Samantha Barrass, Chief Executive Financial Markets Authority, speech to Financial Services Council Connect on 16 March, 2022.
(Notes may differ slightly from speech as delivered)
Introduction
Kia ora, Ate Marie, Good morning. Thank you for tuning in.
Firstly, my thanks to the Financial Services Council for arranging this event.
I had hoped to speak to you in person but it was not to be. Better luck next time.
I’ve been in the Chief Executive’s role for just over a month now. I’m thoroughly enjoying getting to grips with the job and also reconnecting with Aotearoa.
I bring with me 30 years of regulatory experience in Europe and also 20 formative years growing up and starting my career in New Zealand.
I grew up in Christchurch, attended university in New Zealand, and started my first job at the Reserve Bank here in Wellington.
I was attracted to this role for two reasons:
- It’s such a fabulous opportunity to give something back to the country of my youth. I could see that my years of experience as a regulator were an ideal fit for what was needed as FMA Chief Executive, and
- Because I saw it as a great opportunity to renew my connection with New Zealand.
Today, I want to talk about the FMA’s purpose and the aspirations we have for a fair and healthy financial sector in New Zealand.
I will then look at how we are approaching the expansion of the FMA’s mandate.
Finally, I’ll spend a few minutes touching on some of the key priorities we’re focused on in the year ahead.
Strong, trusted fair
The FMA’s purpose is all about ensuring a strong and trusted financial sector that treats people fairly and supports a strong economy.
In recent years, Governments and regulators in many jurisdictions have focused increasingly on the conduct of financial institutions from the perspective of the outcomes for investors and consumers and the service they receive.
This has reflected a public sentiment that is more attuned to and less tolerant of adverse outcomes.
In addition, Governments and the public are now more likely to expect that financial regulators apply a wider focus to their mandate than harm and risk. In particular, a greater emphasis on equity and fairness in the provision of and access to financial services.
This has important implications for our work. It means deepening our understanding of the drivers for the choices made by investors and consumers. With a particular emphasis on vulnerability.
It also means deepening our understanding of what influences and drives firms’ business models and consequent conduct.
The world over, conduct regulation has needed to pivot from prescriptive rules compliance to understanding the key interventions and engagement that will make a difference.
All this means that I am really looking forward to working with industry to make sure people get the financial products and services they need, when they need them, and they do what people reasonably expect them to do.
It means understanding what people need to make good decisions, know their rights, and how to protect themselves - including being able to rely on the advice of others, including financial advisers.
It’s more than just protection. It’s about recognising that through history, the finance sector has evolved to make things easier and more effective. It has enabled the economies we see today and most, importantly, today, it’s all about making sure the financial sector works well to enable the lives of all New Zealanders.
As a financial market participant, you have an opportunity to make a meaningful difference in people’s lives, helping them to build their financial wellbeing. And I’m really looking forward to getting to know you all and working together on that.
As the regulator, we want to support you in delivering for consumers. And we want to do this in a way that is true to the Te Tiriti principles of partnership, protection, and participation.
This approach aligns with my own values and why I became a financial regulator in the first place.
The future
I’m joining the FMA as it is poised to expand its remit significantly.
I’m lucky to have inherited a high-performing, strong organisation. The FMA has done well in its first 10 years.
It’s a truism that the reward for good work is more work.
We are still bedding in the new licensing system for financial advisers which takes full effect in March next year.
We are to receive a new mandate to regulate conduct in banks and insurers.
And from my international regulatory experience, I can assure you that we have a real opportunity to do something quite different here.
With reference to my previous comments on the imperative for a regulatory pivot towards outcomes, we have an important advantage in New Zealand of not being massively encumbered by the detailed prescriptive input approach of many jurisdictions.
On the financial advice regime, we have an approach in the code that is refreshingly outcome focused.
Looking at a CoFI central requirement in the draft legislation – it is for firms to establish, maintain and implement a fair conduct programme.
I know that implementing any new regulatory regime brings many challenges but for a central requirement of the draft legislation to be grounded in a requirement for a fair conduct programme, makes it so ‘of its time’ / probably ahead of its time as an approach to effective regulation.
And, talking of leading the world we will be supervising the new climate-related disclosures regime – one of the world’s first mandated regimes.
My challenge is to smoothly implement all these changes, while maintaining our current momentum.
This will mean substantial change for the organisation over the next few years - this includes building new capabilities and employing new staff with different areas of expertise. Our staff will need to develop new skills and we will need to work with you, in industry, to better understand some of the new sectors we will be regulating.
