(Notes may differ slightly from speech as delivered)
Tēnā koutou, tēnā koutou, tēnā koutou katoa
Ko Samantha Barrass toku ingoa
Ko taku mahi ki Te Mana Tātai Hokohoko
Ko te Mana Whakahaere
Tēnā koutou, tēnā koutou, tēnā tātou katoa.
Many thanks for inviting me to speak to you today. The relationship between the FMA and the FSC has been very strong over many years, and ensuring this continues is vital for me, the FMA Board and my leadership team.
This year's conference theme is "consumer resilience and prosperity". Maintaining resilience through these times while also taking long-term decisions to secure future prosperity is essential to the financial wellbeing of all New Zealanders.
Consumer Resilience and Prosperity is an important theme for the FMA, and for me. That is because, once responsibility for the CCCFA is transferred to us, we will have a role in overseeing the financial products that touch most New Zealanders’ lives.
Whether it is securing a loan for a car, getting professional financial advice, buying your first home and insuring it, insuring yourself and your livelihood, or saving and investing for your retirement and other financial goals, the FMA will have a key role in making sure New Zealanders have trust and confidence in the financial services sector.
Regulatory burden
During this period of regulatory change, it’s important the FMA’s regulatory approach is clear and understood.
I want to take a moment to step back and explain my personal philosophy of regulation, which is such a great match with the FMA.
This year marks the fortieth anniversary of the fourth Labour Government and a period of significant economic and regulatory reform. Growing up in the 80s in Christchurch, for me, regulation was deeply discredited. I associated it with driving an over-controlled economy including poor services (such as 3 months to get a phone line), and unrealistic controls on prices - the NZ Dollar, rents and interest rates, to name a few. An idealistic economics student, and huge supporter of the role of markets to drive growth and prosperity, I was sceptical about regulation and felt we always needed to be clear that regulation was a necessary intervention to support growth and the long-term prospects of New Zealanders.
It became so much of a driving passion for me that, forty years later, I’m here talking to you as the Chief Executive of a regulator. Not many people grow up wanting to be a regulator, but there you go.
The FMA and I are incredibly focused on regulation that genuinely matters and delivers for New Zealanders. The underlying philosophy remains – we cannot simply regulate for the sake of regulating. Regulation needs to pass the ‘so what’ test, as well as enabling innovation. By keeping an eye on unnecessary regulatory burden, we can ensure our regulatory approach is achieving the outcomes we, and New Zealanders, expect.
It’s why, for example, we have provided the Government with a list of proposals where both our time, and yours, can be used more valuably - while still ensuring consumers and investors are protected. We have also valued you proactively highlighting to us further changes that the FMA and the Minister should consider.
We are further demonstrating this as we consider a class exemption for green, social, sustainability and sustainability-linked bonds, which offer investors an additional non-financial benefit. The sector has told us that there should be a more efficient route to market for these bonds.
This has the potential to avoid unnecessary compliance costs, as well as incentivise the development of this market. When we hear fair arguments like these, we are prepared to reflect on them and consider changes accordingly.
Guidance
Guidance from the FMA can be an efficient approach to supporting the sector meet regulatory expectations as the New Zealand financial sector continues to grow and develop. Our liquidity risk management guidance released this year aims to ensure fund managers have adequate systems, controls and tools in place to manage liquidity, against the full range of assets and business models. It is frustrating to hear this guidance being used as a justification for why firms aren’t investing in private or less liquid assets. Having appropriate systems and controls to manage liquidity, enables investment in these types of assets. It means the frameworks and tools are in place to identify and manage the risks.
Guidance raises awareness, promotes discussion and endeavours to lift standards across a sector. We do not expect firms to simply leave this guidance to their legal and compliance departments. The audience for this guidance, and in fact any guidance we publish, should be senior leaders within your organisations, so they can take a strategic view of what is needed. We are not looking for tick box compliance to our guidance. Our guidance is just that, a guide to help inform how you work. We look forward to continuing our discussion on the guidance with the sector in the months ahead, including at an FSC hosted event next month.
With so much focus on unnecessary regulatory burden, I do want to emphasise that the important point here is on the word ‘unnecessary’. We cannot and must not forget the crystalised harm or risk of harm, un-prevented by market forces, that created the need for regulation in the first place. The finance company collapses, and the risks and harm exposed, unmitigated by market forces, created a powerful argument for regulation to support Mum and Dad investors and quality capital markets in New Zealand. The FMA was created out of those ashes, the outcomes sought through the FMCA remain current. We are determined to champion them.
But does it mean that we should always be alive to how we can deliver those outcomes better? Absolutely, and that is why we are leaning into taking an outcomes-focused approach to our work.
Outcomes focused approach
We want to ensure the FMA’s focus is not just on compliance but on what we are trying to achieve. That is the ultimate way in which we will deliver well focused regulation, keep costs down and make sure we are not unnecessarily cutting across innovation.
The industry response to our consultation on outcomes focused regulation shows we need to take our time to step back, take stock, and pause to consider the right way forward. One of the things the FSC told us in its feedback was that they were worried we were introducing new rules. To be clear, we are not setting out new rules. It is about the FMA, ensuring we remain an effective modern, forward-looking regulator and communicating what we believe that looks like.
