The Financial Markets Authority is having a bad year. Its chair resigned in May. Its chief executive has been suspended. And the Ministry of Business, Innovation and Employment is investigating its culture.
 
Some will see this as a failure of the FMA’s board model. It is better seen as a reminder that New Zealand only ever built one part of the system needed to govern regulators well.
 
The system requires three parts. A regulator needs a board that can hold its management to account. There needs to be a sound and independently scrutinised process for choosing board members. And somebody independent needs to check periodically whether the regulator is doing its job well.
 
Parliament built the first part for the FMA in 2011. The old Securities Commission had blurred the line between governing and managing, because its chair was effectively also its chief executive. The people making the decisions were the people meant to be checking them. The FMA separated the two roles, giving a part-time board the job of holding a chief executive to account.
 
At first the change looked successful. When the Initiative surveyed New Zealand's largest businesses in 2018, rating regulators against 23 measures of good practice, the FMA outperformed every other major regulator, and its board was rated more highly than the Commissioners it replaced.
 
But the second and third parts were never built.
 
Boards hold considerable power, yet nobody independently scrutinises how their members are chosen. Britain has a Commissioner who does exactly that. We have no equivalent.
 
Ministers, departments and select committees are poorly equipped to judge whether a regulator is regulating well. Australia has created an independent body to assess its financial regulators. Again, we have no equivalent.
 
Our later research suggests these gaps matter. By our 2022 survey, the FMA had slipped from its pedestal. And across all the regulators we surveyed, appointment processes rated among the weakest parts of the system. Accountability was worse. We asked businesses whether anyone holds regulators to account when they perform badly. Only 21.8 per cent thought so.
 
Fifteen years later, the other two-thirds are still missing. We are surveying New Zealand's largest businesses again this year, and their ratings will tell the FMA's new chair where he is starting from.
 
But a think tank survey is no substitute for the institutions we lack. Until Parliament builds them, we will keep learning how our regulators are performing by reading about it in the newspapers.

Imagine you run a business as a “dag crusher”. For those unfamiliar with the term, a “dag” is a dirty bit of wool attached to a sheep’s rear end.
 
Every year you must fill out a form and pay your local council for the privilege of being allowed to continue to crush dags.
 
The Health Act 1956 lists nineteen jobs it calls “offensive trades”. Offensive in this case does not mean rude or obscene – it means highly unpleasant or, more colloquially, “gross”.
 
The list includes “fellmonger” (deals with animal skins), “tallow melter” (melts animal fat), “gut scraper” (please don’t ask), and my favourite “teasing of textile material for any purpose”, which presumably is not being mean to a sweater.
 
Registering and paying a fee every year has been required since around 1876, when New Zealand first adopted a similar requirement from the mother country.
 
Why has this list existed for so long? Because, prior to zoning (which only became universal in the 1950s), this was the way to prevent unpleasant trades from setting up anywhere they liked. “Nightsoil collection” made the cut because in the days before reticulated sewage systems, human waste was collected by cart from people’s properties. “Bone boiling or crushing” made the list because it also smells terrible.
 
The last time the list was revised was 1974. In the intervening years, New Zealand has established and continually reviewed and updated its resource management system and environmental protections, as well as laws for local government, workplace health and safety and food safety. 
 
Yet businesses kept filling in forms, councils kept collecting fees and inspectors kept inspecting. Nobody asked why until someone sent an email to the Ministry for Regulation’s “Red Tape Tipline”, a suggestion box for annoying rules. That email did what fifty-two years of successive governments never managed.
 
Last week, the list was scrapped. Health Minister Simeon Brown said that one person's offensive trade is another person's livelihood. David Seymour called red tape a tax on productivity and growth.
 
But here’s the point of the story. Governments are great at making new rules. Yet they are not so good at going back to ask, “Wait, do we still need this?”.
 
Nineteen trades have been let off, and the tipline deserves credit for that. But it says something about the rest of the machine that a suggestion box got there first.