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Securities Commission needs staff, money and IT

Securities Commission needs staff, money and IT upgrades: review team

By Pattrick Smellie

Sept 24 (BusinessWire) - The Securities Commission needs a substantial funding boost, more staff, and has IT capabilities "well short of what market participants presume it has", say two deep reviews of the securities regulator by KPMG and a review team involving a former top diplomat, Neil Walter, and a French member of the International Organisation of Securities Commissions, Michel Prada.

Commission chair Jane Diplock tabled the Walter/Prada report this morning at Commerce select committee hearings on the commission's performance, while the KPMG report was released yesterday by the Ministry of Economic Development.

They paint a picture of a body doing its core job well enough, but which has doubled in size to 40 staff since 2002, with a further 30 staff required to administer the new Financial Advisers Act, and a more growth implied by the anti-money laundering duties it will take on once legislation in that area is enacted.

"There is a need for significant additional funding in relation to existing powers and we are recommending significant increases in headcount and expenditure, as well as investment in information infrastructure," said KPMG.

The Walter/Prada report concludes that "even allowing the small size of New Zealand's market, resourcing levels here are very light by comparison with overseas countries."

The report draws on interviews with 65 individuals to conclude that while the commission is performing

Key recommendations of the Walter/Prada review, which interviewed 65 market participants, journalists and commission staff include:
• Giving the Securities Commission more extensive powers, including the power to issue binding rulings; stronger investigative and enforcement powers throughout the life cycle of a security; ability to supervise trustees, asset managers and auditors; and to more closely monitor directors' activities;
• Fundamental reform of the Securities Act to a "higher level, principles-based model" which sets out the objectives, principles and coverage of market regulation;
• Making the commission responsible for a "future watch" function to advise governments on trends in international securities regulation;
• Consolidation of the currently fragmented responsibilities for securities regulation - described as "too many referees for a comparatively small playing field", with clarification of overlaps, especially between the commission and the NZX, where streamlining is not possible;
• Considering creation of a separate court to deal with securities market criminal matters to speed up the judicial process;
• Appointing a CEO to manage the Securities Commission, now that it is growing so large, allowing the chair to concentrate on regulatory oversight.

The KPMG review also recommends splitting the Takeovers Panel from the commission.

The Walter/Prada review urges the commission to be more proactive publicly, including briefing journalists "off the record...when this would serve the public interest".

"Where an activity is judged to be inappropriate but is beyond the commission's powers to act, press releases (should) go beyond a matter of fact interpretation of the alw to state an opinion."

In an indication of tensions between the commission's communications and legal staff , the review says: "It is also important that press releases should be worded in such a way as to have the desired impact on target audiences."

The commission should "take a more proactive approach in deeming whether particular offers are within its remit and be prepared to test the boundaries of legislation in cases of doubt."

However, the review team defended the commission's alleged inaction over recent finance company failures, enumerating several reports and actions between 2002 and 2006 that highlighted concerns about the finance company sector.

The review found plenty of critics of the commission, but "found it difficult to separate the most commonly-held criticisms of the commission from perceptions that the regulatory system more generally had failed to do its job".

"Many of the issues raised seem to have more to do with the inadequacies of the current legialtions, New Zealand's highly dispersed and fragmented regulatory architecture and the commission's lack of powers."

A similar review of the Australian Securities and Investment Commission had found very similar complaints, with market participants and company directors generally more negative than legal and accounting professionals.

The commission has a new communications strategy in place and has recently hired external public relations advice to help combat a reputation for aloofness and invisibility found by the review authors.

Both reports are consistent with recent reports from the Capital Markets Development Taskforce and the NZX, and comments by Justice Minister Simon Power suggesting that streamlined and less fragmented securities regulation would benefit New Zealand capital markets.


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