|        About Good Returns  |  Advertise  |  Contact Us  |  Terms & Conditions  |  RSS Feeds

NZ's Financial Adviser News Centre

GR Logo
Last Article Uploaded: Saturday, June 15th, 8:37PM


Latest Headlines

Speech: Sean Hughes reviews the FMA's first three years

This speech by former FMA chief executive, Sean Hughes, is a must-read for all in the financial services sector. The speech, given to the Workplace Savings Conference earlier this year, is an excellent account of Hughes' reign at the FMA.

Thursday, December 26th 2013, 9:38AM 1 Comment

Good morning everyone and thank you for inviting me to speak to today.  I want to acknowledge my SLT colleagues Sue and Adam and the rest of my staff in the audience. The bouquets are for them, the brickbats are for me.

I applaud Workplace Savings for its ability to look forwards and promote the positive aspects of financial services. And I’m a great believer in doing that.  We live in an age of cynics and critics – and it’s healthy to hear of positive aspirations in a market which has been so characterised by negativity and gloom.

As Chief Executive of FMA, it’s my role to lead and inspire improvements in our financial markets - that is why I was delighted to accept this invitation to talk about the work we are doing to improve investor confidence. It’s an area I am personally passionate about and one where so much more can and should be done.

But before I get onto that, I put it to you that investor confidence is underpinned by one key ingredient.  An ingredient that all people (irrespective of their background knowledge, education and experience or personal financial situation) care deeply about.  An ingredient that all businesses, organisations, governments and nations value as critical to build sustainable, secure futures.  That key ingredient is trust.  Investor confidence and trust co-exist.  You cannot have one without the other and their interdependence makes the sum of their whole much more valuable than their individual parts. That is exactly why FMA has made building customer trust our highest priority.

Customer trust is central to any social democratic, humanistic, competitive and properly functioning financial system, yet its fragility and complexity means it can take time to restore once it’s been dealt a heavy blow. You only have to cast your mind to recent examples of calamities in systemically significant companies which can trigger a crisis of confidence on a national, regional or global scale.  The true measure of the extent of such a fallout can be impossible to calculate but we know enough to sense the severe dent such calamities inject not just on that company’s reputation, but also that of their competitors in the same industry, and the brand and image of a country. We would do well to remember Warren Buffet’s sage advice: “It takes 20 years to build a reputation and five minutes to ruin it. If you think about that, you'll do things differently.”

Over the past decade, New Zealand’s financial and economic crisis has had a profound impact on many New Zealanders’ confidence levels.  The volatility of the stock market in the late 1980’s, the subsequent Dotcom crash and the Asian currency crisis shattered the nerves of many investors – many of whom are now facing a retirement with limited capital. More recently, confidence has tanked again through successive scandals such as the finance company failures, examples of directors showing little remorse or sympathy to their investors, the Ross Asset Management scenario or, even at a more mundane level, just poorly presented or inaccurate investment documentation and legal jargon that the average citizen cannot understand.  It’s therefore no wonder the level of confidence investors need to have in our financial services has all but evaporated. Is it any wonder that nervous investors prefer bricks and mortar and choose the perceived safety of property investment?

FMA’s steps to rebuilding trust and restoring confidence

As I stand before you, FMA has been in existence for 837 days or just over 119 weeks. So what have we done in that time to build trust and restore investor confidence? First of all, we’ve been the champion of change in New Zealand’s financial markets. There’s never been a period like it before in this country.

FMA was given a very clear, uncomplicated mandate by Government and by a unanimous Parliament. Our overarching strategic objective is to make our financial markets fair, efficient and transparent for the benefit of all. So with that in mind, we began a process of repair to modernise the regulatory architecture of a market, that by-in-large, has not been touched for nearly 35 years.  And as your conference theme suggests, we knew this was our window of opportunity to shape New Zealand’s markets for the better. I think you can all say we have not passed up that opportunity, nor has our enthusiasm for improvement been found wanting.