We will have more to say in due course, but I hope the philosophy of regulation I set out at the beginning, which is front and centre of my leadership at the FMA, gives you a flavour of how we intend to approach our role.
Recent enforcement action
No doubt you will have seen in the news some of the recent enforcement action we have taken. That reflects months, often years of work from our teams, and I want to acknowledge their mahi.
Enforcement is a bottom line for any regulator. It is the bare minimum any regulator needs to do to ensure credibility and create a credible deterrent that encourages compliance. But enforcement is sometimes rightly characterised as the ambulance at the bottom of the cliff. Something has to have gone wrong or be at a real risk of going wrong! Ideally, the bulk of regulatory activity is focused on making sure harm is prevented.
So it’s in our supervision work that we mainly want to be experienced. Sometimes with pointy elbows, but mainly collaboratively, educative and engaged.
As we strive to be the best engagement-led regulator we can be, we know that building strong relationships with firms early can often mean the harm to consumers and investors is prevented in the first place.
Strong regulator-firm relationships benefit all New Zealanders. As we and the industry have acknowledged in the past, this requires the FMA to be properly resourced. Our view remains the same as it has in recent years; that an engagement led approach from a regulator, that can retain good staff and institutional knowledge, offers the right regulation for New Zealand. It delivers a meaningful, proactive supervision approach, supporting firms and customers alike.
Financial services reforms
I know you will all be eagerly awaiting ministerial decisions on the financial services reform consultation from earlier in the year.
While I’m sure the Minister will have more to say on this when he speaks to you this evening, I do want to give you a sense of where we are from a practical perspective. The Commerce Commission and the FMA are working very closely on the transfer of credit functions, with several joint activities underway. As part of this, you will also start to see the FMA in some of the Commission’s stakeholder engagement activities. Both regulators are very committed to a seamless transfer of responsibilities and await legislation to be passed by Parliament to give effect to this. Until then, the Commerce Commission is still the regulator of the CCCFA, and lenders should continue to engage with the Commission as normal.
Turning to the new CoFI regime, we have been and are continuing to engage with firms ahead of the end of the licensing window in March next year. Firms should now have either made their licence application or be in the final stages of seeking their Board approvals prior to submitting their application. We know which firms are potentially behind where they want to be and have reached out to offer assistance and support as needed. This is the approach the FMA has taken over several years, through the introduction of several different regimes. We know it is one that you and your peers support.
Minister Bayly has signalled a priority of his is to streamline capital market settings to allow businesses greater access to capital to support productivity and growth. We are committed to working with the Minister, MBIE and industry to explore how we might better support these markets to develop. A key focus for the Minister is facilitating investment in private assets. A first step is industry engagement, and several roundtables took place last week. As work on this ministerial priority continues, I want to thank those who have provided support already on the shape of this work programme.
Regulation as an enabler of markets, not a barrier
As a regulator, we know we have a role ensuring markets work well for consumers and investors, while also enabling economic growth. There is a natural tension between encouraging competition, financial stability and ensuring consumers are sold products that deliver value and do what they say on the tin. This tension is why the Council of Financial Regulators exists, and why it’s work is so important.
The FMA will be looking to do what it can in the months ahead to respond to the Commerce Commission’s report, particularly around the recommendation on transparency in mortgage advice. The Minister and the Commerce Commission have clearly expressed concerns about practices in this space. We will be looking to work with financial advice providers and firms across the mortgage spectrum to consider how to tackle this issue. As the CoFI regime settles in from early next year, there will also be opportunities for us to use our supervisory engagement with banks to look at the issues raised in the market study from this angle.
Concluding remarks
As I turn back to this year’s conference theme, a financial sector that is grounded in fairness is essential to consumer resilience. At the FMA, fairness isn’t just a word to us. It’s central to why we exist. That’s why two months ago we released a research paper where we sought to understand what New Zealanders perceived as fair and unfair in the financial services they use.
Ultimately, the research found that the majority of New Zealanders generally agree on what constitutes fairness in financial services.
In one scenario, 86 percent of respondents believed it was unfair that a bank took over a year to repay a client who had been overcharged fees. At the other end of the spectrum, 62 percent believed it was fair that one client’s investment fund had lower fees than his mother’s because his fund manager spent less time researching markets and making changes to his investment. The release of the research has also seen the FMA hold roundtables with firms to discuss our findings. This is the first time we’ve adopted a roundtable approach to discussing findings, and it won’t be the last. We are looking at new, broader ways of engaging with the market to ensure we meet our aims as an ‘engagement led’ regulator.
As the conduct regulator for New Zealand’s financial markets, our vision is more New Zealanders than ever believing that the financial services sector is working well for them. While we play an important role in achieving this vision, we cannot do it alone. Our vision is closely aligned with that of the FSC itself, whose vision is to grow the financial confidence and wellbeing of New Zealanders. I look forward to working alongside you to ensure we foster a vibrant and trusted financial sector into the future.
Thank you.
