Jumping gun on super regulator

Simon Power believes the advantages of fast-tracking the new regulator outweigh the risks. Photo / Mark Mitchell

Rules governing the new super regulator may have to be changed soon after it is established because it it being fast-tracked ahead of the review of the Securities Act, a Cabinet paper has warned.

In a paper only recently made public, Commerce Minister Simon Power outlines the risks of setting up the new Financial Markets Authority before the Government finalises the act it will oversee.

"The fast-tracking of the creation of a new single market regulator does carry risks that could compromise our objective of boosting investor confidence."

Those risks include not knowing what skills those on the board and management team of the regulator will need and how big it should be because the Government has yet to decide whether it will retain the current disclosure-based system which encourages product issuers to be honest and investors to make their own decisions or a new model where the Government acts as a guardian for the public.

Power said the bill establishing the new regulator would have to be drafted and the initial work of the establishment board, which yesterday announced it would begin advertising for a chief executive, would have to be done under uncertainty.

"These will need to be revisited once final decisions on the rest of the review have been taken, including possibly needing to amend the new legislation very soon after it is passed."

If the changes to the legislation were to be significant it could also create uncertainty in the markets and erode any time saved by fast-tracking the establishment of the authority, Power warned.

But despite the challenges, he concluded the advantages of fast-tracking outweighed the risks.

"I believe that consolidation and clarity of the role of the regulator is the most important step needed to improve confidence for investors."

Power wants the authority up and running by February 1 and the new board to have a maximum of nine members - two fewer that the current board of the Securities Commission.

He said he considered the 11-member board of the commission to be too large and even thought about having a maximum of seven on the new authority but decided against that because of the desire to take into account the size of the market and the conflicts of interest that could potentially arise.

The board could also have a minimum of just five members if they were full time - reducing the potential level of conflicts of interest.

The Securities Act review is expected to be completed by the end of next year.