One of the first things we decided to do was be a different kind of regulator than our predecessor bodies – namely the Securities Commission and parts of the former Ministry of Economic Development.  With greater powers comes great responsibility but we wanted to be one with a different philosophy and style. And with that came my desire for us to acknowledge a simple fact. That fact is that New Zealand and New Zealanders had been poorly served by a succession of patchy regulatory arrangements, patently obvious gaps and flaws in coverage and a culture of finger-pointing as to accountability. Worse still, no one actually said to those who were really impacted by these defects – we can and we should have done better.

So let me say this now: to the investors in New Zealand who were left out of pocket and betrayed by the actions and failings of a sad procession of both participants and public officials, I am sorry. You were entitled to expect more of the market and your gatekeepers and you were let down. You have every right to feel aggrieved. Though I was not personally part of that apparatus of the past, I will not walk away from accepting the accountability which followed me into my role. Some may say my words are empty gestures – I say they are heartfelt and cement the recognition that collectively we have wronged a generation of investors.

But we cannot turn back the clocks, nor can we undo the wrongs of a generation of smug participants who failed to recognise they were there to serve and act in the best interests of their investors. Instead, our focus has to be forward looking if we are going to influence the type of sustainable improvements in our markets that New Zealanders deserve and are entitled to expect. It’s a matter of public record that we have taken the necessary steps over the past few years to bring the guilty to account, however constantly checking the rear view mirror does little to help restore the matters that are important today.  We also want to lead by example and that means embarking on a programme to build trust with the market, investors and the public.  That means being open and transparent, utilising our powers to the fullest extent and learning from the mistakes of the past. In addition, we must never fail to accept responsibility for what happens on our watch and within those parts of the market we can influence.

By now many of you know how we like to operate. Our focus is on willing and assisted compliance and we would far rather support you to help you understand your obligations and responsibilities when it comes to the law. Constantly waving sticks at people shows little respect for the role you have. Dangling carrots is far more effective, especially where there is a culture of customer first.

By now you should know that we don’t like tick-box regulation, but regulation based on judgment.  We like people to think about; not is this sale compliant in a strictly legal sense within a narrow set of black-letter rules, but will the outcome be right for the customer? Not whether a firm has a prescribed risk minimisation structure in place, but is the culture right too? Is the fair treatment of investors put at the heart of a firm’s business model? If you haven’t heard this already, we expect the market to put customers’ interests first.  Customers are rightly demanding it and we are insistent for it if confidence is to return.

Good regulation is a feature of all high-performing industries and should act as a catalyst for and a fundamental building block and enabler of economic progress, rather than a brake. In other words, regulation is not like a rugby game or a boxing match where for one person to win, the other has to lose. No one likes a draw in sport. But equality of outcomes and the preference of a customer focus is, and always should be, in all our interests.

But I will go further in saying that regulation is not the panacea for the problems highlighted five years ago.  We are, however, part of the package of solutions to address the past and create the right environment for growth of a vibrant, sustainable and well-governed market.

Solutions we have implemented to date to restore investor confidence have been:

Establishing a licensing regime for financial advisers.  This has not been without its problems nor is it intended to be the Great Wall of China against all and any misbehaviours, but it has most certainly raised the standards of excellence and professionalism within the adviser industry. Licensing for financial advisers has been long overdue in this country and this, coupled with the improving levels of professionalism and the higher ethical standards, will help elevate this industry out of the cloud of mistrust which has cloaked it in the past. However, anyone who suggests that the mere act of occupational licensing is a fail-safe mechanism against future misbehaviour is simply naïve and misinformed. Do we expect every holder of a driver’s licence to comply with every road rule all the time?

