KEY POINTS:
A Securities Commission complaint about Feltex auditors Ernst & Young is being held up because the commission's own legislation bans it from handing over the paperwork.
The commission has complained to the New Zealand Institute of Chartered Accountants about the firm, saying its work on the failed carpet
maker's December 2005 half-year accounts was incorrect and misleading.
But the Securities Act prevents it from sharing its research with the NZICA, meaning the professional body has to start from scratch in investigating the complaint.
The NZICA says the situation is inefficient and frustrating.
"We haven't got the financial statements or the working papers of the auditors or anything along those lines, and the Securities Commission had all that when they were undertaking their own investigation," said Bruce Bennett, general manager of membership, standards and quality assurance.
"It's just a reinventing of the wheel."
Feltex went into receivership in September 2006, leaving 8000 shareholders who invested $254 million in its public float two years earlier holding worthless shares.
A Securities Commission report on the collapse last year found auditors Ernst & Young incorrectly classified the company's debt as "non-current" in the December 2005 half-year financial statements. Feltex did not have the right to defer settlement of its debt, and was in breach of its banking covenants, the commission said.
Therefore the sharemarket had not been properly informed about the status of the company's debt.
The NZICA's Bennett said the holdup in investigating the professional complaint was not due to any lack of co-operation by Securities Commission staff. "They're just constrained by their act."
He said it did not have a memorandum of understanding with the commission, as with the Inland Revenue. In fact a recent law change allowed IRD to share information with NZICA about its members.
Bennett called for greater cohesion between the agencies charged with regulating the financial sector.
"It's just frustrating, as we're all of us struggling to bring some power to bear on this crisis situation we're in with all of the finance companies."
Securities Commission general counsel Liam Mason confirmed it could not share information it obtained compulsorily - by summons or inspection - with non-governmental agencies.
"We can write the report and we can describe what we think are the circumstances, but what supports that can't automatically be passed over."
Mason agreed it may be time for change. "It could be useful if we can share information more generally."
He said recent law changes allowed the commission to pass on information to the Commerce Commission and the Takeovers Panel, and it has been able to share information with overseas regulators for some time.
Ernst & Young said it was not appropriate for it to comment while "due process" was under way.