FMA aims to restore investor confidence

MEDIA STATEMENT
1 May 2011

Financial Markets Authority aims to restore investor confidence

Restoring investor confidence in New Zealand’s financial markets is the major goal of the new Financial Markets Authority which was formally established today.

FMA chairman, Simon Allen, said New Zealand’s economic prospects depended on lifting international and domestic investor confidence in the country’s capital markets.

“Broadening and deepening our financial markets to ensure local businesses have access to the capital they need to grow is our overriding objective,” he said. “To achieve that investors have to regard New Zealand as a good place to invest.”

“FMA’s intent is to establish clearer and more consistent rules for market participants, improve market intelligence and surveillance, and be more visible and proactive in regulation and enforcement as well as raise the standards of financial advisers,” said Mr Allen.

FMA is the new Crown entity that has taken over the functions of the Securities Commission and the Government Actuary, which have been disestablished, and consolidates other regulatory functions from the Ministry of Economic Development.

Mr Allen said both he, the new nine member and three associate member FMA Board and executive team led by Chief Executive Sean Hughes, were conscious of the enormous challenge they faced in achieving a turnaround in investor confidence in the current negative environment in which investors have suffered large losses in finance company and other company collapses in recent years combined with the fall out of the global financial crisis.

“We can and will set clearer rules for how markets and businesses should operate to a higher standard, and we will more consistently and strongly enforce those rules,” he said. “However, New Zealand cannot regulate its way to improved standards of market behaviour, company performance and corporate governance.

“Ultimately, if New Zealand is to seriously lift its game, it requires all market participants including professional company directors running New Zealand businesses to take these new rules and responsibilities of conduct, governance and integrity very seriously.

“In that sense, we are all in this together, and I can’t over-emphasise that enough,” he added.

Chief Executive Sean Hughes said that FMA had new powers, new functions, a greater mandate and significantly increased budget compared to its predecessors.

“Over time investors can expect access to more timely and better quality information and higher standards of financial advice on which to make their investment decisions. And the market generally can expect FMA to act more quickly and efficiently in market surveillance, intervention and, where necessary, enforcement if the new rules are deliberately flouted.”

Mr Hughes said a key FMA goal was to lift standards of corporate governance.

Another priority was the previously announced review of the pipeline of existing and potential prosecutions and investigations inherited by FMA from the former Securities Commission.

For more detailed information about FMA, see www.fma.govt.nz

Ends

(Note: The website is planned to be live by 6.30 pm today.)

Media backgrounder
The Financial Markets Authority (FMA) is a new Crown entity created with the main objective of restoring investor confidence and trust in the integrity and operation of New Zealand’s capital markets domestically and internationally.
Key to achieving these objectives will be a more integrated approach to regulating the financial sector and strengthening enforcement powers, so investors are confident that the regulations are actively and consistently enforced. In addition the FMA will ensure that investors have access to timely information to help them invest wisely.
Fair, efficient and transparent markets, achieved through integration
FMA takes over the functions of the disestablished Securities Commission and Government Actuary and consolidates other regulatory functions from the Ministry of Economic Development.
FMA will also have an enhanced role in overseeing securities exchanges and be responsible for the regulation of financial advisers, financial service providers, trustees and auditors.
FMA also has new powers, functions, and duties compared to its predecessors, including:
• The power to exercise an investor’s right to take civil action against a financial market participant when it’s considered to be in the public interest to do so. Individuals can opt out of proceedings if they choose.
• The ability to prevent products from being structured to avoid being supervised by FMA.
• Enhanced warning powers to deal with low-ball unsolicited offers. Anyone with a history of making unsolicited offers will be made to display a prominent warning to that effect when they send documents to investors. FMA can also require unsolicited offers to include minimum-offer periods, and disclosure of market price and other relevant information.
• A new oversight regime for registered exchanges, including the ability to undertake real-time surveillance of market activity.
FMA three-year focus
Establish expectations for market participants:
• Work with market participants to help them understand FMA’s expectations of their performance.
• Raise the profile of and participation in the capital markets via effective education, partnerships and public engagement initiatives.
• Engage with market participants and stakeholders to identify barriers to capital market growth and explore the role of FMA in overcoming those obstacles.
Consistent information for investors:
• Implement new prospectus (delayed allotment) regime
• Proactively promote relevant disclosures; Guidance Notes; Warnings.
Build confidence in intermediaries and licensees:
• Effectively implement and oversee new licensing and supervision functions (auditors, trustees, financial advisors, exchanges);
Early detection and strong enforcement:
• Place a strong emphasis on surveillance, investigation and enforcement actions so as to have the greatest deterrent effect. Establish self-reporting and remediation policies.
• Develop an intelligence gathering and analysis hub to disseminate information throughout the organisation.
• Develop a robust case selection policy, which includes taking cases that test the boundaries of the law and develop new case law.
• Develop and implement a referral management system including whistle blowers.

