Speech: Hughes opens IFA Conference
FMA chief executive Sean Hughes tells advisers who should be run out of town; acknowledges the Cowboy ads ruffled feathers and issues a challenge to advisers.
Thursday, July 14th 2011, 7:41AM
This time last week I called Peter to see whether he wanted me to stand aside from giving these opening comments. As many of you will know, there was a very vocal response from some advisers on our cowboys ads and I was mindful of further offending advisers.
Peter, to his credit, said no. He said it was important for you to hear the bigger picture. He further re-iterated the invitation to Mel Hewitson to attend for questions on Friday.
In the face of what at times has amounted to attacks on both us and the IFA over this, Peter's stance took courage. And while I'm certain those attacks come from a minority, not the majority who have engaged effectively throughout the regime's introduction, it is worth reflecting on the importance of courage as we begin this new era of financial advice.
FMA has been set up as New Zealand's first fully-fledged financial services law enforcement body operating in the capital markets.
It's a quantum leap forward in the regulation of New Zealand's financial markets and requires a bold and focused approach.
It will require us to think beyond the immediate needs of the marketplace and, at times to take tough decisions that not everyone will agree with. We cannot monitor every act of misbehaviour, but instead must focus on those areas where the failings are deliberate or reckless, and where the perpetrator set out to deliberately mislead or deceive investors.
It requires us to take risks at times. The risk of offending the good guys by pointing out the bad. The risk of taking on cases we might not win, because we see a benefit in testing the law. As the regulator, we need to be able to take those risks without people criticising our motives.
Because FMA has been set up differently from many other regulators in the world. We have twin statutory objectives - to promote and facilitate fair, efficient and transparent markets, and to grow New Zealand's capital base.
These twin objectives positions FMA not just as a regulator but as an economic ambassador for New Zealand, charged with enabling growth and capital development.
And it's this latter objective that particularly excites me and should excite you too.
We all know that rebuilding confidence in our capital markets will be a significant challenge - particularly with retail investors. Investor confidence wasn't just weakened with the Global Financial Crisis and the collapse of finance companies - it was well and truly shattered.
Before the 1987 sharemarket crash, 26 percent of household assets were directly invested in New Zealand's equity markets. As at the end of 2010, this share had plummeted to 7 percent.
This is an extremely concerning state of affairs and a situation we need to turn around. And I know many of you feel unfairly targeted as part of the problem, and never fear we are not losing focus on those other market participants including securities exchanges, trustees and statutory supervisors who we will regulate from 1 October and auditors from next July. And by the way, Cabinet has also signaled regulation of funds managers and derivatives issuers under the proposed securities law review.
But the fact is financial advisers are now regulated. And I want to challenge each and every one of you to end the debate about the relative fault or otherwise of advisers versus those other market participants. Because I think as newly qualified professionals, you have the opportunity to take on a leadership role in your communities.
True leaders have a vision that is forward-looking and that they are prepared to share with others.
They have technical competence, and the harsh reality is that they are called on to demonstrate that competence much more visibly than those who follow them.
Above all, true leaders are prepared to be courageous. They will put the needs of others ahead of their own.
The laws that you are working by today require you to meet a minimum of compliance. But to achieve the purpose of the law, rebuilding investor confidence in capital markets, financial advisers need to act above and beyond the letter of the law. True professionalism, true leadership requires you to act in the spirit of the law.
When regulators think about the regulated we tend to divide them into three behavioural categories - the compliers, the opportunists and the non-compliers. From our experience with industry to date, I'm adding a fourth - the minimalists.
The Compliers group is where we find the professionals. Those who ‘get it'. They embrace both the letter and the spirit of the law. They don't need laws to make them truly professional and put their clients first - they do it anyway. They read and consider the regulator's material and have thought about their compliance. They are the ones who raise the competency and conduct bars. This is where we find examples of best practice and leadership - in both individuals and firms. They take regulation in their stride and have a comfortable and constructive relationship with the regulator - in fact they don't see us very often because they are viewed as ‘low risk'.
‘Minimalists' can also be technical compliers but they do no more than they have to according to the letter of the law. They tend to ask their lawyer rather than think first about the customer and how the regulation aims to help. They seek to analyse the requirements in detail so they can do only what is absolutely necessary. They put energy into resisting what they see as regulatory ‘creep'. They see regulation as a hindrance rather than a necessary ingredient to improving investor confidence and outcomes and therefore growth of their industry - in this case, financial advice. This attitude makes them higher risk to the regulator.
The Opportunists only comply if they think someone is looking. They forget that the regulators are not the only ones watching. Their competitors and customers are interested in what they do and can draw attention to them.
Finally the Non-compliers. This group doesn't belong. They either leave the industry voluntarily, get stopped at the licensing gates or become the subject of enforcement action, ideally sooner than later.
The greater the sign-up to the first group of complying professionals, the more we can leave you in peace and focus resources (which industry pays for) on dealing to the other lot and real harms.
Congratulations to those of you who have already had the courage to choose a healthy attitude.
As you get back to business, this group will have a competitive advantage over other financial advisers.
You will take the lead in improving the lot of New Zealanders. You will help create a situation where wealthier, more confident, more informed investors are in the markets.
Thank you and enjoy your conference.
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