Hughes predicts fewer FMA/SFO tag teams

Further Financial Markets Authority/Serious Fraud Office joint cases, like the South Canterbury Finanance one, are unlikely once the finance companies have been through the courts.

Wednesday, December 14th 2011, 7:13AM

by Niko Kloeten

The two regulators have teamed up in the case against South Canterbury Finance involving an alleged $1.7 billion fraud that, if proven, would be the biggest in New Zealand's history.

The SFO last week laid 21 criminal charges against five people involve with the company, alleging a variety of offences, including theft by a person in a special relationship, obtaining by deception, false statements by the promoter of a company and false accounting.

However, the FMA will support the SFO's case rather than pursuing its own charges.

This is in contrast to a number of other finance companies which have been the subject of legal action by both the SFO and the FMA, and in some cases when the two agencies have laid charges jointly.

FMA chief executive Sean Hughes told Good Returns the FMA's stance in the South Canterbury Finance case had avoided costly duplication.

"The SFO charges are under the Crimes Act and they carry stiffer penalties than under the Securities Act," he said.

"It makes no sense to pursue the same case against the same company for a lesser outcome at taxpayer expense."

However, he said that while the two agencies would work together in cases where they had a common interest, it was unlikely there would be many more joint prosecutions.

The FMA is "a different beast" from the SFO, which he said is an investigation and prosecution agency where the only "tool in the toolbox" is deterrence.

"I think when we get to the end of these finance companies I imagine the SFO will then have other areas outside the financial markets. It may be there are fewer joint cases."

One regulator the FMA will get closer to is the Reserve Bank, which is in charge of the prudential aspects of financial regulation.

The Reserve Bank and the FMA had their second meeting last week as part of the new Council of Financial Regulators, which also features The Treasury and Ministry of Economic Development as associate members.

Hughes said the "twin peaks" model of financial regulation is working well and proving a vast improvement over the previous regulatory system in New Zealand.

"I think the first lesson from my time at ASIC is that as a regulator in financial markets it's very important to have single points of accountability.

"I think New Zealand has suffered from the dis-aggregated model of a number of small agencies being responsible for part of the regulatory system."

"It's inefficient, it adds confusion and you risk having different approaches by different regulators, while for the government there's no single point of accountability."

Niko Kloeten can be contacted at niko@goodreturns.co.nz

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