Brian Gaynor makes a powerful case for improved regulation of NZ’s finance system in this morning’s Granny. He concludes:
“Our financial system will remain small, dominated by the four main Australian-owned banks and limited in its ability to provide development funding for the productive sector until we introduce a modern best practice regulatory regime that enforces honesty and encourages widespread investor confidence.”
Noting the dominance of the finance system by the Australian-owned banks and its relatively small size and exposure to the domestic housing market, Gaynor contrasts the highly regulated Australian financial system to the light-handed disclosure and self-discipline regime here. And it is light-handed. Gaynor quotes a 2004 IMF study:
“New Zealand regulators do not carry any duty to protect individual depositors or policyholders, or to safeguard individual institutions, unlike many other jurisdictions.”
The recommendations of the IMF team calling for action on the inadequate disclosure of the finance company sector seem to have been ignored. Haynor seems to suggest that the continued downplaying by the Reserve Bank of the importance of the finance company sector meltdown betrays a lack of understanding of reputational effects on the finance system as a whole.
In the interests of balance, I should note Liane Dalziel’s response to Gaynor’s open letter, on which I posted recently. Arguing that, “We’re building a solid regulatory framework”, Dalziel lists “three bills currently before Parliament that have been designed to address the regulatory challenges you highlight in your letter”, along with a number of other initiatives in recent years: a Takeovers Panel code, a “co-regulatory framework for supervising registered exchanges”, continuous disclosure obligations, strengthened rules relating to insider trading, market manipulation, and disclosure requirements for investment advisers.
Yes, progress, albeit modest. We still don’t have the twin peaks that the Aussies do and that Gaynor details in this week’s article. Dalziel’s reply quickly descends into bureaucratic platitudes like, “the private sector can partner with government to seek solutions that will enable our capital markets to grow.”
The finance company and mortgage fund meltdown shows that our market disclosure and self-discipline regime has failed. We need to be doing more about it. Liane Dalziel seems to have dropped the ball, but the Nats and especially ACT would be ideologically opposed. Sad, for all of us.