E ngÄ mana, e ngÄ maunga, e ngÄ hau e whÄ, tÄ“nÄ koutou katoa
NÅ Ingarangi Åku tupuna
NÅ reira, ka mihi ki te whenua o Greenwich me te awa Thames.
Ko NgÄti RÄnana ki te Pitonga te iwi
I whÄnau mai au i RÄnana
Engari i te wÄ e tamariki ana ahau, i tipu ake au, ki ÅŒtautahi
Ko Te Whanganui Ä-Tara taku kÄinga noho nÄianei
Ko Samantha Barrass taku ingoa
Ko taku mahi ki Te Mana TÄtai Hokohoko, ko te Mana Whakahaere
NÅ reira, tÄ“nÄ koutou, tÄ“nÄ koutou, tÄ“nÄ koutou katoa
Ka huri au ki te reo Ingarangi
Introductory remarks looking into a transformational but challenging year
Morena, thank you very much for hosting us this morning. I know both Paul Gregory and Clare Bolingford are looking forward to speaking to you shortly.
I hope everyone has been able to take time over summer to rest and recharge for 2023. It is going to be another busy year in financial services in New Zealand.
While the new financial advice regime and the conduct of financial institutions regimes are at very different stages of implementation, I’ve been encouraged by the way the industry and the FMA are working together to successfully deliver both. I see real cause for optimism in together, understanding the important outcomes these regimes need to deliver for New Zealanders and making sure we are resolved to deliver them.
In other areas, our new Consumer Experience Survey signaled a wider intention to use behavioral insights and research to underpin our regulatory approach. I am delighted that Stuart Johnson, as our first Chief Economist will further this work. Stuart starts with us soon. He brings nearly 20 years of experience as an economist and behavioural science expert in the financial services industry, spanning the banking and insurance sectors, as well as regulation more generally.
What lies ahead for 2023?
New Zealand financial services now face a series of significant milestones, through a period in which central banks around the world are having to take actions, unseen for a long while, to reduce inflation.
We must implement some critical pieces of new legislation. There’s been lots of time for discussion in recent years, but in 2023 they become real.
We are here to support you, as we transition through the introduction of the full financial advice regime, the conduct regime for banks and insurers and the Climate Related Disclosure regime.
This morning, as much as indicating where our focus will lie in the months ahead, I want to set out how the FMA is changing.
At the FSC conference last year, I added some detail on the approach we will be taking to our work going forward – in particular, leaning into a focus on outcomes.
I said that an outcomes-based approach is about the regulator and regulated working together to deliver the right outcomes for all New Zealanders when they interact with financial service firms. It’s about working together to ensure customers get the right products, at the right time, and these meet their expectations. Ultimately, it’s about more New Zealanders than ever having justified confidence that the financial services sector is working well for them. That is the lens through which we will do our work. It is our departure point for the broad range of issues we will work together with you on. An outcomes-focused approach does not start at what the legislation says, or a rule book says, it starts with what is the right outcome for a strong sector that works well for all.
This approach ensures regulations and rules are a means to an end, rather than an end in themselves. The real end is fair outcomes.
Internally, the FMA has been doing significant work to prepare for this shift. We’ve created new roles and introduced a leadership structure that enhances our innovative, forward-looking capability as well as underpinning a collaborative strategic approach to our core licensing, monitoring, and enforcement work. Both are critical for a regulator that has grown significantly in recent years and has much to deliver.
We’ll bring new people on board, recruiting from both New Zealand and offshore. Some of those roles have already been advertised, some will be advertised in the months ahead. This shift will take effect from the beginning of February.
What does this mean for you? Internally there should be much closer alignment between our teams, enabling decisions to be made quicker, and at the right level. I’m looking for shorter decision-making chains.
We’ll be looking for greater integration of economic thinking, research data and insights to inform our areas of focus. We also want to examine the outcomes of our decisions and interventions more, considering fully whether our actions have the desired effect.
Our aim is to be a self-aware, learning, improving regulator – continually assessing and refining the way we articulate and deliver on our mandate.
As I’ve met with you over the last few months, one of the things I keep hearing is – “this sounds great, Samantha, but it doesn’t reflect what we’re experiencing when we talk to the FMA.”
To this, I’d say two things:
One, these changes will take time to bed in at the FMA. Delivering outcomes-based regulation requires a fundamental shift and rethinking about how we operate. Our new structure enables us to get this work rolling. It’s a long-term, evolving project, not a single overnight change. And our commitment to, and practice of strong stakeholder engagement remains steadfast.
Two, the FMA’s policy of credible deterrence is not changing. People have heard me say we are not enforcement-led, and the fact is, we never have been, except for in our beginning when we inherited the finance company collapses. Since then, the FMA has applied a range of tools in our work with our licensed population. Maintaining a credible intervention and enforcement function is necessary to promote integrity and confidence in markets and financial services. We will use litigation tools when we see egregious examples of serious misconduct. We should and will always be prepared to act where necessary.
We continue to have significant fair dealing breaches reported to us by a variety of financial institutions. It is now almost five years since the Conduct and Culture reviews commenced, and the legislation being breached is now almost ten years old.
