FMA praised as watchdog with teeth

04:48, Dec 05 2013
FMA Sean Hughes
TOUGH STANCE: Another factor mentioned almost across the board was the personal influence of the FMA's foundation chief executive, Sean Hughes.

A review of the Financial Markets Authority's performance has painted the market watchdog as a sheriff riding into town to clean up the Wild West.

The FMA released a stakeholder feedback report this morning, conducted by consultancy Oliver Wyman, which evaluates its progress since forming in May 2011.

While the report contains a mixture of bouquets and brickbats, stakeholders were pleased with the FMA's turnaround from its predecessor, the Securities Commission.

"There is a view of them as the sheriff on the horse coming into town to clean it up - this is a good starting point," one said.

The report found the FMA had issued more guidance in the space of two years than the Securities Commission had during its entire 33-year duration.

Another factor mentioned almost across the board was the personal influence of the FMA's foundation chief executive, Sean Hughes.


"The regulator has teeth and is willing to use them - Sean has made it clear that the FMA is not to be messed with," a stakeholder said.

The outgoing chief executive will be replaced by former Merrill Lynch legal executive Rob Everett on February 3.

Hughes was honoured last night with the New Zealand Shareholders Association's (NZSA) Beacon Award for outstanding leadership.

NZSA chairman John Hawkins said Hughes had done an "outstanding job" building an organisation respected by investors and market participants alike.

"Equally, both he and FMA are feared by those at the fringe who have in the past been able to manipulate commercial matters to their own advantage."

But the stakeholders report also included some concerns that the FMA's approach was too aggressive, particularly the tone of its communications.

"Our clients have taken their tone very seriously and been very worried, unnecessarily," one said.

Some stakeholders also believed the FMA's guidance stepped beyond the reasonable interpretation of the law at times.

"They've sometimes taken guidance a little further than they should have and almost created new laws, but that's part of the learning curve," one commented.

The report identified some lack of clarity and consistency over guidance, particularly disclosure guidance.

Views on the level of supervisory activity across various sectors were mixed.

Some felt the FMA should increase its surveillance focus on participants at the smaller end of town and on the fringes of the market.

"There may be more Ross Asset Managements out there," one said.

Others felt it was larger firms that were escaping attention, and a few said the failure to identify insider trading cases was a key gap.

The largest shortcoming mentioned by stakeholders was a lack of investor education activity and leadership.

Most accepted that broader financial literacy was the role of other organisations, but said the FMA could do more.

Stakeholders made numerous suggestions, including public awareness campaigns similar to those used for health or road safety.

They also suggested product labelling, and programmes in schools.

The FMA's funding and more pressing regulatory priorities were widely recognised as a constraint.

"They are not resourced to do it, but they should be," one stakeholder said.

Fairfax Media