Fortunately, I’ve led a number of organisations through periods of change. I don’t underestimate the challenge but I’m up for it.
Conduct Guide
Of course, this will happen over the medium to long term. I know you will be focused on what is coming down the pipe in the nearer term.
With that in mind, I wanted to give you a heads up that we will shortly publish an updated draft Conduct Guide for consultation.
The FMA is, of course, the principal conduct regulator for the financial sector and this guide sets out our expectations on what good conduct looks like.
This will update our previous Conduct Guide and will reflect the principles of the new legislation enabling the FMA’s regulation of banks and insurers. But the guide applies to the entire financial sector.
The guide is founded on four principles:
- Treating customers fairly
- Governance and accountability
- Effective systems, controls and reporting
- Identifying and remediating issues
Unsurprisingly, the first principle – treating customers fairly – is fundamental.
As I hope you will soon expect me to say, this is not a prescriptive checklist of dos and don’ts; rather, it sets out the principles you, as providers, should apply when you are designing products or delivering services to the public. It will require you to think about these key principles in the way your business is organised and the way your organisation is governed.
We want your input on this. We are mindful of the amount of regulation that is currently open for consultation so we will extend the consultation period on the draft conduct guide to give industry four months to provide feedback.
Other priorities
Beyond this, FMA work continues as usual. We have a very full slate of work underway but I’d like to call out a few priorities here today.
Financial advice licensing
From March next year, anyone providing financial advice will require a full licence. We have received a steady stream of licence applications but there’s still a fair way to go.
We know this is a big change and our team remains available to help you with any questions you have about implementation.
Please don’t wait till the last minute. We have already indicated that those of you looking for a class 3 full licence will need to apply for this before June this year to be confident you will have your licence in time for the start of the new regime next year. Businesses and individuals looking for class 1 or 2 licences will need to apply by September.
Climate Related Disclosures
New Zealand is among the first countries in the world to introduce a mandatory climate reporting regime for listed organisations.
I know many other jurisdictions are taking a keen interest in how we do this – certainly I received a lot of comments about this from industry figures in Europe when my appointment was announced.
Because this is new territory – for the FMA and industry – we have committed to working closely with industry to guide and support you as we implement this together.
The next milestone will come very soon when the External Reporting Board releases draft standards for consultation.
Cyber resilience
Cyber security remains a significant risk across the sector, around the world. I know this is the risk that keeps most executives and directors up at night. And with good reason.
The Council of Financial Regulators is establishing a cross agency community of experts to share information, collaborate and build on the domestic cyber-attack protocols already under development.
The FMA will shortly release an information sheet outlining what we expect organisations should consider when formulating their cyber security plans. As recent high profile events have shown, none of us is immune to this threat so a good response plan is essential and indeed an important factor in your licence to operate.
KiwiSaver value for money
Our work on ensuring KiwiSaver members receive value for money continues. The FMA published useful guidance on this last year.
We recently ran a pilot with KiwiSaver providers to test a self-assessment tool designed to assist with their annual reviews of value for money. The pilot has provided a useful review of how well providers have applied the principles in our guidance. We’ll be publishing our findings in the next couple of months and there should be some useful lessons for the wider sector.
Wholesale
Finally, we are taking a deeper look at the wholesale investing sector. These investments are on the edge of our regulatory remit and we want to better understand who is investing in these products and the level of risk for investors.
We are particularly focused on whether/ the extent to which vulnerable consumers and people who are, in practice, retail investors are accessing wholesale markets and the harm this may cause them and their families.
This is really important to me, and I would hope that we can work with all of you towards the outcome that only genuinely sophisticated, knowledgeable people access wholesale markets.
As a first step, we’ve requested information from the industry and will publish a report on this during the year. Thank you very much for you engagement in this exercise.
Conclusion
As you can gather, the FMA is a busy regulator. We have a lot on and we also have a lot of change coming up.
But some things won’t change.
We will not resile from taking enforcement action where we see breaches of conduct. You can expect our recent approach to enforcing the law to continue.
And we will remain connected to industry. Our connection to industry is vital to ensure we understand the issues and practicalities you face in meeting our expectations.
My style is to listen and to do my utmost to understand all perspectives, how it is for you and your experience of our regulatory approach..
We are always mindful of not creating unnecessary regulatory burden.
We welcome feedback and early warning on issues. Our door is always open and that way we can maximise the chance that we get things right.
After all, we share the same goals: a strong and trusted financial sector that treats people fairly.
Thank you.
