Diplock defends commission over fin coy failures
Securities Commission chairman Jane Diplock has hit back at criticism the commission was at fault in the failure of finance companies and says the sector faced a “perfect storm”.
Wednesday, September 9th 2009, 5:00AM 
4 Comments
by Sonia Speedy
Speaking at the Institute of Financial Advisers Financial Awareness Week breakfast yesterday, Diplock said the commission can not and should not prevent companies failing, despite media commentators suggesting it was the commission's fault that finance companies had failed.
"This is nonsense," she said.
"Fundamentally companies that have bad business models and poor governance should fail."
However, many more charges are in the pipeline as the commission "energetically" pursues finance company directors who misled clients, she said. Where misleading prospectuses were used, the directors who signed them needed to be brought to book. The commission had already laid over 160 charges in this regard with "many, many more to come", she said.
A previous lack of requirements around maintaining capital buffers, as well as the fact trustees, auditors and financial advisers were unregulated, helped create the potential for finance company failure.
"In a way it was the perfect storm because opportunistic people could start a finance company and take money from the public with no capital buffer. Financial advisers who didn't necessarily understand the products could advise people to go into it, the trustees would not necessarily monitor the investment through the life of the product and the auditors - there was no real regulatory oversight of them except through the profession.
"If you combine all those things together it might give you an idea as to why finance companies didn't necessarily succeed," Diplock said.
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Comments from our readers
Firstly, to headline speeches around on it's not the commissions job to prevent companies failing, and secondly to list the components that combined to cause that Perfect Storm without including the commissions role in it, is as misleading as many of the prospectuses now under investigation.
If you were to combine ALL the issues together to get an idea, it would seem ironic that the commission now targets regulating the lack of requirements for capital buffers, trustees, auditors and financial advisers whilst defending itself. This does not provide confidence that the commissions solutions for investors and markets will be ideal for these participants, as the commission denies responsibility and is taking to policing not engaging all the NZ Industry to develop a solution.
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The reality is that the regulator failed to properly police the industry, and exposed the markets to a systemic risk.
Whilst the parading of a few scalps by the regulator will appease some, it will not solve the underlying issues of poor resourcing and inability to respond by the industry's police-force.