When the Capital Markets Taskforce released its report earlier in the year, one of the recommendations seized upon by politicians and commentators as fresh and potentially profitable, was the idea of making New Zealand a financial hub for the Asia-Pacific region. The idea was that financial administrators might want to set up shop in a small, stable, well-educated country in a time zone where markets open before the rest of the world.
The spin was that it could create 3000-5000 high-paying jobs and create a billion dollar industry right here in our corner of the world. Hoorah, we all get rich, right?
Market man John Key has another plan to bring in the bucks from his mega-rich mates. That, to be blunt, is the political shorthand underpinning this.
Well, it may not be that simple, according to Securities Commission Chair Jane Diplock.
Speaking on Q+A this weekend, Diplock said our market regulations simply aren't up to the job.
While Minister for Economic Development Gerry Brownlee was earlier this month saying that, "Our transparent, stable and neutral legal systems, high quality regulatory and tax environments, deep pool of talent and unique time zone advantage together all mean New Zealand has a lot to offer" the fund services industry, Diplock described our regulatory environment as "a desert".
"They're not good enough for it [a financial hub] at the moment," she said, something the government hasn't mentioned as it's hyped the concept. The closest it has got is that the Prime Minister, John Key, acknowledged that "technical changes" would be needed before we could open the door to the financiers . It seems those "technical changes" might include a complete overhaul of our managed funds regulations.
That would be welcome, for all our sakes, and indeed Diplock said it was going to be addressed in the Securities Act review that "is coming up later this year". But by the time that's completed, laws have been drafted, Cabinet debates held& well, it's all just taking too long.
New Zealanders lost $6 billion because our finance companies and the "regulatory desert" they operated in. Thousands have seen their savings wiped out. That desert dates back to the laissez-faire '80s, when supporting regulation was akin to wearing to "I love nukes" t-shirt to a meeting with President Obama.
Regulators were emasculated. The market was left to its own devices. And given that one of the things that markets do is go bust, we got the inevitable consequences in 2006 and 2007.
Now we learn that, "investors in Hong Kong and in Singapore have
a better regulatory framework of managed funds than we do, and they
won't recognise our managed funds framework."
Diplock stressed that this doesn't mean our managed funds aren't safe (inasmuch as any investment is ever safe) and she promised reform. KiwiSaver, for example, is a good scheme, she said.
Nevertheless, it's hardly confidence-inspiring to hear our chief markets regulator confirming that our market regulation is somewhat short of best practice; so far short that other financial hubs wouldn't even deem it worthy of recognition.
The promise of reform is a relief; the worry is the snail's pace indicated. We need our markets urgently reformed now - we need some irrigation in that desert yesterday - not in a year or two or after the next election. We need a better-resourced and more powerful Securities Commission that's willing to use whatever extra stick it's handed.
What's more, if we're going to pin our colours to a new financial services industry in this country, those regulations need to be built on the integrity of our laws and national sense of fair play. Financial hub sounds good; "haven" not so much. We don't want to be a Cayman Islands or Jersey or Switzerland that allows investors to play fast and loose with laws and tax systems, and we don't want to welcome the derivative-driven wide boys who so recently brought the world to the brink of another depression.
Diplock was pretty clear on Sunday - "looking back," she said, "we needed a better regulatory framework". So let's build one that's honest, credible and trusted, and let's do it quickly.
Read more of Tim Watkin's blogs .