by Susan Edmunds
Ainsley McLaren
On Friday, it was announced that Ainsley McLaren had been appointed to the FMA board, on a five-year term. McLaren was previously acting head of business performance and strategy at Westpac Institutional Bank, and before that worked for BNZ, First State Investments and ASB.
She is one of a number of board members and executive management who have other connections to the industry.
On the board, Campbell Stuart, is a director and principal of Aspiring Asset Management. Mark Todd is co-founder of AML Solutions, a business that helps those who fall under the Anti-Money Laundering legislation comply with their obligations. He is also chair of Mint Asset Management. William Stevens is an adviser and director at Craigs Investment Partners. Vanessa Stoddart was this week appointed to the board of Heartland Bank.
Peter Neilson, former Associate Finance Minister and former chief executive of the Financial Services Council, said there was an inevitable problem in a country such as New Zealand.
“Anyone with enough knowledge of how the industry works is also likely to have a potential conflict. It’s about how well that’s managed. I don’t think it’s an inherent problem for board members but it would be if the day-to-day management team had that conflict. It’s manageable for people on the board.”
The FMA executive management team does include people who have previously worked within the industry.
John Botica, who is now chief operating officer, was previously managing director of Guardian Trust and general manager of wealth management at AXA, and director of external communications Paul Gregory worked at Westpac earlier in his career.
It also accepts people from industry roles for fixed terms on secondment from time to time.
Neilson said without industry experience, there might be more “unworldly” decision-making from the FMA.
He said it was helpful to have people involved who had a clear idea of what it was like to work in the industry and how it might respond to regulations.
"It would be a mistake not to have people who have relevant experience in the organisation. New Zealand is a small place and it’s impossible to have a group of public servants who have never worked in the private sector.”
Claire Matthews, director of academic programmes at Massey University, said the important thing was to recognise conflicts, ensure they are disclosed and then to manage them appropriately. “Since the FMA looks at how conflicts are managed on other boards, I would expect them to manage them appropriately.”
Insurance industry commentator David Whyte said there was an argument for having closer industry ties, particularly when it came to things such as its recent focus on churn.
"There is a perception that, as the regulator has little, if any, expertise or experience in the area of the market under investigation, the effectiveness and impact of those efforts could be better."
But adviser Brent Sheather is critical of the appointments. The board in particular should also be selected from a wider pool, he said.
“I think they should look at it through the perspective of who the customer is and ultimately that’s Mr and Mrs Retail Investor. Their interests aren’t served by having a board dominated by individuals who have been working for institutions on the other side of the transaction.”
He said it would be better to have more academics, people from overseas, and people such as Grimes with Reserve Bank experience, in board roles in particular. “I don’t buy the idea that the directors need a background in finance. If an FMA board member doesn’t understand a product then it’s inappropriate for the public.”
The FMA referred inquiries to the Ministry of Business, Innovation and Employment.
An MBIE spokesman said: “Given FMA’s role as a financial markets conduct regulator, it is important the Board is made up of people with a wide range of expertise and experience in the financial services industry. The FMA Board has strict policies to manage any potential conflicts of interests around its board and governance arrangements once members have been appointed.”
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But there is something way more insidious and that is what I would regard as a bias problem. When all of your directors come from a similar background with a similar outlook, and all are ultimately sanctioned by a political process that has no checks and balances, then it wont be surprising that a particular institutional mind set develops.
Clearly, the NZ regulatory framework has been institutionally captured by the banks and large instos. The clearest evidence for this is the ability to get last minute changes inserted in to legislation (QFE anyone?). You also don't need to look past any public uttering by the minister or senior civil servants to identify the corporate line they stick to. Again, plenty of evidence from every time the minister speaks, and now even to what I suspect is Rob Everett's regret, the infamous "CBA polo shirt" comment - something so at odds with previous FMA commentary I still cannot get my head around it.
Unnervingly, I also agree entirely with Brent's comment about who should be on the board. Clearly, the most important stakeholders are entirely un-represented: investors who are not insiders in the investment industry. My vierw is you couild get close to that (without scaring the Minister with too much democracy) by appointing 1 or 2 actual practitioners to the board and an independent AFA or a non-big end of town fund manager would be the easiest way to do this. Instead we get more people with the same background (big end of town corporate types.) I cannot identify one board member who ticks all of the following boxes:
- directly faces retail investors
- risks their own capital
- has personal liability for either advice or offers