A week ago, we published the outcome of one piece of enforcement. In that case, the judgment noted the fair-dealing breaches stemmed from decisions made by senior management, rather than systems and controls issues.
Given my predecessor began by warning against complacency, and continued to warn of this throughout his tenure, I’m sceptical when told the FMA needs to stop looking back and start looking forward. Yes, we are looking to the future to deliver CoFI and all the other new regimes, but that does not mean issues that have occurred should simply be ignored. These cannot be brushed aside as legacy issues if customers are still affected, or out of pocket today, through systems that should have been fixed years ago.
The roles of both the industry and the regulator are to engage, support and deliver for consumers. Acknowledging and rectifying the issues of the past is part of that.
But I am also conscious of the time it has taken to resolve some of the issues we have uncovered. My goal is for the FMA to deliver responses to breaches quicker, with expedited outcomes.
An important part of our approach is a commitment to collaborate and engage with industry – our approach is relationship based. This is in no way mutually exclusive from the importance of maintaining a credible deterrence function. The FMA will do both – engage and enforce. The public, Government, and those within the industry, committed to their customers, expect nothing less.
I’ll let Paul build on the work we’ll be doing in this space shortly.
This year sees three new regulatory regimes being introduced. It is critical we work together to deliver these. In some, like CoFI, we are simply catching up to international norms. In other areas, like climate related disclosures, New Zealand has been a pathfinder.
I want to acknowledge that this does create additional demands and efforts from industry. If I would make one observation from my first twelve months, it is that all the industry bodies that represent you and your sector would benefit from more resource and input.
The FSC has played a leading role in the past five years in navigating a period of change. Under Richard’s leadership it has upscaled, upskilled and increased its engagement with senior staff at the FMA and across Government. The FSC is a great example of what can be achieved.
I’m speaking both from 5 years’ experience at an industry body earlier in my career, as well as years of working with industry bodies as a regulator, when I say there is real value in investing to equip industry bodies to support you, and ensure the regulatory and legislative changes proposed are appropriate and moving in the right direction. There is also value in industry organisations collaborating in discussing issues and proposing solutions.
From my standpoint, returning from my decades offshore, I see New Zealand is moving towards international norms in financial regulation. Legislation like CoFI tackles issues raised in the IMF’s review in 2017, not just our Conduct and Culture reviews of 2018. This means that the elevated levels of change currently underway needs to be acknowledged and treated as part of a long-term international trend.
It is important that firms don’t inadvertently give the perception they are looking to wriggle around the borderline of the regulations. Recent reports around performance management frameworks, correct or otherwise, provide a good example of what to avoid. In this case, the important outcome is that consumers do not feel under pressure when making important decisions about their financial wellbeing.
Whether it’s a bonus motivating this, a desire to be seen as a high achiever or the fear of losing a job, it’s just wrong. When the FMA talks about outcomes-focused regulation, this is what we mean.
The benefit of licensing conditions, fair conduct programmes, combined with our outcomes-focused approach, is that we will and are able to take a holistic approach to whether firms are avoiding processes and behaviour that can lead to poor outcomes. We will purposefully look to take a broad approach to how we can use our powers to make sure there is a strong focus on consumer experience of the financial sector. We’ve highlighted conflicted conduct as a major barrier to delivering fair treatment and good outcomes. Firms responded well to our Bank Incentives Review in 2018. Conflicted conduct leading to poor customer experiences will be high on my agenda, and the FMA’s Regulatory Delivery team radar.
Our priorities will be driven by the new regulatory regimes that are being introduced, setting up the FMA for the future in what looks likely to be a difficult economic period.
Both Treasury and the RBNZ are now predicting a recession this year. New Zealand financial services face a series of significant milestones, while at the same time the economy faces serious headwinds.
This will be an opportunity for the sector to show it can support customers through the good times and the bad. Making sure customers are properly assisted through this period will be an important priority.
The overarching obligation to treat customers fairly is an evergreen, ongoing requirement. The CoFI fair conduct programmes are not subject to economic conditions, nor are the requirements in the FMC Act. It is in the moments of economic distress that these protections particularly need to endure.
I’ll let Clare talk more to this work shortly.
So here we are. Back to work from the summer break, for most of us, is I think a bit of a challenge. Perhaps doubly so this year – I think all of us know that 2023 is likely to be a tough one.
But I hope the break gave you a chance to enjoy beautiful landscapes and coastlines, friends and family. Whether in the sunshine, or in the rain, home or abroad, these moments of grounding and recharging are important for when the times get tough. They bring a sense of perspective.
As part of our internal work, The FMA has refreshed its values. Looking to the Horizon – te pae o te manawarangi - is now at the heart of Te Mana TÄtai Hokohoko’s values.
It’s there to remind us, as regulators, to remember our purpose, be willing to adapt, embrace changing circumstances, and to look to the future.
But Looking to the Horizon also serves as a reminder that having more New Zealanders believe the financial services sector works well for them, is a goal that can unite us all. We can foster the fairest financial sector in the world, even when markets are uncertain and the economic winds difficult. But it is only by coming together that we can achieve it.
I’d like to thank you for making the early start to come and join us this morning, and I’d welcome any questions you may have before Paul and Clare join me.