A report carried out for the Securities Commission is calling for the agency to be given stronger powers of investigation and the ability to issue legally binding rulings.
The report was written by former head of France's Securities Commission Michel Prada and Neil Walter, former Secretary of Foreign Affairs and Trade.
It says the commission does a good job given the powers it has, but that it is constrained by weak legislation, too many regulatory bodies, too little funding, a narrow mandate, and a lack of power.
The report's authors also argue a comprehensive overhaul of market regulation is needed if the comisssion is to do the job expected of it.
They recommend giving the Commission the power to issue rulings, stronger investigative and enforcement powers, and the ability to monitor the conduct of financial intermediaries.
Securities Commission chair Jane Diplock says the report found the agency is effective and says the public doesn't realise the limit to its powers.
Speaking at Parliament's Commerce Select Committee, Ms Diplock told MPs the public mistakenly believes the commission has powers to deal with errant finance firms and trustees, which has not been the case.
Ms Diplock says changes are being made which will improve the regulation of the investment industry.
She says company directors jailed for fraud should be banned from directorships for life, rather than five years, as should directors who repeatedly allow their firms to trade while insolvent.
However the group Exposing Unacceptable Financial Activities says the commission could have prevented many people suffering as a result of finance company collapses.
Lawyer Stephen Franks says the report found the commission isn't short of resources, but has put constraints on itself that it didn't need to.
"They certainly could have been more forthright in their identification and criticism of shonky practice," he says.
Stephen Franks says investors will approve of the recommendation to give the agency the power to issue legally binding rulings.