Financial Markets Authority Board members
Simon Allen is FMA chair, and Sean Hughes is the chief executive. The eight board members are: Shelley Cave, Colin Giffney, Mary Holm, Murray Jack, James Miller, Justine Smyth, Michael Webb, and Mark Verbiest.In addition, Bruce Sheppard, Rebecca Eele, and Arthur Grimes have been appointed associate members of the board.
Board members’ b ackground
Simon Allen, chair, is one of NZ’s most experienced investment bankers with over 23 years’ experience in capital markets development in NZ and Australia. Simon was the founder and former managing director of ABN AMRO New Zealand formed as a greenfields operation in 1988, and a member of the the ABN Amro Australian management committee. He chaired the New Zealand Exchange Ltd (NZX) from 2001 through 2008 carrying overall responsibility for the transformation of the exchange including demutualisation. He advised the Crown on the sale of Contact Energy Limited, the Auckland Energy Trust on its investment in Mercury Energy (now Vector), and Telecom Corporation of New Zealand on the largest share buy back in New Zealand history. He currently chairs Crown Fibre Holdings, which was established to manage the Crown’s investment in ultra-fast broadband infrastructure.
Mark Verbiest is a consultant with Simpson Grierson and is chair of Transpower and Willis Bond Capital Partners. He is on the boards of Freightways, AMP NZ Office Limited, Government Superannuation Fund Authority, and Southern Cross Medical Care Society. He was Group General Counsel for Telecom from 2000 to 2008 and prior to that was a senior partner with Simpson Grierson.
Shelley Cave is a partner at Simpson Grierson, specialising in corporate and securities law. She is a member of the New Zealand Venture Capital Association and the Institute of Directors. She is a current member of the Securities Commission and has been a member of the FMA Establishment Board.
Murray Jack has been chief executive of Deloitte since 2005. He has been involved in the development of the proposed auditor oversight regime and related regulatory issues, is a board member on the Institute of Chartered Accountants, and is involved in the governance of accounting and auditing matters.
James Miller has more than 15 years’ experience in the financial sector, specialising in company research. He is an experienced board member, currently sitting on the boards of the New Zealand Stock Exchange, Vector and Auckland International Airport.
Justine Smyth is chair of the NZ Breast Cancer Foundation and deputy chair of NZ Post Ltd. She gained important financial experience as a tax partner of Deloitte and as a finance director of a large public company.
Mary Holm is a financial columnist, author and lecturer in financial literacy. She holds an MBA in finance, is a director of the Banking Ombudsman Scheme, and was a member of the Capital Market Development Taskforce and the Savings Working Group.
Colin Giffney is a corporate adviser at Giffney & Jones. He has extensive experience in financial markets and on the boards of public, private, and government entities. He is deputy chair of the Takeovers Panel.
Michael Webb is a commercial barrister with extensive knowledge of financial markets, banking, securities, and insolvency law. He has valuable international experience from working in the financial sector in Qatar, and was previously a member of the Securities Commission.
Associate members’ background
Rebecca Eele has a background in law, finance, and investment. She has specialised knowledge of financial markets in New Zealand and overseas.
Bruce Sheppard is an experienced accountant, having set up his own firm in 1985. He founded the New Zealand Shareholders Association in 2001 and was chair until July last year. He was a member of the FMA Establishment Board.
Arthur Grimes is an economist, and is chair of the board of the Reserve Bank. He has been heavily involved in economic research with Motu and the University of Waikato and has extensive practical experience in the financial sector.
Chief executive background
Sean Hughes, an expatriate New Zealander with more than 20 years international experience in securities and capital markets, surveillance and enforcement functions as well as extensive private sector experience in financial services. Most recently he held the role of Senior Executive Leader, Corporations, for the Australian Securities and Investment Commission (ASIC).

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