In partnership with NZICA and CPA Australia, our oversight of auditors of New Zealand issuers has given greater confidence around the integrity of the audits of issuers’ financial statements.
Almost 12 months ago, our licensing of Securities Trustees and Statutory Supervisors has set a benchmark for improved standards of conduct and performance and, in time, we hope this will provide greater reassurance for investors.
Our work on improving disclosure documents to make them clear, concise and effective has also been an important step.  Helping investors to make rational decisions by demystifying what they are reading is vital and is a key pillar of fair, efficient and transparent markets. However there is still much work to be done to ensure that the principle of being “concise” is a hallmark of every effective disclosure document.

And one achievement I think we have been too modest about is our mutual recognition arrangements with our counterpart ASIC, for Australian and New Zealand advisers and auditors.   This has been is a great step forward to enable these professionals to serve in each other’s countries based on the qualifications and experience they have gained at home.  It will strengthen each of our financial service industries by increasing competition and lowering transaction costs.   It’s a sensible initiative and I hope there are further opportunities to structure products and other services in the same way for many firms that operate on both sides of the Tasman. Let me say that we can and we should go much further on the prospects for a fully integrated trans-Tasman financial services market. Why cannot we set a goal of simplicity, consistency and uniformity as the norm – and separate requirements as the exception? Have we become apologists to some outdated notions of nationalism, at the risk of sacrificing the economic opportunities of access to a combined market of some 24 million?
Our achievements over the past 2+ years may sound like a few small steps to the cynical regulatory experts out there in blog-land, but for the people on the receiving end, especially financial advisers, this has been an enormous amount of change.  And more is yet to come.  The implementation of the Financial Markets Conduct Act is a well-overdue opportunity to modernise and lift the standards for markets regulation.

But at the risk of scaring those already intimidated by FMC, I wonder if we have gone far enough?  I challenge my successor to look for the limits of where regulation has got to. Is there any untraveled territory that we haven’t yet explored?

However, in saying that, we must question what capacity the market has to absorb continuous change – especially if the implementation period for these new reforms is rushed or abbreviated.  It’s not smart public policy to tinker with new legislation once it’s in force unless there is a compelling public interest to do so.  Continuous tweaking of regulation does little to restore confidence in our market participants nor does it enable companies to grow their business successfully and with certainty. Once the legislation does pass the Parliament, then FMA will make the most of this opportunity to work with the market to manage the impacts.

What else needs to be done?

We know financial services are part of the lifeblood of our economy so it is vital that the system operates to its full potential. The growth of New Zealand’s capital base is dependent upon people trusting and engaging with financial services. As policymakers begin to look more broadly at economic growth, it is therefore imperative that industry, government, regulators and consumers come together to find solutions to this problem. We know there is no magic ‘silver bullet’ so what else needs to be done?

I hope you will agree that FMA has paved the way for how we expect the market to behave.  As a regulator, we can’t legislate for good ethics and behaviour - we can only encourage it.  But it should not be just up to us. We are only one body of 140 people and other parties can positively or negatively influence investor confidence in a heartbeat.

The fact is we all have a responsibility to change and adapt if we want investor confidence to return.  Investors and consumers are looking for direction and even inspiration to restore their faith in financial services that will genuinely enhance their lives.

We are already seeing some established financial institutions responding to this need, by trying hard to rebuild and strengthen their customer relationships – and importantly by taking a long-term view on customer retention and total quality service. Regulation should neither be the driver nor the rationale for this approach – it should simply set the standards which companies should aspire to surpass.

Financial education and responsibility

Financial education is and remains the missing component in our financial system.  Investment in this and financial capability is so important. Individuals who lack the confidence or knowledge to manage their financial affairs are more vulnerable to a lack of trust in financial providers and are less likely to behave as active informed participants in the market for financial services. They will be more reticent to invest in other asset classes and less likely to shop around for the most appropriate product to suit their circumstances.

Financially capable and confident consumers are necessary for an effective and competitive market. They are more likely to engage and to question unrealistic or inappropriate advice. Firms are more able to develop practices that better suit the needs of their customers and the need for regulatory intervention is reduced.  Therefore, there is a significant cost saving opportunity for the market if we can help the buy-side to lift their performance too as consumers.

