Shake-up better late than never

Commerce Minister Simon Power. Photo / Mark Mitchell

The decision to combine most of New Zealand's financial market watchdogs into a single entity is the biggest shake-up in this sector at least since the Takeovers Act in 1993 but probably since the Securities Commission was set up in 1978.

While there will undoubtedly be thousands of finance company investors to whom this looks like shutting the stable door way after the horse has bolted, the decision should be welcomed.

The fact that there are so many different agencies regulating different aspects of the financial markets has created the environment in which finance companies with poor business models were able to flourish and in turn collapse, taking billions of dollars of investors' money with them.

As Commerce Minister Simon Power said when announcing the new regulator: "On too many occasions in finance company collapses we heard of investors' money falling to the floor through the cracks between regulators."

While Power mentioned the global financial crisis as a factor, our sharemarket's regulatory regime has also played its part in undermining investor confidence.

The fact that sharemarket operator NZX, which is listed on its own market, also acts as the front-line regulator there is seen by many as less than ideal. Last night's announcement goes some way in addressing that.

But the accelerated timeframe for introducing the new regulator - ahead of the completion of the current review of the Securities Act - indicates the Government is looking ahead rather than just at the wreckage visible in the rear view mirror.

The need for improved regulation has only increased with questions raised about the fledgling KiwiSaver industry.

What's more, Prime Minister John Key's hopes of establishing New Zealand as an international financial services hub also rest to a large degree on his Government's ability to establish this country's credentials as a soundly regulated safe harbour for savers and investors.