Q+A’s Paul Holmes Interviews Chairwoman Of The Securities Commission, Jane Diplock.

Points of interest:
- New Zealand’s regulations “not good enough” for New Zealand to become a financial hub for Asia-Pacific, as the government has been advocating; Hong Kong and Singapore won’t recognise our managed funds

- Diplock warns: Managed funds not unsafe but “regulation needs to be reformed”

- Securities Commission has regularly only got one-third to a half of the funding requested on Diplock’s watch despite hard lobbying: “The Commission is under-resourced, there’s no doubt about that”

- “Real risk” to New Zealand capital markets is government failing to give more tools to a new super-regulator

- New Zealand’s “regulatory desert” was a cause of the finance company collapses; “looking back… we needed a better regulatory framework”

- “What keeps me awake at night?... that people’s hopes and dreams have been destroyed”

- New Zealand needs more people investing in productive sector, not property

The interview has been transcribed below. The full length video interviews and panel discussions from this morning’s Q+A can also be seen on tvnz.co.nz at, http://tvnz.co.nz/q-and-a-news

Q+A is repeated on TVNZ 7 at 9.10pm on Sunday nights and 10.10am and 2.10pm on Mondays.

JANE DIPLOCK interviewed by PAUL HOLMES
(Pre-recorded on Friday)

PAUL This week exactly two years after Lombard Financial Investments went into receivership, the Securities Commission laid criminal and civil charges against four directors. Now the directors, two former Justice Ministers, and a Press Secretary to the Queen, are all well known New Zealanders who say they will defend the allegations. But Lombard is just one of 48 New Zealand finance companies to have collapsed since May 2006, six billion dollars down the toilet, six billion dollars lost, New Zealanders' life savings gone. On Friday afternoon this week I spoke to Jane Diplock, she's head of the Securities Commission, before she flew out for Singapore, and I ask her why it took so long to lay the charges here when in America Bernie Madoff was exposed, tried, convicted and imprisoned inside seven months.

JANE DIPLOCK – Securities Commission Chair
If the finance company directors that we have alleged criminal activity, pleaded guilty we would be delighted and we'd have them in jail virtually within the same sort of time, but of course they haven't, and the processes are to take some time, the court processes take some time. But before that the Commission itself has a huge task in assembling evidence in these cases, and I don’t think that a lot of people understand what it takes to prepare one of these cases, there's cloning of computers, interviewing of directors, interviewing of experts, and we have to be very fair Paul.

PAUL Nevertheless people have lost a great deal of money. Isn't it a disgrace that it takes so long?

JANE Paul, I think if you asked me what keeps me awake at night, it is precisely that people have lost this money, and that people's hopes and dreams have been destroyed and the fact that they’ve lost the capacity; very, very intelligent people who'd saved for their retirement are facing enormous challenges as a result of this disaster. And frankly that’s the thing that motivates me and worries me more than anything, and that’s why we need to take action to bring the people to book who actually cause these collapses.

PAUL Have you got the resources? I mean, I know that it's a complicated sort of a business, you know trawling through very arcane accounts and so forth, dealing with some very smart people who have not acted possibly honourably towards the people who invested in them, do you need more resources?

JANE Paul, it's clear that the Commission is under resourced, there's no doubt about that. Over the years we've had extra responsibilities placed on the Commission, which we welcomed, and each time we've gone to the Ministry and they go to the Treasury to ask for funding we've received about half or a third of what we felt we required, and when you accumulate that over a number of years it leads to under resourcing. Do you know we've got five lawyers working – really working on this full time? And frankly I think a lot of people would think we have a lot more people than we do.

PAUL Have the politicians let you down?

JANE Well I think it's very hard to point the finger, priorities in government are an impossible conundrum, and it is very difficult to decide where you're going to put your money, is it into welfare, is it into regulation, is it into health, is it into education, all of these are competing priorities. Having said that I believe that the capital markets development of New Zealand is crucially important and therefore the regulators should be properly resourced.

