Departing Kiwi says financial markets still need work, reports Karyn Scherer.

Back in October last year, David Mayhew made some remarkably frank comments about New Zealand's financial markets.

In an interview with the Business Herald, the expat lawyer lashed out at "rapacious" financiers and "socially useless" bankers, and made it clear we still had much to do to catch up with the rest of the world in terms of regulation.

It was a bold move for someone who had only recently returned to New Zealand to take up a newly created position as Commissioner for Financial Advisers. And even more audacious, given that he was also eyeing the job of chairman of the new Financial Markets Authority, which on May 1 replaced the Securities Commission as our main financial watchdog.

On the face of it, he appeared a shoo-in for the role, given his high-flying career in London, including five years as the lead advocate and acting head of enforcement for the Financial Services Authority (FSA) - the British equivalent of our Securities Commission.

But in the end the job went to Simon Allen, a former chairman of the NZX and managing director of sharebroker ABN Amro. Allen also chairs Crown Fibre Holdings (set up to manage the Government's $1.5 billion investment in ultra-fast broadband), and the investment arm of Auckland's new super-council.

Perhaps the Government was conscious it already had a "bad cop" as head of the FMA, with former ASIC executive Sean Hughes, and decided a "good cop" was needed. Mayhew refuses to speculate, but notes the role was deliberately changed from full-time to part-time.

Last week, days before returning to Britain, he told the Herald he was obviously disappointed.

"It's a different brief, not least because someone from the market will be conflicted on a lot of big enforcement questions," he suggested. "It puts a lot more burden on the CEO because of the nature of the beast, but that's the decision they made. The quality of that decision will be tested over time, but I wasn't going to hang around and watch."

Mayhew was hired on a five-year contract for the commissioner's role. However, the position was abolished after two years, when the decision was made to replace the Securities Commission with the FMA.

After he missed out on the chairman's job he was offered a different role, but turned it down.

"There was an attempt to persuade me to stay, which was flattering, but it's not the sort of person I am," he explains. "I looked at what that role might entail and it's not good for me to be sitting and watching a chair whose job I felt I should have. And it's not good for him either. So once you realise that's where you've reached, I'd much prefer to move on."

Back in London, he will probably return to private practice, although there's "one particular role" that could tempt him back to the public sector.

As Commissioner for Financial Advisers, Mayhew was responsible for implementing a regulatory regime intended to make an industry severely damaged by the finance company meltdowns more professional. But he also made no secret of his view that much more needs to be done.

It is unfortunate, he agrees, that we have ended up with a "complicated regime" that divides advisers into different classes depending on who they work for and the products they sell.

As a result of lobbying by banks, insurance companies and other corporates, about 20,000 financial advisers will not have to individually register under the new regime.

The argument is that they do not provide personalised advice, even though many - such as bank employees - may be talking to customers about which KiwiSaver scheme to join, which for many people will be the biggest investment decision they ever make.

Mayhew notes that this exception does not apply in Britain.

Financial advisers who do give personal advice will have to be authorised, and from July 1 will be known as Authorised Financial Advisers.

Many advisers have already quit the industry as a result of the new regime, leaving a core of about 2000 people who are likely to register as AFAs.

As well as restoring public confidence, the new regime aims to make capital markets more efficient by encouraging people to invest through managed funds, rather than relying on their own nous.

The quid pro quo is that those funds need to be more rigorous about the products they offer, Mayhew believes.

He also believes fund managers need to be licensed.

"We don't have a grip yet on that part of the industry. There is talk about doing something in the context of the Securities Act review, but we'll have to wait and see how far that goes. And in the context of KiwiSaver, there has been some push to get greater disclosure of fees and so on, because there's a worry around that, too."

Another issue yet to be resolved is whether to ban commissions on investment products.

Britain has already begun moves to ban commissions, and Australia is seriously considering the issue. So far in New Zealand, the argument has been successfully advanced that investors could be disadvantaged, because they may not be able to afford professional fees instead.

"The question is: can you meet the underlying concerns about conflicts of interest through disclosure? That's still a very big question."

He would also like to see more scrutiny of other types of commissions, such as insurance products, which affect far more people than those seeking specialist financial advice.

"Related to that is the cost of providing KiwiSaver advice, too."

Mayhew is still puzzled that New Zealand's politicians have been so swayed by business lobbyists against regulation.

"In the financial adviser area, the policy was reset at the implementation stage to carve out wholesale advice so it's unregulated ... And in the context of the FMA legislation, we've seen a whole push-back from NZX and oversight of the exchange, so there's another set of professional people who say they don't need to be touched by regulation.

"There's this view that good people don't need regulation - and that's a mistake. Ultimately the regulators' responsibilities are about capital markets, and business also wants to see strong capital markets, so their interests should be aligned."

He was surprised, for example, that the business community was so alarmed about giving the FMA the power to seize potential evidence.

"There was a lot of fussing about that as if it was going to be exercised against the top end of town. The whole point of those powers is you are going after people who have something to hide and will destroy evidence before you get the chance to investigate. So there is a lack of appreciation that a regulator must have those powers and will necessarily exercise them with discretion."

Mayhew will be back here later this year for the Rugby World Cup.

While he will miss New Zealand's big skies, its wind, its down-to-earth people, "and the ability to go walking whenever you want, wherever you want", he admits he is also looking forward to returning to London's cultural scene.

But don't try to tease him about "Austerity Britain". New Zealand, he notes, is in no position to be smug.

"Britain is in a very interesting space, as indeed New Zealand is... Both places are economically stressed at the moment."

His children still live in London, as does his sister. Dame Judith Mayhew Jonas was made a Dame of the British Empire in 2002 for "services to the City of London" and remains one of the city's best-connected powerbrokers.

"I'm not sure the town is big enough for the both of us," he laughs. He may or may not be joking.