Editorial: New market regulator must set feisty tone

Sean Hughes takes the helm of the super-regulator after working in Australia. Photo / Paul Estcourt

Sean Hughes will have two significant advantages when he sits down as the chief executive of the new Financial Markets Authority early next year.

The first is that, while he is a New Zealander, he was absent from the country when the latest financial meltdown occurred. In no way can he be said to have contributed to the problems that the new super-regulator is meant to address.

Secondly, he spent much of his time overseas working in senior positions for the Australian Securities and Investment Commission. That country's watchdogs and regulators have quite a reputation for feistiness, energy and effectiveness. They are traits Mr Hughes must bring to his new job straight away if he is to inspire renewed investor confidence in the country's markets.

The Financial Markets Authority, the product of a recommendation by the Capital Markets Development Taskforce, will combine the functions of the Securities Commission, parts of the Companies Office and the stock exchange's regulatory arm.

All three must accept some of the blame for failing to deal with the wrongdoing in financial and securities markets over the past few years.

So, too, however, must the very creation of such a rag-tag regulatory structure. It enabled blame to be sidestepped and undesirable practices to slip through the gaps between the three bodies. Investors, for their part, could never quite be sure where responsibility for oversight actually lay.

The Government expects a one-stop regulator focused on enforcement and surveillance will embed a new culture. To achieve this, the authority will have to place a high priority on recovering wealth dishonestly acquired from shareholders.

This has been a particular bugbear for mum and dad investors, and their feeling of impotence cannot be allowed to linger. It will be addressed only by the authority exercising its new powers, notably the right to take action against directors when it is in the public interest.

Proactive and timely action must not end there. There is good reason for the authority to focus also on identifying future risks to investors. Products that might pass muster with John and Janet Citizen, but subsequently cost them thousands of dollars, could be identified by authority specialists and a warning given.

Equally, the authority must pay the closest of attention to what emerges from the Government review of the Securities Act, and endeavour to make it as watertight as possible.

Much will depend, of course, on the funding and resourcing of the authority. There is no question that for much of its life the Securities Commission was poorly served in that regard. This, at least in part, created an environment for the malfeasance of recent times. The present economic climate ensures there will be no outpouring of riches for the authority.

But, clearly, it needs more staff if only because of its expanded role in licensing financial advisers, trustees, and suchlike. Its resources must match its tasks. Equally, the Government, having put its creation on a fast track and made it the focus of its capital market reform, cannot hobble it from the outset.

At least, Simon Power, the Commerce Minister, has acknowledged that adequate funding will be a prerequisite for success.

The authority starts with widespread support from both investors and the business community. A majority of respondents to this year's Herald Mood of the Boardroom survey said they believed it would inspire investor confidence.

If so, it will provide a much-needed shot in the arm for the country's financial markets. But the authority must prove quickly that it is going to be effective. It will be up to Mr Hughes and a yet to be appointed authority chairman to set a forthright tone.