Keeping our eyes on the road ahead

Financial Markets Authority chief executive outlines the regulators plans for the coming months.

Tuesday, July 28th 2020, 12:32PM

Looking back, it has been a tumultuous last few months for all of us. However it’s the time of year when we look forward and plan the coming months – as best we can. So I thought I would lay out some of our focus areas and planned activities. As you read this please imagine me knocking on wood, simply because the best laid plans will no doubt be revisited as we go.

Global markets have bounced back after the dramatic falls in March that gave issuers, investors and other participants in our financial markets added concerns during the stress of lockdown. In many respects, New Zealand has been very resilient and markets have performed remarkably well. But events in other countries and the uncertain economic future here tell us that difficult times are likely to come.

There’s no doubt the pandemic will continue to impact the global economy and financial markets well into 2021 and possibly beyond. Throw in the US election and tensions between the US and China, and that likely means further volatility, low interest rates and potentially greater risks of investor losses and poor outcomes for customers of financial services firms.

Normally at this time of year we publish our workplan for the year ahead (our Annual Corporate Plan). That’s on hold until there’s greater certainty. Instead, our immediate focus is ensuring the financial sector can respond to the challenges related to the pandemic, and supporting the millions of Kiwis who entrust the sector with their hard-earned funds. We’ll be keeping our eyes on some areas in particular over the next three to six months:

Ensuring the sector is prepared to respond to future disruption including further lockdowns or extreme market volatility
Supporting investors and customers of financial services firms
Working with the Council of Financial Regulators to have a coordinated response to issues impacting the financial sector and a thoughtful approach to the burden imposed on firms and advisers by the large range of initiatives around financial services regulation
Helping the financial advice sector make decisions around licensing under the new regulatory regime
Looking for irregularities in trading, company disclosure, financial reporting and audits
Taking quick action on reports of scams that seek to exploit the pandemic.
We’ve already set out our expectations on the treatment of investors and customers during this period of economic turmoil. We’ll be watching for issues such as the mis-selling of high-risk products and poor treatment of customers – especially those who are vulnerable to financial difficulty.

Events have certainly prompted interest in investment markets, and that heightened level of interest is good to see. Unfortunately, we have seen some investors crystallising losses, most notably by switching KiwiSaver funds after that sharp March fall. We’ve also seen people who are new to direct market participation piling into equity markets – which is a global development.

Future market volatility is likely to persist, so we’ll continue to remind investors that they should take a long term view on their retirement savings and investments, rather than taking a knee jerk reaction to market ups and downs. Timing volatile markets is enormously difficult and we want retail investors to tread carefully.

I was heartened to see the results of the FMA’s latest Investor Confidence survey that showed 66 percent of investors had confidence in our financial markets, despite the volatility at the time we undertook the survey. The survey also found an uptick in investor confidence in the way our markets are regulated, to 68 percent, with KiwiSaver members much more confident in particular.

Such results are a good sign the FMA is doing its job and that the long-term nature of investment is acknowledged. But we’ll be continuing to work hard to earn and retain that investor confidence.

While we have immediate risks and activities associated with the pandemic, risks we’ve identified previously don’t go away. Accordingly, we are resuming our normal regulatory activities in phases over the next six months, continuing our supervisory monitoring of licensed firms and our ongoing focus on combatting money laundering.

That said, we are acutely aware that the industry’s priority should be on serving the needs of investors and customers, and we will respond accordingly to any entities needing our support to enable them to do this.

It’s remarkable what we have achieved as a nation so far – let’s hope our collective good luck continues.

Tags: Council of Financial Regulators Covid-19 FMA Opinion Rob Everett