While commentators have suggested that New Zealand’s financial literacy levels were part of the reason many investors lost so much, it’s no excuse for not taking responsibility for your own financial decisions.  If you are intent on relying solely on friends and family for advice, not researching your investments properly, not seeking independent advice or if you’re not even prepared to educate yourself, then you must be ready to accept the risk that comes with it. When independent information and advice was available, you chose either not to access it or not to take it. Either way, it’s a conscious decision to ignore that which would otherwise have been available.

Many may say that response is harsh; however why are people willing to take a risk with their money, but they plan and prepare for other aspects of their lives?  Responsibility begins at home and investors need to accept that.

Markets are cyclical. They enjoy upswings and endure downturns. Financial education could help to protect people and our economy against the worst effects of the next crisis, whenever it comes. And it could be one way in which trust and confidence in financial services, so badly damaged by recent events, could be rebuilt.

Every now and again I hear comments from all walks of industry and the public, criticizing that we are heading towards an overly regulated environment and it will do more harm than good. Then on the other hand, you hear comments that we are not doing enough.  Let me say this – the time for debating the utility of regulation in financial markets has come and gone. Let’s move on from the absurd paranoia about the fear of over-regulation because we are wasting precious time for this and future generations. I say – either get with it, or get out of the market because we are tired of your incessant complaining and your highly selective references to economic history.  My response is, and has always been, whatever regulation is in place, restoring investor confidence trust has got to be at the heart of it.

I often like to tell law and finance students that a well thought-out regulatory regime is like a perfectly built motorway.  You can have the best one in the world with all the safety features, clear signage and capable, qualified drivers but that won’t stop accidents and crashes happening along the way. We can’t predict how drivers will perform in adverse weather, nor can we anticipate every drunk or dangerous driver on the highway of our markets. What we can do, is to help good drivers take adequate precautions against known or foreseeable risks.

Innovation and leadership

It’s a critical skill set for regulators to have a sophisticated understanding of how markets work and to examine trends.  For example, we also like to see what investments seem to be growing the fastest and in what parts of the industry we are seeing the most innovation?

Innovation is a particular fascination for us and we think New Zealand has the types of markets that can grow and incubate truly innovative products and services – and we want to do all we can to support and enable that through our regulatory settings. Innovation in financial markets comes in many shapes and forms and is a direct result of strong leadership and courageous risk-based decision-making.  Leadership is a bit like an invisible hand.  You can’t see it but its effects are tangible.  Poor leadership can hamper change.  And poor leaders who are rewarded at whatever cost (unrelated to actual performance), is a bad, bad model.

But great leadership can set the right mix of values, competencies and incentives to nurture and adapt to whatever complexities present themselves.  Therefore good leadership perhaps offers the greatest opportunity to drive these characteristics and improve investor confidence.

Innovation for FMA is also about thinking outside the traditional regulatory focus. We always ask ourselves; do we have the right lens if we only examine an issue along product, entity or market lines? How are consumers receiving new opportunities for products or services and how do they want to?  How will FMA adapt to address alternative channels for product distribution and advice? Are our legal and regulatory settings nimble and flexible enough to enable us to respond to these developments – and if not, why not?


I said at the start, customer trust and strong economies run in tandem and in this fiercely competitive world, trust that is earned - has to be deserved.   Investors have a choice as to whether and where they invest their money. Today, investors are not tied just to New Zealand. They are not required to place their money here out of a sense of national loyalty. If they see a better off-shore opportunity, there’s no reason why they should not invest there, other than some sense of patriotism which frankly, is an irrelevant indicator of likely investment performance.

New Zealand’s success, your organisation’s success or your own personal financial health should complement the trust and respect you earn through professional conduct operating to the highest industry standards.  Should you so choose to embrace this model, then your courage and actions will be the foundation to New Zealand’s future prosperity.

