Financial Markets Authority established

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

The FMA takes over the functions of the Securities Commission and Government Actuary which are being disestablished, and consolidates other regulatory functions from the Ministry of Economic Development.

“I’m confident that the FMA will lift the bar in terms of market behaviour and will have the tools it needs to help restore mum and dad investor confidence in our financial markets, which has taken a battering in recent years,” Commerce Minister Simon Power said today.

“It’s clear that if we are to broaden and deepen our financial markets to benefit companies looking to raise capital, our financial sector must be subject to clear rules, and visible, proactive, and timely enforcement."

The FMA has powers, functions, and duties that its predecessors did not, including: the power to exercise an investor’s right to take civil action against a financial market participant; the ability to prevent products from being structured to avoid being supervised by the FMA; and enhanced warning powers to deal with low-ball unsolicited offers.

It will also have a new oversight regime for registered exchanges, including the ability to undertake real-time surveillance of market activity.

The FMA is headed by chief executive Sean Hughes, while Simon Allen chairs the board of Shelley Cave, Colin Giffney, Mary Holm, Murray Jack, James Miller, Justine Smyth, Michael Webb, and Mark Verbiest, and associate members Bruce Sheppard, Rebecca Eele, and Arthur Grimes.

Mr 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.

Mr Allen said FMA faces an “enormous challenge” 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.

Mr 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.