FMA and RBNZ release their statement of intent
Yesterday, the Reserve Bank of New Zealand (RBNZ) released their Statement of Intent for 2020-2023 and the Financial Markets Authority (FMA) released their Statement of Intent and Statement of Performance expectations for the 2020-2021 year. These statements outline each regulator’s focus and strategic intentions for the period. Both statements note the importance of supporting the sector following the COVID-19 pandemic.
Who needs to read it? Why?
These Statements will be of interest to those who are regulated by the RBNZ and the FMA. In particular, banks and financial institutions should note both regulator’s strong focus on incentivising and managing good conduct.
What does it cover?
RBNZ Statement of Intent
Referring to itself as Tāne Mahuta (the largest Kauri in the forest), the RBNZ aims to promote a sound and dynamic monetary system, which best supports a sustainable and productive economy, in four key areas:
- Ngā Pūtake (the roots) – creating up to date, transparent and robust legislation and a fit-for purpose balance sheet. To do this, the RBNZ intends to review and replace the Reserve Bank Act.
- Te Tariwai (vascular systems) – ensuring trust and confidence in New Zealand’s payment and settlement systems. The RBNZ intends to continue its management and maintenance of payment and settlement systems and amend the Financial Markets Infrastructure Bill.
- Te Toto (the sap) – ensuring money and foreign reserves support a financial system that works for all New Zealanders. This includes a focus on transparent and rigorous processes in monetary policy formulation and a research focus on the economic recovery and understanding of the post-COVID 19 economy.
- Te Pekenga (branches & leaves) – incentivising and managing good conduct in regulated entities such as banks, insurers and non-bank deposit takers. The RBNZ intends to amend the Non-bank Deposit Takers Act 2013 and focus on the Financial Markets (Conduct of Financial Institutions) Amendment Bill (COFI Bill).
- Kaitiakitanga (guardianship) – ensuring the RBNZ delivers their responsibilities to all stakeholders reliably, transparently, inclusively, with integrity, and with innovation.
FMA Statement of Intent
The FMA’s Statement of Intent is less metaphorical. It is primarily focused on supporting the industry through the effects of COVID-19 and the significant transition to the new advice and conduct regimes:
- Governance and culture – ensuring regulated firms have customer-centric cultures that serve the needs of customers. In particular, firms having appropriate governance and systems to manage conduct risk.
- Deterrence of misconduct – failure to meet Anti-Money Laundering and Countering Financing of Terrorism (AML/CFT) requirements and taking effective enforcement action on trading misconduct, misleading and deceptive conduct under the Financial Markets Conduct Act 2013 (FMCA).
- Implementation of remit changes – delivering policy objectives in a way that promotes confidence in the regulatory regime and financial markets generally. The FMA is focused on the number of legislative reforms underway, including the Financial Services Legislation Amendment Act (FSLAA), COFI Bill, Financial Markets Infrastructure Bill, insurance contract law review and proposed regime for climate-related financial disclosures.
- Investor and customer decision-making – promoting investor and customer engagement and allowing active choices based on clear, concise and effective information.
- Trust and confidence in capital markets – ensuring investors and participants have trust and confidence in New Zealand capital markets and enabling growth of those markets. In particular, the FMA intends to improve audit quality, disclosures and financial reporting and maintaining effective oversight of NZX and capital-raising platforms.
FMA Statement of Performance Expectations
The FMA’s Statement of Performance sets out how the FMA measures and reports on its performance against annual performance targets and financial forecasts. The performance measures are regularly reviewed to ensure they reflect the FMA’s strategic intentions and focus on the impact on financial service providers (FSPs), investors and customers.
- Overarching measure – FSPs and investors of New Zealand believing the FMA’s actions promote fair, efficient and transparent financial markets. This measure includes assessing whether stakeholders agree that the FMA’s actions help raise standard of market conduct and integrity, and if investors are confident in the quality of regulation of New Zealand’s financial markets.
- Investigation and enforcement activities – measuring whether the FMA’s actions against financial market misconduct is timely, proportionate and according to appropriate governance.
- Licensing and compliance monitoring functions – using a range of activities to deliver regulatory risk-based monitoring and surveillance to address conduct risks. Also includes ensuring the efficient processing of licence applications to an appropriate standard.
- Market analysis and guidance, investor awareness and regulatory engagement – regularly and meaningfully engaging with the market and entities, and clearly setting and communicating the FMA’s expectations on regulatory requirements and issues to stakeholders.
We welcome these statements from the FMA and RBNZ as conscious reminders to all stakeholders (especially the regulators) that maintaining trust and confidence in the markets through its activities is key to ensuring a smooth recovering and not letting the negative effects of COVID-19 linger.
They confirm that COVID-19 has had significant impacts on the economy and the regulators’ approach to its role. Both the FMA and RBNZ have used it as a driver to revamp the regulatory space.
Further, the strategic intentions and statements by regulators highlight their drive to address existing areas of risk, such as conduct, and form an action-based response going forward so that a customer-centric culture and robust governance of conduct becomes the norm.
A feature of the FMA’s Statement of Intent is the priority being given to deterrence of misconduct. This likely represents a further ramping up of enforceable action across a broad range of topics. The highlighting of AML/CFT was to be expected post the Financial Action Task Force evaluation of New Zealand. Also notable is the intent to gear up on FMCA enforcement – particularly Part 2 (fair dealing) and Part 5 (market conduct). Coming on top of the need to have FSLAA financial advice up and running by 15 March 2021, legal and compliance teams in financial institutions should expect a busy 12 months and ensure they have appropriate resourcing.
These various statements signify the regulators’ approach to promote and facilitate, now more than ever, the development of fair, efficient and transparent financial markets. The corresponding performance measures also align with this goal. We believe, if the goal is successfully achieved through sustainable and inclusive growth, it can go on to improve the wellbeing and living standards of New Zealanders.
If you have any questions in relation to the statements published by the FMA or RBNZ or are considering how each regulator’s focus and strategic intentions may affect your business, please contact one of our experts.