As we continue to operate in an environment where regulatory change dominates, we at FMA are very conscious of the continued role that we play in our society.  FMA is committed to active engagement and discussion with the market to promote safe, efficient, competitive, vibrant and innovative capital markets – those in which all participants can flourish. We want you to be successful and to be well-rewarded for your success. Just don’t do it at the expense of others.  The lessons of recent years have only served to reinforce our long-held belief that we must promote mechanisms that support and champion innovation, leadership and diversity if we are to restore investor confidence.

Farewell remarks

After nearly three years at FMA, l want to end today by saying how extremely humbled and privileged I feel to have served my staff, my Board, the Minister of Commerce  Hon. Mr Foss and New Zealanders.  Together with a passionate team, we have scaled some precipitous peaks for New Zealand’s financial markets and suffice to say my team has steered FMA to another level of its evolution.

But it has not been a perfect journey. While some significant reforms have moved our markets forward, the jury is out on the impact of other aspects of the reforms and we have had to rise to the challenge of change, navigating unchartered territories and responding to unexpected events.

When I started my term, surprisingly there was still quite a powerful voice, (predominantly from the armchair experts of regulation) that said regulation was no more than an additional cost and delay to getting to market. They complained that regulation does not generate any return on investment and that the free market would best work in squeezing out those who are inefficient.

My answer to that is and was; you try saying that to those who lost their life savings from the safety of your armchairs.  And not just in the financial markets – you explain your dry theories to those whose lives, homes or products have been destroyed by an absence of any or effective regulation. Far better that we build the mechanisms to detect and prevent future harms, than we rush to respond after the event, releasing a torrent of rushed and ill-prepared rules.

When I leave FMA at the end of my term, I hope to have left my successor a well-functioning vehicle to drive our mandate forward and to take advantage of the opportunities that lie ahead.  FMA holds a torch.  Call us guardians, call us keepers or whatever you want but our central role means the market, investors, consumers and the general public will always look to us for direction and to act in their interests.

This is a great responsibility but we at FMA have a duty to improve the prospects for the financial health of the next generation and the one after that. Actually all of us have a duty to improve the next generation.

I have never been shy about our abilities or vision and how we can affect change.  My philosophy has always been in order to get the most out of our markets we have to be prepared to give our utmost at all times. This may be exhausting, but it’s also exhilarating – and I am a great believer in the principle that you cannot be both challenged and comfortable at the same time.

I would also like to express my genuine appreciation to you to all here in this room, in the market and in the media for your robust opinions, tough questions and unwavering ability to let us know what you really think.  That includes when you think we have stuffed up. Your contributions are important, respected and valued.  So keep at it.  Keep talking to us – our doors are always open.

My leadership of FMA has been inspired by two principles.

The first is compassion. A Year 12 student at my son’s school in Melbourne wrote this last week: “Compassion means that we aspire to transform suffering.” In my view, compassion is the essence of a society that seeks not to enrich the fortunate but to assist all its members to reach their full potential.

The second is excellence. It was not Nelson Mandela on his inauguration as President, but rather Marianne Williamson who first wrote: “We are all meant to shine, as children do. We were born to make manifest the glory that is within us. And as we let our own light shine, we unconsciously give other people permission to do the same.”

Ladies and Gentlemen, through your conduct and your role-modelling, let you shine your light on the market.

« Sheriff Hughes ditches his horse for FMA departureIFA working on pro-bono offering »

Special Offers

Comments from our readers

On 1 January 2014 at 10:38 pm Patrick Diack said:
Mr Hughes first Press release destroyed me professionally and financially. I find it ironic that he should now be talking about compassion.

