Securities Commission hampered, says new report

Securities Commission chair Jane Diplock. Photo / Martin Sykes.

Investors' watchdog the Securities Commission is handicapped by being kept on too short a leash both in terms of the tools at its disposal and available resources, however it has failed to bark as loudly as it might to warn of risks, a report on its effectiveness has found.

The report, released today found that "within the limitations of its powers and resources, the Securities Commission discharges its responsibilities efficiently and to a high professional standard".

Nevertheless, the authors, former head of the commission's French counterpart Michel Prada, and former Secretary of Foreign Affairs and Trade Neil Walter, said a number of stakeholders they heard from wanted the commission to improve investor protection while others wanted less red tape and greater clarity from the commission.

The authors concluded the main constraints on the commission's effectiveness lay outside its direct control.

"They stem from weaknesses in the current legislation; the commission's narrow mandate and lack of powers ; the proliferation of regulatory bodies; inadequate resourcing; and bottlenecks in the judicial process."

But there was also scope for the commission to lift its game within current current constraints, "primarily through exploring ways of using its existing powers more proactively but also in its communication with the market, the media and the public".

Perhaps most crucially, the authors believed "a comprehensive overhaul of New Zealand's system of market regulation is... required if the commission is to play the role expected of it".

While securities legislation is currently under review, existing law was "uneven in its coverage, heavily prescriptive and many areas badly out of date".

Under the status quo, "the Securities Commission lacks the teeth to give full effect to the legislation and regulations".

The authors recommended the commission be given more extensive powers, including the power to issue rulings, stronger investigative and enforcement powers, the ability to monitor the conduct of financial intermediaries such as trustees, asset managers, auditors, and directors.

Other recommendations included consideration of ways to speed up the judicial process as it relates to criminal actions in the securities market, possibly even the establishment of a new seperate court to deal with such matters.

They also recommended priority be given to the establishment of an office in the commercial capital Auckland "with a broader representational role as well as functional responsibility for the implementation of the Financial Advisers Act".