FMA boss Everett gives regulator a pass mark

Financial Markets Authority chief executive Rob Everett is giving the market watchdog a pass mark as it nears the end of its establishment phase and starts taking a closer look at ensuring firms' conduct is up to scratch.

Speaking at a Trans-Tasman Business Circle event in Auckland, Mr Everett said he was pleased with the way the regulator ran its enforcement of the finance company cases, its transparency in consultation and policy work, its engagement with newly regulated sectors and supervision of NZX, and what it's done in corporate governance.

The market watchdog has been operating for five years and Mr Everett said the start-up phase with the staggered introduction of regulations under the Financial Markets Conduct Act was only just coming to an end, while he thought the FMA had achieved a pass mark, "we can do a lot better."

Mr Everett's speech follows last week's release of the FMA's Attitudes Towards New Zealand's Financial Markets survey, which showed overall confidence has dropped slightly this year, with a combined 56% of those polled saying they were confident or very confident, down from 60% in 2015 and 58% in 2014.

Today he told the business audience that conduct regulation was a big shift for both the FMA and the firms and professionals it watches and that the regulator's main focus is to ensure the sector delivers good outcomes for their customers backed by processes and systems aimed at achieving that goal, can explain what they're doing and are disclosing how they're doing it.

"If firms can't show us those things and convince us they have customers' interests at the centre of what they do, we'll regard them as higher conduct risk, that their customers have a higher risk of getting poor outcomes. " Everett said in notes for his speech. "And we will pay more attention to that firm."

The Financial Markets Conduct Act gave the FMA new tools to deal with wrongdoing, which Everett said allowed greater flexibility and the ability to react proportionately. While court proceedings are sometimes appropriate, "in all but the nastiest cases its shadow can be the most effective deterrent."

Mr Everett said the FMA's current and future focus will be on how far its remit stretches, with an issue as to whether conduct by banks and insurers is covered by the legislation.

The regulator is also putting more effort into helping KiwiSaver members understand the benefits of good investment decision-making and encouraging the state-subsidised scheme providers engaging with those investors, he said.

Licensing managed funds and managed investment schemes is "a big exercise and it fills the remaining major hold in our regulatory framework" and the FMA is trying to work out what it's role is in relation to wholesale market conduct, Mr Everett said.

He didn't provide much comment on the review of financial adviser legislation with Commerce Minister Paul Goldsmith set to receive recommendations in the next month or so, other than to say "we strongly support the proposal to level the playing field across advice by ensuring that anyone delivering it be subject to the requirement that they do not put their interests before those of the customer."

(BusinessDesk)