Stephen Franks: Watchdog must use its teeth

Mark Bryers in the dock at Auckland District Court. Photo / Doug Sherring

The boss of the FMA must be a confident market regulator, says Stephen Franks.

The new head of the Financial Markets Authority should be comfortable speaking plainly to expose crooks and call them what they are; defending those who make honest mistakes, and counterbalancing for the natural tendency of those whose risks have gone sour to complain when their money turns out not to have been as safe as it was in the bank.

It is unreasonable to expect a politician to do it - but a confident market regulator could remind people that many of Blue Chip chief Mark Bryers' victims could have left their money in the bank.

Not all were helpless dupes of high pressure sales tactics. Some knew they were punting on a continuous rise in property prices and on tax leverage. This does not mean Bryers should not go to jail if it turns out he committed offences that deserve it.

The Financial Markets Authority should not have unrealistic task descriptions or unlimited powers; they should match the resources. Too much power and overly wide duties are a trap.

A body with integrity that is committed to making the law mean what it says cannot simply say to those demanding that it use wide powers - "we are not bothering to enforce part of its brief that because we are too busy on higher priorities".

Write laws to stop the serious wrongs; leave the rest for morality pressures. Help morality with industry internal disciplines, and codes, and practical oversight of industry body adherence to their own rule-books.

The FMA must have a brief to focus on what it can do, not making and accepting excuses for its own, or our market's poor performance even if they are genuine. And we may have a thin market for management. We can hardly expect deep pocket investment when as a country we've spent more than we've earned for more than 50 years. But there is much we can do as a small country, including leveraging our advantages of intimacy.

Let's liberate the power of reputation in a small market. For example, how much would it take to run a web-based register of dud directors (those associated with failures and scams).

To protect financial journalism and bloggers from shrouding privacy law, and suppression orders and gagging defamation writs (with simple safeguards to protect against genuine defamation) ?

Let's foster "financial literacy" by ensuring all the usual human enticements to think about an area can operate, including gossip and speculation and scope for gambling big with big pay-offs as well as small. Let's not adopt rules designed for mass markets and huge companies that can stand big overheads without providing opt-outs.

The FMA Establishment Board (see page 2) should be careful to retain good people and institutional memory. I endorse the recommendation of the Walters report that the Commission regain a capacity for researched policy advice.

The board would do us all a service, including the Minister, if it strongly advises against proceeding with the current financial adviser scheme. It would be a good indication that the new body will have a commitment to regulatory quality: confident, authoritative, expert, well-connected, happy to be frank.

If the Chair of the Financial Markets Authority is non-exec, the chief executive appointment will be critical. Full-timers usually beat part-timers - so the CEO will be the vital appointment. The FMA will go on for some time in the manner it starts, so the structure should perhaps suit the talent sought, despite the orthodoxy that says the opposite should prevail.

The best result would be to have several people genuinely respected enough to make the FMA a natural leader of the market. As they might be "angular personalities" the authority will need to be large enough to also have enough people respected for their interpersonal skills.

The new Financial Markets Authority should be led by a person or people prepared to explain what they are doing and why, express the authority's priorities and speak up for the market persuasively as well as criticise and warn.Stephen Franks is a principal in specialist Wellington law firm Franks & Ogilvie and a former member of the NZ Securities Commission.