PAUL Alright, but nevertheless Jane Diplock you’ve been criticised in certain articles by certain commentators for simply not being out there enough, for not being intimidating enough, for not laying down the law.

JANE Well I think we can only lay down the law Paul that we actually have in our tool kit. In other words the Commission's a statutory body, it can only exercise the roles that the legislation give it.

PAUL Yes, but you’ve been in the job seven years, you’ve have God knows how much time to get things, to persuade the politicians. We've had a disastrous two or three years of collapses, have you lobbied hard enough, the perception is you haven't.

JANE Well we have lobbied very hard Paul, but the mechanism for lobbying is not through the media, it is through the government channels and we have lobbied hard, and we've been successful in some cases. But in relation to the finance company area there was a regulatory desert, and frankly that needed to be filled. Now one of the most critical bits was to make sure that you couldn’t start with a two dollar company and take money in from the public, and that’s the Reserve Bank's remit and that’s been now solved.

PAUL So it's fair to say the politicians have let you down, isn't it, and in letting you down they’ve let down the investing public as well, haven't they?

JANE Paul, there are many many factors that led to the finance company collapses, and the regulatory desert was one of them. I think we certainly, looking back, could say we needed a better regulatory framework at the time, because the Commission did not have the powers, was not empowered to look at the investment through the life of its investment.

PAUL Yes well that’s interesting you say that, because three years ago I think at a speech in Nelson – and this is before Blue Chip, this is before Lombard, before Strategic, before Hanover and all of the rest of them – you were saying “efficiency, integrity and confidence” could “flourish” in our markets with the present, with the current regulatory environment. So it turned out we didn’t have much efficient, we didn’t have much integrity, and the confidence has gone, and so these operators have made clowns of you and your rules haven't they?

JANE Well I think that the confidence certainly has gone to some extent and that’s the big tragedy for New Zealand, because we need investment in the productive businesses in New Zealand. And I think that… and combined with the needing for productive investment we've also had the personal tragedies of all of these individuals who've lost money, and that is the real tragedy for New Zealand.

PAUL Of course confidence as you say, that is a real tragedy, sensible intelligent people invested money and of course it's gone down the drain. Why would anybody invest in finance companies or capital markets in New Zealand? I mean you'd be better off buying a property wouldn’t you?

JANE Well I don’t think so. I think that there is a passion for property in New Zealand, it's well documented, but if you actually look at the growth of the New Zealand economy, we need people to invest in that. We also are now seeing much more investment in managed funds through KiwiSaver, I think that’s a very good thing.

PAUL Are managed funds safe?

JANE Is any investment safe? You have to look at the risks and the returns on any investment.

PAUL Are managed funds regulated well enough?

JANE The managed funds regulation needs to be reformed. That doesn’t mean they're not safe, there are many managed funds which are very safe in New Zealand, and KiwiSaver in particular I believe is a very good product.

PAUL Can we just speak quickly about the regulatory environment, you’ve described it as a patchwork quilt of add-ons and band aids. What do we need to see, what's the big reform about?

JANE Going forward the government has suggested that they're going to pull the various regulatory bits that are in various agencies together, we think that’s a great thing. The core of the capacity to regulate capital markets in New Zealand sits in the Securities Commission, we have a fabulous team of people, brilliant people who know how to regulate. They should be the core of the new agency, and they will be I'm sure, and we have a great team of commissioners, people from the market, and I think that’s a great model as well. What we need to do is give proper tools to that new regulator. The real risk for the New Zealand capital markets is that we miss this opportunity and we create a new structure and it doesn’t have the tools that it can actually give investor protection which is what investors are asking for.

PAUL Six billion dollars down the drain. And the government are now talking about New Zealand becoming a kind of super hub for capital markets for management for the Asia Pacific region, when's that gonna happen, given our reputation? Are our regulations good enough for it at the moment?

JANE They're not good enough for it at the moment Paul, and part of the Securities Act review which is coming up this year is going to address that particular point, at the moment 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, we are going to reform it and we will.

PAUL Drastic and dramatic stuff – that’s Jane Diplock, she's the Chairman of the Securities Commission.

ENDS

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