Samatha Barrass speaks at the 2022 INFINZ Conference - Navigating the Transition, on 27 October 2022.
(Notes may differ slightly from speech as delivered)
E ngā mana, e ngā maunga, e ngā hau e whā, tēnā koutou katoa
Nō Ingarangi ōku tupuna
Nō reira, ka mihi ki te whenua o Greenwich me te awa Thames.
Ko Ngāti Rānana ki te Pitonga te iwi
I whānau mai au i Rānana
Engari i te wā e tamariki ana ahau, i tipu ake au, ki Ōtautahi
Ko Te Whanganui ā-Tara taku kāinga noho nāianei
Ko Samantha Barrass taku ingoa
Ko taku mahi ki Te Mana Tātai Hokohoko, ko te Mana Whakahaere
Nō reira, tēnā koutou, tēnā koutou, tēnā koutou katoa
Ka huri au ki te reo Ingarangi
By way of a brief, very loose translation:
My story is that of a child born in the UK whose family moved to Christchurch when I was a child.
And although I pursued a career and had my family in the UK & Europe since my late twenties, it is my absolute pleasure to return home to New Zealand, reconnecting with friends and making new ones.
It has been a pleasure to meet so many of you since I was appointed, and I am delighted to be able to speak to you today. Thank you for the opportunity.
The aim of this conference is Navigating the Transition, and, in every sense, this is a period of significant change.
We experienced the Global Financial Crisis in 2008 but that was born primarily from the activities of financial markets.
But what we are experiencing today is different. At a global level, political environments are becoming increasingly difficult to anticipate and importantly, the economic influence of international politics is harder to predict. Relationships between countries are changeable, some unstable. In addition, we’ve yet to reach a ‘post COVID’ era and are still dealing with, amongst other things, disrupted supply chains and labour market stresses.
These are very uncertain times.
As we navigate the current economic environment, our resilience and adaptability we developed and displayed in response to Covid, will be further tested. But this gives us an opportunity to learn from what we have experienced, and to focus on the future and the outcomes we want to achieve.
Since February, it has been my privilege to lead the FMA and I am fortunate to be building on a strong foundation as we grow and implement a substantial increase in our remit.
We have several new legislative responsibilities that we are implementing, including a new regime for financial advisers, a world leading climate-related disclosures framework, and a new conduct regime for banks, insurers and non-bank deposit takers – the central component of which is a requirement to put the fair treatment of customers at the heart of their business models.
New Zealand is not the first to take this approach. As with many regulators around the world, the FMA’s approach recognises that regulation and rules are a means to achieve fair outcomes for consumers and markets, rather than an end in themselves.
Our approach particularly recognises the need to establish an ethos of strong conduct and culture in the finance sector - genuine, owned by all and not treated as a matter of tick box compliance.
This is a matter of integrity for each firm and the financial system in Aotearoa as a whole.
And speaking to the importance of all aspects of the financial system working well I want to make some comments on wholesale investors.
Raising capital is a key part of a well-functioning financial system. An offer to wholesale investors is one avenue for doing so, with the advantage of significantly reducing the regulatory burden on the offeror because there are fewer disclosure and other requirements. But this type of offer, and the reduced burden it comes with, acknowledges the people participating in the offer – the wholesale investors – are expert investors or wealthy enough to pay for professional advice. It acknowledges markets work best when risk is allocated to those best able to understand and manage it.
There are several gateways through which someone can be classified as a wholesale investor. One gateway is through using an eligible investor certificate, which allows an investor to self-certify as wholesale. That sounds simple. And it is.
But there are still rules for how these certificates are properly completed and used. Unfortunately, in a recent thematic study, we found some poor practices for complying with the rules. In fact, seven out of 23 entities we reviewed for the thematic, had deficient and incomplete investor certificates.
Sufficient grounds for accepting someone has relevant prior experience to understand the property investment they’re signing up for, is not experience with term deposits. It is not having KiwiSaver. It is not selling a property. If it were, then most New Zealanders would be eligible as wholesale investors, and this is clearly not how the rules for the exclusions are meant to apply.
It's worth noting that obligations regarding the confirmation and acceptance of self-certifying eligible investors is not new. Since 2014 certificates have had to be confirmed by either a financial adviser, accountant or lawyer.
By signing an eligible investor certificate, the investor acknowledges they are giving up rights and protections otherwise available under a regulated offer. To be brutal, they acknowledge they are on their own.
This is not insignificant. Investors should be careful, and thoughtful, before deciding they are expert enough to voluntarily operate without the full protections of a regulated offer.
A regulated offer, which retail investors will be more familiar with, prescribes the information which must be given upfront. It also incorporates ongoing obligations designed to inform and protect the investor and hold the offeror to account.
For example, the offeror must produce audited financial statements and fund updates. And there are significant consequences for offerors – including serious consequences for their directors – for non-compliance.
We’ve sent a clear signal the undesirable practices identified in our thematic review are not acceptable. We are making referrals to the appropriate professional bodies for lawyers, accountants and financial advisers who were involved in confirming deficient eligible investor certificates.
