PAUL MCBETH: Staring into the FMA’s mirror, mirror on the wall

Paul McBeth is the editor of The Bottom Line and Curious News, and previously worked at BusinessDesk for 15 years. He has been a member of the NZ Shareholders’ Association since February 2024. Curious News supplies the NZ Shareholders’ Association with a weekly column.

The Financial Markets Authority was forged in fire.

In 2010, then-commerce minister Simon Power stood before a room full of investment professionals at the swanky INFINZ awards dinner unveiling his plans to form a super-regulator. The driving principle was to rebuild the wider public’s faith in financial markets after tens of thousands of people had seen their nest eggs frittered away by the well-heeled wide boys of questionable finance companies.

The speech was aptly named: ‘Rebuilding confidence’.

Of course, the establishment of the FMA was just part of a suite of measures including an overhaul of the 30-year-old investment law, injecting more rigour into the financial adviser regime, and placing greater oversight on the supervisory bodies there to safeguard investor money.

Some utu was demanded in the early years to show the regulator wasn’t going to be a pussycat, with a raft of prosecutions and civil claims lodged against various finance company boards – in tandem with the Serious Fraud Office in those instances of outright theft.

But the overarching goal for the FMA in its first couple of years was to make sure industry players understood the new rules of the conduct-based regime that was meant to thwart the ability of clever lawyers to circumvent an overly prescriptive regime.

Importantly, inaugural chair Simon Allen – a one-time investment banker and past chair of the NZX – echoed the sentiments of the minister that it wasn’t the FMA’s role to remove risk or hinder innovation, rather it was to foster the conditions for a well-functioning regulated framework.

Sometimes my burden is more than I can bear

Unsurprisingly, the regulator’s focus in 2012 and 2013 was to make sure those market participants clearly understood the workings of the new regime and what was expected of them.

It probably didn’t hurt matters that the government’s partial privatisation programme of Mercury NZ, Meridian Energy and Genesis Energy was fuelling interest in our domestic stock market and the worldwide juice from near-zero interest rates in response to the global financial crisis kept the stock market bull running.

And in 2015, the regulator – then chaired by former Deloitte chief Murray Jack and led by chief executive Rob Everett – adopted a survey of investors’ confidence in financial markets as the primary gauge of whether it was helping to deliver fair, efficient and transparent markets.

As you can see from the chart below, it’s been a hard road since the FMA’s foundation and quite the sharp drop from a peak in 2021 when markets were surging out of the covid pandemic.

Chart created in Flourish with FMA data.

Funnily enough, that was the year the board – chaired by Mark Todd – changed tack in how it measured success, preferring to look inward by watching what stakeholders thought of the FMA’s actions in raising standards of market conduct and integrity, and whether investors were confident in the quality of regulation of the country’s financial markets.

Way to make things all about you, guys.

That introspection has continued, with the current priorities measuring whether stakeholders agree the regulator’s focused on the outcomes that matter for consumers and markets and whether its approach to regulation is proportionate – the latter of which has been tracked haphazardly over the years and will always be hampered by the laissez-faire dream that beats deep in the chest of anyone pursuing a career in finance.

Chart created in Flourish with FMA data.

There’s not even room enough to be anywhere

To be fair to the regulator, the mission creep of adding financial adviser licensing, broader conduct oversight of financial institutions and keeping tabs on consumer credit meant it was always going to worry about what the cool finance kids were saying about it behind closed doors.

As with everything, adding complexity forces organisations to spend more time thinking about themselves – typically at the expense of what they were originally trying to do.

And that’s not to say that the FMA has failed. Far from it.

For all its grizzles about the likes of unregulated wholesale offerings tempting unwary retail investors and despite the NZX feeling the global chill on public offerings more keenly than most, New Zealand isn’t facing a systemic risk.

We weathered the madness of markets during the pandemic – remember West Texas oil prices turning negative? – and the improved financial literacy of KiwiSavers has meant we haven’t seen the same degree of switching to conservative options in the middle of a bear market, when the only thing someone’s likely to achieve is crystallising a loss.

Sure, AI deep fakes on social media platforms are a concern, but scams and theft will always happen, no matter how tight your regulatory regime is.

But with the bulk of New Zealanders’ savings and investments tied up in property, bank deposits and KiwiSaver, it’s hard to second-guess what will bring the next black swan posing an existential threat to markets and local investors’ confidence in them.

I just don’t see why I should even care

That’s a solid foundation, even if the leadership of the FMA is in crisis – as the NZ Shareholders’ Association put it.

Chief executive Oliver Mander was at pains to point out in the latest The Long and the Short of It podcast that there’s broad support for the regulator as a whole and the work that it does: “People still really value what the FMA does”.

FMA chair Craig Stobo was effectively shown the door when he resigned in May, and with CEO Samantha Barrass on gardening leave ahead of her formal exit in January while the organisation’s culture and conduct get a thorough going over by Kristy McDonald KC, the soul-searching of recent years probably hasn’t achieved what it set out to do.

Just what that desired outcome is, isn’t the easiest thing to unpick.

The FMA’s 2025 annual report cited a lofty purpose of fostering the fairest financial sector in the world, with a vision that more New Zealanders than ever believe the financial services sector is working well for them.

Your correspondent has never been a professional movie critic, but we’re quite sure that the queen in Disney’s Snow White and the Seven Dwarfs was the baddie.

We’re being flippant, of course. It’s an admirable goal to ensure that financial services put their customers’ interests at the heart of everything they do and, thankfully, they largely do.

Don’t even hear the murmur of a prayer

As much as people bemoan New Zealand as something of a wild west where the battlers are always up against the weight of money in Main Street, we’re anything but. There’s a reason foreign money has been happy to take advantage of the active investor plus visa regime.

But the FMA needs to remember why it exists, even if its workload is substantially greater than when it started.

The appointments of James Miller as chair and Trevor Janes as a director are a good start.

Both have been widely welcomed, with Miller one of the FMA’s founding directors and a former chair of the NZX like his predecessor Allen, and Janes’ role as the founding chair of NZX’s NZ RegCo seen as bringing a bit of hands-on knowledge in getting the regulator back on track.

The fact that finance minister Nicola Willis shared credit with commerce minister Cameron Brewer in making the appointments shows a heartening recognition at the top table that our domestic markets are too shallow and need some steel in fostering an environment where businesses want to grow and share that wealth creation with the rest of the country.

Because success looks like confident and informed participation in fair, efficient and transparent financial markets. Nothing more, nothing less.

Watch Paul McBeth and Oliver Mander discuss the FMA appointments:

Image from Tuva Mathilde Løland on Unsplash.

This column has been updated to add the video embed.