Rob Everett: The year ahead

FMA chief executive Rob Everett highlighted market volatility, regulation perimeters and legislative reform as key issues to take forward into 2021.

Thursday, February 4th 2021, 6:00AM

by Daniel Smith

While most people are spending January trying to forget the “unprecedented” nature of 2020, FMA chief executive Rob Everett used his first speech of the year to look back at what lessons the financial community can take into 2021.

Speaking at the FSC Outlook 2021 breakfast event, Everett said that while the pandemic forced everyone to rethink how they manage risks and remain resilient, one thing that remained constant at the FMA was “conduct, culture and a relentless focus on the needs of customers and investors”.

Key areas that Everett said the FMA would focus on included: volatile markets, market conduct, the regulatory perimeter and of course, the upcoming legislative reform.

Regarding volatile markets Everett said that: “KiwiSaver and the rapid rise of online retail investing platforms mean investing is becoming truly mainstream.

“Many of these new investors have enjoyed stellar returns. It’s great they’ve had this upside, but we worry that some may be emboldened and venture into high-risk waters.

“Within KiwiSaver, we saw a big surge in switching activities at the start of the Covid crisis. I think that the common lines taken by the providers, the regulators and the media undoubtedly calmed that down, and hopefully will have prepared investors for the next downward drop.”

Everett also said that there was more work needed to “ensure investors play by the rules”.

“You’ve probably seen recent articles about GameStop where retail investors allegedly deliberately pumped up stocks to take down a couple of hedge funds who had been running short positions. This 'weaponised' use of options by retail investors may fundamentally change how US markets operate. The power of the crowd should be making hedge fund managers (and regulators) deeply uncomfortable.

“We’ve recently issued more guidance on this area and encouraged the online platforms to remind their customers of their obligations. More work will be necessary from us, from the NZX, and from the providers and advisers in this area to avoid disorderly markets or poorly informed retail investors staring down the barrel of a criminal prosecution.”

A focus for the FMA in 2021 will be unregulated offers, such as those offered to wholesale investors. Everett says that the FMA’s concern is that “inexperienced investors will be attracted to the impressive returns promised, especially in the property space. It’s crucial that investors are fully informed on the risks associated with these investments, in line with fair dealing rules.”

Everett said that while the role of the regulator was not to police the kinds of investments people could and could not make, “We are here to make sure the risks and returns are properly represented and to caution investors to carefully consider the risks they are taking. Investors signing away some of their rights by getting themselves categorised as wholesale investors need to think hard about the risks they are taking.”

Regarding legislative reform, Everett admitted that the slew of changes heading down the pipeline are a huge challenge for the regulator as well as the financial community.

“There is still much water to flow under the advice bridge but I’m optimistic that we will get to a sensible place and deliver on our collective goal to maintain and build consumer confidence in the value of financial advice.”

Before he reminded anyone who may have forgotten that come March 15 you will need a transitional licence to continue to give financial advice.

Lamenting that the CoFI bill has remained a bill, Everett said, “While we didn’t agree with everything aired in the select committee, it was a valuable process to consider where the draft legislation had undercooked or overcooked the objectives it was meeting.

“The legislation will usher in a much wider remit for the FMA in regulating banks and insurers. We face a major challenge to both retool ourselves as a consumer-focused regulator and to actively supervise a much bigger number of firms.”

The FMA expressed a vehement commitment to the new regime of climate related financial disclosures, with Everett committing that “The FMA will be responsible for regulating this area. We’re currently working with XRB [the External Review Board], which will set the standards and rules for the new regime, as well as other government agencies as we prepare for this.

“You can be confident that we will be consulting you as we formulate our thinking. What the Government has announced is ambitious and will be complex to land. It is however only a small piece of the push towards a finance system that delivers sustainable outcomes for the investors and the world we live in.”

Other areas of interest for the FMA that Everett noted were: cyber-risk, ESG/sustainable finance, and the continued pursuit of the international AML regime.

After a tumultuous year it seems that the regulator is like everyone else in the financial services community, in having a lot on its plate.

Tags: FMA FSC regulation Rob Everett