning Gould's name will cue an instant groan from anyone on the right of the political spectrum, and even from some on the left. But just in case anyone is any doubt about exactly where Mayhew stands, he is happy to elucidate.
He is convinced that "there are obviously some people, and it must be in the business community, who do have quite a lot of clout with politicians of both parties". And that the economic illiteracy of some politicians probably doesn't help.
But someone, he says, needs to tell Treasury and the Business Roundtable that the Chicago school of economics, and its belief in the efficient market, no longer holds sway.
"From that point of view, there needs to be a little more courage about moving on. I sense sometimes there is a little bit of timidity about what we do, for fear of upsetting those people. Whereas I think you should say 'Look guys, you're history'.
"Globally, it didn't work. It's just not a starter. Even locally we can see it didn't work. Look at the finance companies - if that's the efficient market hypothesis, then sorry we don't want it."
So what exactly would Mayhew do differently?
He is certainly encouraged that we are finally giving the FMA some of the powers that the Securities Commission lacked. While it will have the right to take action against directors, it has not yet been given the penalty powers that the Australian Securities and Investment Commission already has, he notes.
On the prudential side, the big debate in Britain right now is over "narrow banking" and whether investment banks should be forced to split off their retail operations. And on the securities side, Britain has already introduced a "market abuse" regime which essentially imposes civil fines on companies found guilty of misconduct such as market manipulation and misleading practices.
He would like to see a similar regime here, by beefing up the existing rulings panel for public companies to include non-listed companies, as well as other key players such as auditors and trustees. Parties would have the right to appeal to the High Court on points of law only.
It has already been suggested as part of the Securities Act review that financial advisers come under the jurisdiction of this panel, so it would make sense to expand that further, says Mayhew. "We could really make this something quite impressive because there are good quality people on there already."
Imagine if regulators had been able to get the Feltex directors and its auditors together in the same forum, he suggests.
"You could have one tribunal, and both sets of people there. They could blame each other if they wanted, but let's at least sort it out and apportion responsibility accordingly.
"This is where timidity comes in. Why be cautious about the logic just because you might offend somebody somewhere? Because ultimately all these parts of the playing field should have the same transparency and spotlight on them."
With financial regulation, it's important to understand that markets act as an organism, not as a machine, he believes. Therefore, it's a waste of time taking a piecemeal approach to fixing them. For that reason, he would also like to see a licensing regime for fund managers, especially as we are trying to persuade more people to save.
"It's about getting mechanisms in place which encourage people to use their spare resources to invest in capital markets, whether that's through KiwiSaver or other collective investment schemes. I absolutely think that's right, but you've then got to make sure you've got the right regulations around that because you can't afford to have another crisis. If the KiwiSaver funds all fall over in 10 years because of all the money that's being taken out in fees, that would be catastrophic."
He insists he's not in love with red tape for the sake of it.
"When I make a comment that the free marketeers have had too much sway, it's not because I come from a 'clamp down the market' theory - quite the opposite. Regulation works best when it works with the market, but you need it. Markets without regulation deliver bad results, and we've seen that."
While it's tempting for Kiwis to think we weren't really part of the global banking crisis, the truth is that the Australian-owned banks were better regulated - although not exactly by choice, he suggests.
And he can't help wondering if New Zealand taxpayers might have saved themselves nearly $1.8 billion bailing out South Canterbury Finance investors if we'd also had better regulation.
"It doesn't matter whether you look at Allan Hubbard, or Peter Huljich, or whether you look at Bridgecorp. Whichever way you cut it, and whichever part of the spectrum you're on - whether it's charlatans on the one hand or saints on the other - the function they're performing is to manage funds on behalf of investors, and investors will not have confidence in them unless there is some sort of licensing regime."
It also concerns him that many investors seem to be making their decisions on the basis of branding, and what are effectively celebrity endorsements.
"What's happening with KiwiSaver is people are going for brands, so they go for the banks because they're perceived as safe institutions. But that didn't help with ING and ANZ, did it? So I don't believe that's the right answer and it won't necessarily deliver the right results for the investor. It also requires huge investor literacy which is simply not borne out by the facts."
The other issue, of course, is whether the FMA will have enough resources to do its job properly, and Mayhew admits he is concerned the public's expectations of the new regime may already be too high.
While he is encouraged by the comments of Commerce Minister Simon Power that he wants to see "visible, proactive and timely enforcement", that sort of service doesn't come cheap, he insists.
The establishment board has been asked to come up with various options for Cabinet to consider. If it picks the cheapest option, then we'll know it's not really serious about strengthening the capital markets, he suggests. And in that case, it's unlikely he would still put up his hand for the chairman's role.
He points out that work is still plentiful in London for lawyers specialising in financial regulation, and he certainly didn't leave because he was disillusioned with the lifestyle.
"You can set this regulation up to fail and that's absolutely fine, but that won't be doing a service to the New Zealand public. And that's what I'm here for - to do my best for my country.
"I know it sounds a bit grand but that's actually why I came back, and if I judge that it's not working and I'm not contributing the way I want to, that's fine. I'll go. I'll move on and do something else. I'll go back into the private sector."
He would rather speak out now, and make his position clear, than have to justify himself at a later date.
"I'm not here to fail and I'm not here to be a whipping boy ... If I don't get the [chairman's] job because I speak out too much, then that's fine too. Someone else can make that call."