Guarding the guards

Roger Partridge
Insights Newsletter
13 April, 2018

Next week Parliament will have its first chance to debate Commerce Minister Kris Faafoi’s new Commerce Amendment Bill. If passed, the Bill will grant the Commission’s wish - and allow it to use its powers of compulsion to undertake ‘market studies’ into the state of competition in any market.

‘Market studies’ powers sound innocuous enough, but they are far from it. The state should be cautious before authorising regulators to use powers of compulsion. It should be especially cautious when the targets are not alleged wrong-doers. At the very least, it should ensure the powers are both necessary and subject to appropriate checks and balances.

Yet powers of compulsion hardly seem needed to explain why so many markets in our small, geographically isolated economy are dominated by just a few incumbents.

But even if the case for market studies powers were made out, the Bill’s lack of checks and balances is deeply troubling. All that is required is the Commission to decide it is in the ‘public interest’ to initiate a market study and off it can go. This is hardly a high hurdle.

The lack of checks and balances is doubly troubling against the backdrop of the Initiative’s study of the performance and accountabilities of our commercial regulators.

Released today, Who Guards the Guards? finds that many of New Zealand’s important regulatory agencies are performing poorly. Among them are the Reserve Bank and the Commerce Commission. Meanwhile, other regulators, including the Financial Markets Authority, rated very well.

As part of our study we asked New Zealand’s top 200 companies to rate the three most significant regulators for their businesses against 23 KPIs, and to rank all the regulatory agencies they interact with from most to least respected.

Our research identified a link between how regulators are governed and how well they perform. We found the separation of board and executive functions at regulators like the FMA contributes to greater internal accountability and to greater levels of expertise.

Against this backdrop, the low ratings of the Commerce Commission and the RBNZ are no surprise. The Commerce Commission’s ‘commission model’ fuses governance and executive functions, leaving Commissioners to hold themselves to account. And at the RBNZ, the Governor is the sole regulatory decision-maker, raising a similar but different accountability problem.

Encouragingly, the Minister of Finance has the RBNZ’s governance squarely in his sights.

Minister Faafoi could take heed. Rather than adding market studies powers to the Commission’s armoury, he might have better success undertaking his own study – into the Commission’s governance. 

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