Samantha Barrass, Chief Executive, Financial Markets Authority, keynote speech to Financial Markets Law Conference on 25 July, 2022.
(Notes may differ slightly from speech as delivered)
I’m pleased to be here today speaking to you about where the FMA is heading and how we are preparing for our growing remit.
As you probably know, I joined the FMA as Chief Executive at the end of January, bringing with me 30 years of regulatory experience in Europe and also 20 formative years growing up in New Zealand.
I’ve joined the FMA as the financial services sector here is going through a period of significant change.
Today I want to talk to you about some of this change and how the FMA will be approaching its expanding remit.
But before diving into this, I’d like to give you a high-level view of where I see the FMA heading in the future and some insights into what I want to achieve during my tenure.
To my mind, we have an important opportunity in New Zealand to foster a genuinely fair financial sector, with more New Zealanders than ever believing the financial sector is working well for them.
It’s an important ambition which has front and centre the fundamental purpose of the financial sector as an enabler of people’s lives and overall wellbeing.
Financial services are often a part of key milestones in our lives – getting our first bank account, buying a home, saving for retirement, building a business, protecting the people and things that the matter most to us, and investing to enable our life dreams and goals.
I want the FMA to focus on the meaningful participation of all New Zealanders and to work with the industry to support the creation of opportunities for all to share in the benefits of a quality financial sector.
Success, will require us to deepen our understanding of consumers and how they interact with financial markets and services. This means we will be investing in data and intelligence and behavioural insights capability to help inform our approach.
Success also means that we will design and target our regulatory interventions and discussions with firms towards important consumer and market outcomes.
This is in line with the direction being taken by other leading conduct financial regulators and will be a profound change of emphasis. In particular it will mean that our view of compliance with regulatory requirements will be that it is a means to an end, rather than an end in itself.
Our ultimate success as a regulator will not be catching firms out for non-compliance, but much more on whether we have worked successfully with firms to support and encourage their delivery of the outcomes that matter for consumers, investors and markets.
Fostering a genuinely fair financial sector means articulating what fair outcomes look like and incorporating this thinking into a broader Conduct Framework.
We will be working on this throughout this coming year, maturing our understanding of consumers’ perspectives and experience with financial services, making sure we engage properly Māori, and working with the industry. This new framework will support the identification of the drivers of conduct and link these to the fair outcomes that matter most for New Zealanders.
Ultimately, this work with all our stakeholders, will feed into an updated conduct guide which we expect to release for consultation next year.
I know a lot of people in this room will have an important contribution to make to this thinking, so I look forward to engaging with you on this.
I have been asked to talk today about the FMA’s expanding remit, in particular:
Financial Services Legislation Amendment Act 2019 (FSLAA)
Turning first to financial advice.
The new regime aims to give consumers better access to quality financial advice. It came into effect in March last year, introducing a two-year transition period for providers to move from a transitional to full licence.
I’d like to pay tribute to the work of the sector as well as FMA staff who have worked tirelessly over the past few years to get ready for transitional and now full licensing.
I’m pleased to see that most banks and insurers are actively working with us on their full licence applications, demonstrating a commitment to a smooth transition.
It’s a huge job for both the FMA as well as hundreds of financial advice provider businesses to introduce a new licensing regime, but it’s absolutely worth it.
We know financial advice is really important. Research by Financial Advice New Zealand found that people who get professional financial advice are more likely to feel happy with their financial position and better prepared for the future than those who don’t. They feel more confident in their financial decision making, in control, and clearer about their finances.
These are the outcomes we want for consumers and the new licensing regime is built with this in mind.
The FMA is open for any financial advice providers who want help, support and assistance through the licensing process.
Romil Ghelani, from our financial advice supervision team, is speaking later today so I’ll leave him to cover more of the details around the regulatory framework for providers of financial advice.
Financial Markets (Conduct of Institutions) Amendment Bill (CoFI)
Extending our remit to thousands of financial advisers has provided valuable experience for the FMA in preparing for the new conduct licensing regime for banks and insurers.
The CoFI Bill passed late last month and introduces a new principles-based legislative regime for banks, insurers, and non-bank deposit takers. Each will now require a conduct licence from the FMA.
Licensing is expected to open mid-next year with the regime coming into force in early 2025.
