The Transport Accident Investigation Commission has found the aviation watchdog failed to intervene after its inspectors discovered faults with the pilot training system of the helicopter which crashed in Fox Glacier in 2015.
It said it's unlikely a mechanical fault was a factor in the crash, but weather conditions on the day were unsuitable for flying.
All seven people on board were killed when their helicopter plunged into a deep crevasse on Fox Glacier on November 21, 2015.
They were Australians Josephine Gibson and Sovannmony Leang, and Britons Cynthia Charlton, Nigel Charlton, Andrew Virco and Katharine Walker. The pilot was Mitch Gameren from Queenstown.
TAIC found Mr Gameren had not been properly trained and did not have the appropriate level of experience for the sorts of flights he carried out. According to the Commission the operator, JP Scott's system for training pilots was "ill-defined" and breached CAA rules.
The watchdog, the Civil Aviation Authority, had spotted "significant" problems with the training system but allowed the operator to continue to fly.
TAIC is concerned that as result of the CAA's lax oversight there could be a "wider safety issue whereby other civil aviation operations during the same period could have significant non-compliances that were not identified or resolved".
The Commission recommended in February for the CAA to review its past inspections.
On Monday, the CAA admitted its oversight at the time of the crash was not up to scratch. It said its inspectors were too trusting of operators and their scrutiny wasn't rigorous enough.
At the time of the crash, the CAA had just two national flight operations inspectors. Their job was to audit 100 helicopter operators with a fleet of 900 aircraft. The CAA has since boosted its inspectors to eight.
Footnote: CAA has since clarified it has five flight operations inspectors on staff. It has recently hired another inspector and has two vacancies. It has funding for eight positions.