We’ve laid out clear guidance and expectations in our report and through the examples in our warnings. We have also expressed our concern about advertising which talks about high returns without discussing risk; or which targets people looking, according to their internet search terms, for ‘term deposit’ and ‘Sharesies’.
In one of my first speeches as the FMA’s Chief Executive, I expressed my concerns around to what extent vulnerable consumers and ‘retail investors’ were accessing wholesale products. And, true to my word, we have been robust in our response.
This work is an important example of where we will take strong, deliberate action to prevent the risk of investor harm and stop activity that undermines confidence in our markets.
Turning now to the FMA’s new insurance and banking conduct remit. This new remit was born from the conduct and culture reviews initiated with the Reserve Bank back in 2018.
It is worth noting that to date, consequent to these reviews, the total amount of remediation payments made to bank and life insurance customers has now exceeded $150 million – money back into the pockets of ordinary Kiwis – a clear tangible benefit of a conduct and culture focus for regulation.
This work has also led to the passage of a new conduct regime for banks, insurers and non-bank deposit takers.
Our approach to regulating the new conduct regime will be based on the recognition that the people who run the firms, know their businesses far better than we ever could and they are far better placed then us, the regulators, to determine the actions needed to achieve the objective of treating their customers fairly, in the context of their business model.
There will be a strong focus on important customer outcomes - so that we have a genuinely fair financial system and that more New Zealanders than ever believe that the financial services sector is working well for them.
But what does an outcomes-based approach mean for the financial services industry?
The absolute basics:
- Am I treating my customers as I would expect to be treated?’
- Is my customer receiving the best value we can give?
- Are my customers getting the outcomes from my products and services that we have led them to expect?’
- Has our firm made it as easy to get out of this product as it was to get into it?
- Does the customer understand the product? Is it working well at an operational level?
- Are we properly testing all of this?
- Are we looking from the outside in? Putting ourselves in the customer’s shoes and being honest about their experience?
All these points increase in significance the more complex the products are.
For firms, it means looking at moving beyond a mindset of regulation being primarily a matter of risk, a matter for the lawyers and compliance department.
Instead, it means Boards and senior executives owning and championing the outcomes sought by regulation – and the ethical approach inherent within them.
Each firm will need to properly consider what fairness looks like in the context of their business model. And to then formalise that into their fair conduct programme. We will not expect cookie cutter programmes. Quite the opposite. But we will expect the programmes to reflect considered assessment of the types of customer centric questions I have just outlined.
The principle of treating customers fairly is an important one, and firms will need to give effect to this through their fair conduct programmes. It is here we can hold firms to account if they fail to build, maintain, and deliver them appropriately.
Programmes will need to be approved and advocated by Boards and are intended to inform and be owned by the entire business. The programmes will need to cover what “fairness” means – from the initial design of products, through to the experience on the ground, such as the handling of claims. Being owned by all means every staff member from the CEO to the call handler should know how their role contributes to delivering the fair conduct programme for their organisation.
Boards and leadership teams can’t simply assume that every member of staff understands their role and influence on good customer outcomes. They should demonstrate, measure and commit to a cycle of continuous improvement. If this work is done properly, and thoroughly, at every level of a business, the important steps to delivering regulatory requirements will be much easier.
Ultimately, customers must have the confidence that they can obtain the right products, at the right time and that they understand and meet their expectations. My focus, and the FMA’s, is constant and it’s clear, we expect fair outcomes for consumers and we think that’s good for everyone: certainly customers, also firms and also for the quality and reputation of New Zealand’s financial sector.
It’s not about catching firms out. Instead, to build trust in the delivery of good customer outcomes there will need to be greater engagement and mutual understanding between the FMA and Industry, building on what we have today.
This does not mean our approach to enforcement is changing. It’s important that we tackle egregious misconduct. It’s important to customers and the quality of financial services. It’s also important for all the very many firms who invest properly in meeting regulatory requirements. It’s not fair if others get away with not doing so.
Our focus on our existing mandate and the interests of investors is resolute. Where we see risks to confidence and trust we will intervene.
We will always be prepared to intervene with a deliberate and targeted response using the range of tools we have, to correct poor conduct, or persistent failures.
Conclusion
Looking to our future, we need New Zealanders to have confidence in their financial system. This can only happen if they experience a system that treats them well and delivers them genuinely fair outcomes.
In the months ahead it is crucial that you identify and look after your vulnerable customers. This will be key to the building and maintaining of public confidence in the industry, just as it was when COVID-19 first emerged back in 2020.
It is important to me that you are involved, engaged and feel heard, particularly when it comes to implementing the new regimes over the next few years. We will walk with you on this, and we will hold you to account where necessary. In return we expect you to hold us to account for providing the appropriate support and guidance you need and to implement the regime in a fair and proportionate manner. This includes having a clear understanding that there are a range of acceptable ways for a fair conduct programme to be designed and delivered. Together we can achieve our shared goal – growing the confidence and financial wellbeing of all New Zealanders.
Thank you - Ngā mihi - Tēnā koutou katoa.
