Regulatory whitewash

Brian Gaynor, after a break of some weeks, returns to considering shortcomings of the Securities Commission in relation to failed finance companies. This time for good measure he takes aim at the Registrar of Companies and some potshots at Simon Power the Minister of Commerce as well. Gaynor previously wrote about the Securities Commission as Adam posted about here, Securities Commission response, and Brian Gaynor’s further article in reply.

Gaynor begins:-

Recent reports and comments on the finance company debacle are extremely disappointing because they seem to be based on protecting the interests of a number of government agencies rather than looking after the best interests of investors.

The Registrar of Companies slammed a number of parties for their role in the finance company meltdown but it carefully avoided criticising prospectus disclosures, an area it has jurisdiction over.

Securities Commission chairman Jane Diplock has waved a big stick at directors and management yet the commission went AWOL during the debacle.

Finally Commerce Minister Simon Power announced that “the roles of corporate trustees in failed finance companies are to be addressed as part of a significant review into the Securities Act”.

Why is the minister focusing on private sector organisations when two government agencies, the Registrar of Companies and Securities Commission, had finance company oversight roles?

The minister’s comments are frustrating because it has all happened before, both before and after the 1987 sharemarket crash.

Gaynor highlights a myriad of issues. What is illuminating is how the bodies responsible for oversight seem to be extremely adept at dodging any accountability, further more the politicians seem likely to let them get away with it.

Gaynor suggests the newly mushrooming property syndication industry may be the next ‘finance company debacle. His article deserves a wider audience. Gaynor takes a sideswipe at Lianne Dalziel who chairs the select committee with oversight of the regulators, but who may not be keen to focus on issues from when she was the responsible minister.

Gaynor concludes:-

Isn’t it about time we established one regulator with the powers, personnel and financial resources to oversee all aspects of investment markets? Unless we do we will continue to repeat the debacles of the 1980s sharemarket and finance company collapses with property syndicates queuing up to be next in line.

The establishment of an effective investment industry oversight agency is one of the biggest challenges facing Power. Investment market participants are hoping he will make far more progress in this area than his predecessors.

There are those who argue against having a regulatory overseer, but whilst Adam can see some economic logic in that he suspects that far too many investors would become involved in shonky deals. There would thus be a strong political negative in that approach. Therefore an effective regulatory regime is required. Effective but not stifling.