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Jane Diplock - Source: TVNZ News at 8 -
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The somewhat surprising bout of action from our corporate watchdog the Securities Commission this week against four Lombard Finance directors and six current and former Nuplex directors, should I think be seen in a 'big picture way' as very positive for New Zealand investors.
I stress the big picture because I do not want to cast any judgement on the rights and wrongs of these two specific and different cases taken this week.
That is of course up to a court to decide. Both Lombard Finance and Nuplex have strongly denied any wrongdoing and plan to fight the charges vigourously.
However the fact that the Commission has taken two tough high profile actions in two days and indicated more is action to come, is of symbolic importance.
For years now commentators such as Brian Gaynor have been criticising the Securities Commission for its lack of action... in particular with regards to the finance company sector.
The two actions this week - even if not intended so by the Commission - can't help but send a new and powerful message to corporate New Zealand that regulators are going to get tougher.
The Commission of course denies that it has been sitting on its hands.
Chair Jane Diplock in an interview with TVNZ stressed that action against Lombard and Nuplex were a coincidence timing-wise and had been in the pipeline for some time - she also pointed out that cases like these take an enormous amount of time to prepare.
However the timing of the action this week is significant.
Remember we have a budget coming up next month that is likely to reduce the incentives to invest in property...
The likes of Treasury firmly believe New Zealand needs to get away from property and get more money into the productive sector via a well functioning and deep capital market.
If Kiwis are going to turn to financial products and stop over-investing in investment properties as the authorities want, then they have to have more confidence in the financial market and those overseeing it.
At the moment, given the finance company collapses, confidence among mums and dad investors is not strong.
A more pro-active or visible Commission that is 'seen' in the eyes of mum and dad investors to be acting strongly has got to be a crucial part of this rebuilding process.
Whilst strongly defending her record, Diplock does acknowledge that the Commission lacks teeth, is under-resourced and in need of new regulatory tools to do its job better.
And beefing up regulation is a key thrust in the recently released Capital Markets Taskforce report. It calls for a merger of the existing regulatory bodies into a super regulator.
As a result of idea, some have questioned whether the Commission may have been acting tougher this week to try to save its own bacon.
However Jane Diplock strongly denies this or that there was any pressure put by the government to get tougher.
In fact she says the Commission supports the Capital Market Taskforce recommendations.
The ball is in the government's court now as it's due to release a discussion document on possible Capital Market changes later this month.
