The Treasury warned the government to move slowly in forming the Financial Markets Authority, saying there were significant risks if it was set up ahead of the Securities Act review.
It also said it was not convinced fast-tracking the single market regulator would make a “material difference” to investor confidence in the long-term.
The warnings are outlined in a cabinet paper released last week, which sought approval for the FMA and changes to KiwiSaver to be fast-tracked ahead of the Securities Act review, which proposes to overhaul the country’s 30-year-old securities laws.
In April, Commerce Minister Simon Power said it was putting the FMA ahead of the Securities Act review because it was too important to wait.
The FMA’s forerunning establishment board, chaired by Simon Botherway, is now working to ready the FMA to police New Zealand’s financial markets by March.
Legislation associated with the Securities Act Review is not expected to be introduced to Parliament until the middle of next year.
Meanwhile, the Ministry of Economic Development is seeking submissions by August 20 on a discussion document covering the Securities Act 1978 and the Securities Market Act 1988.
The FMA will amalgamate the regulatory powers of the Securities Commission, the Ministry of Economic Development including the Government Actuary and the NZX.
As an independent Crown entity it will have sole responsibility to enforce securities, financial reporting and company law as it applies to financial services and securities markets and is the centrepiece in a raft of regulation intended to restore investor confidence, damaged in the wake of finance company collapses.
The April cabinet paper revealed the Treasury supported formation of the FMA but not before completion of the Securities Act review.
“The Treasury considers the proposal to form a new ‘financial markets’ regulator is being put forward too soon, lacks clarity and direction in important areas, may not make the most of opportunities that become available during the review of the Securities Act and will need to be reviewed once the full review of the Securities Act has been undertaken,” it states in the paper.
“We view the risks of seeking to significantly advance the establishment of the new regulator before a full picture of the regulatory regime it will operate within is finalised as significant.
“We are also not convinced that accelerating the establishment of the new regulator by a matter of months will make a material difference to investor confidence in the long term.”
The Treasury said rushing the consolidation of three regulators in to one, could compromise clarity about the changes in emphasis, behaviour and culture desired of the new regulator.
Mr Power acknowledged in the cabinet paper that fast-tracking the FMA carried risks that could compromise its objectives of boosting investor confidence and that the process would need to be carefully managed.
He said the outcome of the Securities Act review would influence the size, skills and leadership required of the FMA and there could be a need to amend the legislation setting it up “very soon after it is passed.”
“However, on balance I consider the benefits from having a new regulator quickly outweigh the risks associated with separating this work from the remainder of the Securities Act review.”
The Treasury is the government’s lead adviser on economic and financial issues and helps to manage the financial affairs of the Crown.
It said it would not elaborate on the “significant risks” it warned the government about if it moved to quickly to establish the FMA.
Yesterday, a Treasury spokesman said the decision on timing was the government’s to make and although Treasury had advised on a longer timeframe for establishing the FMA, it would now get on with supporting its introduction.