[The Wrap] FMA bares its teeth

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This week we got a much better look at the "new FMA" and it's quite different to the old one.

Friday, January 27th 2023, 4:13PM 4 Comments

by Philip Macalister

The FMA outlined its plans for regulating financial services this week and one out take is that this is a far less friendly regulator than the one run by previous chief executive Rob Everett.

Samantha Barrass, who has been the CEO for just over a year is reshaping, and growing the organisation.

Arguably the revelation which should concern players in financial services, from big fund managers, banks and insurers through to advisers, is that the focus is on customer outcomes.

Here is what Barrass had to say:

“An outcomes-focused approach does not start at what the legislation says, or a rule book says, it starts with what is the right outcome for a strong sector that works well for all.

“This approach ensures regulations and rules are a means to an end, rather than an end in themselves. The real end is fair outcomes.”

To many that seems to be saying that the new-look FMA will do whatever it wants to do. 

Some of the issues here that that "good customer outcomes" is quite a subjective concept. Having a regulator determine what is a good outcome, especially when it has many people who have not worked at the coal face of financial services, is a concern.

Secondly, the way it is presented feels like the FMA is putting itself above the law. 

The presentation from Barrass, and two of her executive directors, was also a good cop, bad cop show with Barrass speaking highly of the quality of engagement between the regulator and the sector, while executive director for regulatory response Paul Gregory played the bad cop role.

There must be tension, he said, between the sector and the regulator.

"Our role inevitably involves tension with industry, because to achieve the purpose we have been given and the vision we have chosen, we impose on private firms. Mostly, on their latitude to pursue short-term economic interests."

"If any regulatory matter does not involve tension with industry to satisfactorily resolve, it probably didn’t require regulation in the first place."

He went further to say that the FMA was prepared to prosecute, even if it lost a case.

The reasoning behind this was that there would then be clarity around what the law meant. Pity anyone who is a defendant in one of these cases.  Arguably consumers bear the brunt of these sorts of actions.

FMA executives made it clear the organisation was not going to be shy on enforcement.

Interesting, under Everrit's reign the FMA was criticised for not taking enough enforcement actions. He, though, chose engagement with the sector as the first step when issues were identified.

That worked. The best example is conduct and culture from banks and insurers. The FMA (and the Reserve Bank) forced significant change without having to rely on legislation.

The law around conduct (CoFI) has only been passed relatively recently and is yet to be fully implemented, but change has already taken place. 

It is clear the FMA is now transforming into a different beast and is going to be a less-friendly regulator than the earlier version of the organisation.

Tags: Customer Outcomes Opinion Paul Gregory Samantha Barrass

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