Entities will need to comply with a “fair conduct principle” to treat consumers fairly. They will be required to establish, implement, and maintain a fair conduct programme and comply with it.
In implementing this, we will again have the question of fair outcomes for consumers and the market uppermost in our minds.
Our Director of Banking and Insurance, Clare Bolingford, will be talking in more detail about this later today so I’ll keep my remarks at a high level.
We don’t underestimate the significance of this change and I know that we will need to work closely with industry as we implement it.
We have just released the draft standard conditions we propose to include in the new conduct licences for banks, insurers and non-deposit takers.
I’m sure you’ll have useful feedback for us on this and I encourage you to participate in our consultation. We have a joint interest in designing a licensing scheme that is robust and fit for the future.
As I set out earlier, we are also deepening our understanding of consumers and how they experience services provided by financial institutions. Next week we will release the findings of a nationwide survey which examines how consumers feel about the services provided by the financial sector, as well as their levels of confidence and trust.
This will set a baseline for consumer perceptions prior to the introduction of the CoFI regime. It will also provide useful insights to help inform our future work.
This is important because CoFI means we have a responsibility to anyone who has a bank account or insurance policy – that’s almost everyone in New Zealand.
The sector has done a lot of work since the conduct and culture reviews of 2018. I want to acknowledge that. I know this work will stand you in good stead as the CoFI regime goes through licensing.
CoFI is in fact relatively simple and boils down to this: Are your customers getting the financial products and services they need, when they need them, and do they do what the customer reasonably expects them to do?
These are the fair outcomes we as a regulator, and you as an industry, should be looking for.
Climate Related Disclosures
The third new piece of legislation expands the FMA’s remit to regulate climate reporting.
New Zealand is one of the first countries in the world to introduce such a regime. It reflects the Government’s desire to ensure that the effects of climate change are routinely considered in business, investment, lending, and insurance underwriting decisions.
Climate Reporting Entities will include publicly listed companies, large banks and insurers, non-bank deposit takers and investment managers. These companies will have to make annual disclosures covering governance arrangements, risk management and strategies for mitigating climate change impacts.
At this stage, the first climate statements will be published from 2024 (at the earliest) for accounting periods that start on or after 1 January 2023.
We will issue high-level guidance on compliance expectations to support the market later this year, with further guidance produced over the 2023 calendar year.
We recognise that some companies are already well advanced in their climate reporting; for others, this will be new.
We know this is novel legislation and, again, our approach will be founded on close consultation, setting out expectations and guiding industry as the changes are implemented.
We encourage organisations that will meet the definition of a Climate Reporting Entity to start preparing early to ensure a smooth introduction. My colleague, Jacco Moison, will be talking in more detail on this later today.
It’s a busy time for industry, and it’s a busy time for the FMA. There is a lot of work to do.
I am extremely lucky to have inherited a high-performing organisation that can build on its many strengths as we begin to deliver on our new responsibilities.
But in order to deliver to the best of our ability, the FMA needs to change how it is organised and how it delivers its work.
Internally, we are looking at making sure we’re set up in the best possible way to deliver both our existing and expanded remit.
We know we will need new knowledge, new capabilities and new people – we expect to hire significantly in the next four years to support our bigger mandate.
Like many New Zealand organisations, we are experiencing the same tight labour market as the industry. We are working very hard to make sure we are well positioned to have the resources needed to successfully deliver our new mandate.
With all this change coming down the pipeline we are mindful of not creating unnecessary regulatory burden.
I want to reiterate that we do very much intend to work closely with the financial services sector as we bed in these new pieces of legislation.
Please do reach out to us – we are very keen to connect with you and we welcome feedback and early warning on issues.
This is a period of change. It’s a period of change for the industry and a period of change for the FMA.
These changes aim to deliver quality financial advice, ensure consumers are at the heart of financial services and that businesses and investors understand the impact of climate change.
I want the FMA to continue to be known as a regulator that has open, ongoing discussions with the sector. Our door is always open.
Key for me will be ensuring that the FMA is getting the outcomes we are looking for from our regulatory activity and engagement.
We recognise that a successful financial sector is a key pillar of a well-functioning society and we want the sector to work well for all. A regime that puts customer needs and fairness as a priority has long term economic benefits for us all.
Ka kite anō