FMA chief executive Rob Everett said some firms were left reeling when the previously unregulated environment changed and they suddenly had to engage with active regulation – even if there wasn’t necessarily a problem.

“There is an element of culture shock for firms that have not been regulated before, and indeed those that are regulated elsewhere but can’t grasp why the same needs to happen here in New Zealand.”

But after five years of work and engagement on the part of the FMA, the environment was changing to match the new regulatory landscape, he said.

In a speech to the Trans-Tasman Business Circle, Everett said there have been some challenges, particularly with the switch in enforcement focus from “post-mortems on dead bodies to treating live ones”.

He said he would give his organisation a pass mark to date.

“If I look at what investors are saying in our Investor Confidence Survey, just over 60% say they’re confident in the regulation of our financial markets, which sounds like a pass too. A pass is OK, but we can do better.”

In some areas the organisation remains in build phase – albeit in the final stages.

For example, in terms of industry understanding of what the FMA is trying to achieve and the tools they will use to do it, Everett said they are only just off the ground.

“That’s not unreasonable given that we are barely two years into our new regime.”

Moving into the future, one of the major areas the FMA will be focussing on is its conduct regulation mandate.

Everett said this was a shift in emphasis in what they look for to be confident that a regulated business or individual has the interests of their customers at the centre of what they do and how they do it.

“Conduct is what actually happens to customers, investors and markets. Conduct is behavioural and it comes from culture.”

While culture will be part of the FMA’s focus, Everett emphasised they do not and should not prescribe culture – rather that came down to senior leaders of industries and firms.

“Our role in this is to the get leadership of firms to think very hard about what they do, as boards and as senior management teams, and why.

“If necessary, we can also focus the mind with object lessons of the regulatory consequences of poor culture.”

Proportionate but flexible enforcement plays an essential part in that.

Everett said that enforcement did not always mean court proceedings, although court could sometimes be the most effective way of resolving things that have gone wrong.

“You don’t have to use the biggest stick of course. In all but the nastiest cases, its shadow can be the most effective deterrent.”

The FMA will pursue court proceedings rigorously where they are the best option, but it will consider all enforcement options to arrive at the most effective solution.

Some other future focus areas for the organisation include the deepening and broadening of their remit perimeter – which means banks and insurers; defining their role regarding KiwiSaver; licensing of managed funds; and financial advice.

Everett said some people thought the FMA, along with the Financial Markets Conduct Act, has made the environment more difficult.

“But I believe it has created a clearer and more flexible environment than there was before.”