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Screenshot of a breaking news alert e-mail from Q2 2017
Existing very much in Australia’s shadow, New Zealand was until very recently a jurisdiction in which very scant financial markets regulation existed, with many firms having not been required to have an actual presence in New Zealand and a simple entry on the Financial Services Provider (FSP) register being enough to check the relevant boxes.
At the beginning of last year, however, the newly-established Financial Markets Authority (FMA) began to set forth means of implementing a fully-fledged financial markets regulatory structure, with initial steps having been taken to remove entities with no presence in New Zealand from the FSP register.
Since then, the FMA, under the leadership of its inaugural CEO Sean Hughes has embarked on a full overhaul of the regulatory environment, ensuring that in future, it will be set to gain similar recognition in terms of client protection and credibility as other Western regulators, therefore not allowing a simple registration on the FSP to constitute satisfactory action.
Today, Rob Everett, incumbent CEO of the FMA, in addressing the Trans-Tasman Business Circle in Auckland this afternoon, extended empathy to the industry participants which are experiencing some “short term pain” as a result of new regulation, but concurred that an overhaul of the rules was needed to boost market confidence and drive economic growth.
According to the New Zealand Herald, Mr. Everett, who took the reins from Mr. Hughes in February, delivered a sharp critique of the scant regulatory framework that existed in New Zealand when roughly 45 finance companies collapsed between 2006 and 2010.
Mr. Everett said regulation was “too general” and there was insufficient remit for ongoing oversight by regulators of the finance firms’ balance sheets and risk arrangements. He further stated that the regulation was also aimed at the wrong target.
“Mostly, it was regulation of the retail offers that the firms were making,” Mr. Everett said. “But, as I have noted, the risk – for the companies, the investors and, indeed, the risk for the country – was in high-risk balance sheets and also, in many of the fincos, serious shortcomings in company governance.”
“Looking back, New Zealand had a fragmented and patchy legislative framework which produced uneven regulatory results, driven in some cases by choice of corporate structure rather than required investor outcomes,” Mr. Everett said. “Generally it created a fuzzy regulatory picture.”
On a more macro scale, a great many individuals offering consultancy to newly formed FX brokerages and white labels established themselves in New Zealand, promising to acquire regulatory status for the brokers, when indeed the brokers were simply placed on the FSP list and charged a fee by the consultancy for doing so, which unknown to the broker, did not constitute regulatory licensing. The reformation of the structure has since put an end to this practice, often perpetrated by opportunists who had previously worked in sales teams of retail brokers.
Mr. Everett continued that many of the provisions in the new regulatory regime – including the Financial Markets Conduct Act, which is currently being phased in – were designed to ensure the benefits of an improving economy were put to productive uses.
“Where people have confidence in the markets and trust in the conduct of finance industry professionals they are far more likely to participate and invest in productive assets.”
Given their record profits, Everett said he was “pretty unsympathetic” about “whining” from international banks about new, post-Global Financial Crisis regulation.
“That said, I do talk to management of the local banks and fund managers here, and I listen to the amount of time they are currently spending on compliance and I understand the short-term pain they are going through,” Everett said. “We will need to manage that down as the new legislation and requirements bed in.”