Sign In to add your comment



Printable version  


Email to a friend
News Bites
Latest Comments
Subscribe Now

Weekly Wrap

Previous News
Most Commented On
Mortgage Rates Table

Full Rates Table | Compare Rates

Lender Flt 1yr 2yr 3yr
AIA - Back My Build 6.19 - - -
AIA - Go Home Loans 8.74 7.14 6.75 6.39
ANZ 8.64 7.74 7.39 7.25
ANZ Blueprint to Build 7.39 - - -
ANZ Good Energy - - - 1.00
ANZ Special - 7.14 6.79 6.65
ASB Bank 8.64 7.14 6.75 6.39
ASB Better Homes Top Up - - - 1.00
Avanti Finance 9.15 - - -
Basecorp Finance 9.60 - - -
Bluestone 9.24 - - -
Lender Flt 1yr 2yr 3yr
BNZ - Classic - 7.14 6.79 6.65
BNZ - Green Home Loan top-ups - - - 1.00
BNZ - Mortgage One 8.69 - - -
BNZ - Rapid Repay 8.69 - - -
BNZ - Std, FlyBuys 8.69 7.74 7.39 7.25
BNZ - TotalMoney 8.69 - - -
CFML Loans 9.45 - - -
China Construction Bank - 7.09 6.75 6.49
China Construction Bank Special - - - -
Co-operative Bank - First Home Special - 6.79 - -
Co-operative Bank - Owner Occ 8.40 6.99 6.79 6.65
Lender Flt 1yr 2yr 3yr
Co-operative Bank - Standard 8.40 7.49 7.29 7.15
Credit Union Auckland 7.70 - - -
First Credit Union Special - 7.45 7.35 -
First Credit Union Standard 8.50 7.99 7.85 -
Heartland Bank - Online 7.99 6.89 6.55 6.35
Heartland Bank - Reverse Mortgage - - - -
Heretaunga Building Society 8.90 7.60 7.40 -
HSBC Premier 8.59 - - -
HSBC Premier LVR > 80% - - - -
HSBC Special - - - -
ICBC 7.85 7.05 6.69 6.59
Lender Flt 1yr 2yr 3yr
Kainga Ora 8.64 7.74 7.35 6.99
Kainga Ora - First Home Buyer Special - - - -
Kiwibank 8.50 7.99 7.79 7.55
Kiwibank - Offset 8.50 - - -
Kiwibank Special - 6.99 6.79 6.65
Liberty 8.59 8.69 8.79 8.94
Nelson Building Society 9.00 7.65 7.25 -
Pepper Money Advantage 10.49 - - -
Pepper Money Easy 8.69 - - -
Pepper Money Essential 8.29 - - -
Resimac - LVR < 80% 8.84 8.09 7.59 7.29
Lender Flt 1yr 2yr 3yr
Resimac - LVR < 90% 9.84 9.09 8.59 8.29
Resimac - Specialist Clear (Alt Doc) - - 8.99 -
Resimac - Specialist Clear (Full Doc) - - 9.49 -
SBS Bank 8.74 7.74 ▼7.09 ▲6.95
SBS Bank Special - 7.14 ▼6.49 ▲6.35
SBS Construction lending for FHB - - - -
SBS FirstHome Combo 6.19 6.14 - -
SBS FirstHome Combo - - - -
SBS Unwind reverse equity 9.95 - - -
Select Home Loans 9.24 - - -
TSB Bank 9.44 7.79 7.55 7.45
Lender Flt 1yr 2yr 3yr
TSB Special 8.64 6.99 6.75 6.65
Unity 8.64 6.99 6.79 -
Unity First Home Buyer special - 6.55 6.45 -
Wairarapa Building Society 8.60 6.95 6.85 -
Westpac 8.64 7.84 7.35 6.99
Westpac Choices Everyday 8.74 - - -
Westpac Offset 8.64 - - -
Westpac Special - 7.24 6.75 6.39
Median 8.64 7.19 7.17 6.65

Last updated: 12 June 2024 4:04pm

About Us  |  Advertise  |  Contact Us  |  Terms & Conditions  |  Privacy Policy  |  RSS Feeds  |  Letters  |  Archive  |  Toolbox  |  Disclaimer
Site by Web Developer and