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FMA: Changing regulatory landscape hard for some

New Zealand’s new world of financial regulation has come as a shock to many, but the Financial Markets Authority boss says it is building an improved investment environment.

Thursday, May 26th 2016, 6:00AM 2 Comments

by Miriam Bell

FMA chief executive Rob Everett said some firms were left reeling when the previously unregulated environment changed and they suddenly had to engage with active regulation – even if there wasn’t necessarily a problem.

“There is an element of culture shock for firms that have not been regulated before, and indeed those that are regulated elsewhere but can’t grasp why the same needs to happen here in New Zealand.”

But after five years of work and engagement on the part of the FMA, the environment was changing to match the new regulatory landscape, he said.

In a speech to the Trans-Tasman Business Circle, Everett said there have been some challenges, particularly with the switch in enforcement focus from “post-mortems on dead bodies to treating live ones”.

He said he would give his organisation a pass mark to date.

“If I look at what investors are saying in our Investor Confidence Survey, just over 60% say they’re confident in the regulation of our financial markets, which sounds like a pass too. A pass is OK, but we can do better.”

In some areas the organisation remains in build phase – albeit in the final stages.

For example, in terms of industry understanding of what the FMA is trying to achieve and the tools they will use to do it, Everett said they are only just off the ground.

“That’s not unreasonable given that we are barely two years into our new regime.”

Moving into the future, one of the major areas the FMA will be focussing on is its conduct regulation mandate.

Everett said this was a shift in emphasis in what they look for to be confident that a regulated business or individual has the interests of their customers at the centre of what they do and how they do it.

“Conduct is what actually happens to customers, investors and markets. Conduct is behavioural and it comes from culture.”

While culture will be part of the FMA’s focus, Everett emphasised they do not and should not prescribe culture – rather that came down to senior leaders of industries and firms.

“Our role in this is to the get leadership of firms to think very hard about what they do, as boards and as senior management teams, and why.

“If necessary, we can also focus the mind with object lessons of the regulatory consequences of poor culture.”

Proportionate but flexible enforcement plays an essential part in that.

Everett said that enforcement did not always mean court proceedings, although court could sometimes be the most effective way of resolving things that have gone wrong.

“You don’t have to use the biggest stick of course. In all but the nastiest cases, its shadow can be the most effective deterrent.”

The FMA will pursue court proceedings rigorously where they are the best option, but it will consider all enforcement options to arrive at the most effective solution.

Some other future focus areas for the organisation include the deepening and broadening of their remit perimeter – which means banks and insurers; defining their role regarding KiwiSaver; licensing of managed funds; and financial advice.

Everett said some people thought the FMA, along with the Financial Markets Conduct Act, has made the environment more difficult.

“But I believe it has created a clearer and more flexible environment than there was before.”

Tags: Financial Markets Conduct Act FMA investment regulation

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Comments from our readers

On 26 May 2016 at 11:12 am Pragmatic said:
I recently had the pleasure of listening to Rob Everett present the outlook for the industry culture, and in the first instance applaud the FMA’s stance on this. Nevertheless, emphasis in the right culture not only starts at the top of finance industry entities, but also within the Regulator themselves. I’m not suggesting that Rob’s vision is not correct, only that it appears to take time to filter to all parts of various organisations.

To put another perspective of how the industry needs to collaborate: Unless the consumer regains confidence in the financial services industry (sorry Rob – I’m not sure that a 60% rating is cause for celebration just yet), then the alternative is fragmentation – or DIY in the case of the New Zealand community. This is not only difficult to police, but exposes consumers to solicitation from all types of schemes – both locally & abroad. The ultimate danger of poor advice / inappropriate risk is that consumer fails to achieve their lifestyle expectations (and necessities) further down the track, at a time when the social system is overburdened. An immediate example is the volume of younger member kiwisaver monies that currently reside in ‘conservative’ models, and the future challenges that this presents. Whilst few Aucklanders’ would agree, the ability to borrow against accumulated Kiwisaver savings to purchase a first home also presents a significant ripple-effect further down the track. But I digress

So perhaps part of the solution is for the Regulator (in the first instance), to attract new participants to the industry by working alongside existing participants (as opposed to against), and ultimately complimenting (rather than condemning) the industry as a destination for consumers to visit. This requires a consistent set of rules for all industry participants, together with a clear understanding on how various industry participants add value. The current compliance burden does not necessarily offer any additional protection for the consumer, and appears to be a major detractor for existing & new industry participants, and for consumers themselves.
On 27 May 2016 at 7:46 am Charity said:
Pragmatic: Well said. I couldn't agree more--even with the first home purchase digression.

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