FMA: Time for a shake-up

Sean Hughes, head of the Financial Markets Authority. Photo / Mark Mitchell

Financial Markets Authority boss Sean Hughes wants to shift the new super-regulator's main business to Auckland, shake up dozy Kiwi directors and demonstrate by the "early use of new powers" that the FMA means business.

"I do think we need to be brave," says Hughes. "It is important that we do test our powers.

Hughes, who formally took up his role as the FMA's first chief executive last week, faces huge expectations from small investors traumatised by the collapse of the finance companies sector that he will introduce ethical rigour into the NZ capital markets.

Commerce Minister Simon Power, who announced the FMA's formation at last year's NZ Herald INFINZ Awards, says the super-regulator's first six months are going to be "really important".

"The culture change has to manifest itself in a tangible way early on and I am confident that will be the case."

Power will judge the FMA's success by how quickly money flows back into the capital markets. "That will give an indication to me as to whether 'mum and dad' investors have the confidence to put their money into the capital markets and not into residential property, or, under the mattress, or, on term deposit."

He concedes the public will gauge the FMA's success in a more straightforward way. "They will want to see actions being brought in the court and I imagine that will involve initially some cases where the boundaries are tested and set."

Power, who retires from politics at the November 26 election, is confident the National Government will continue to support the super-regulator. He points out the Government has already increased the overall budget in this area and that Finance Minister Bill English is "very supportive".

But the Commerce Minister stresses that though the FMA will undoubtedly have a strong regulatory and enforcement focus he doesn't want to see innovation squashed in the market.

Power maintains the strong commercial nous that FMA chairman Simon Allen brings to the table will help ensure the NZ capital markets stay innovative and nimble.

Irrespective of Power's confidence it is clearly going to take time before New Zealand builds a strong pool of private savings to underpin a thriving domestic capital market.

ANZ managing director (Institutional) David Green points to Chinese capital as one avenue to help underpin New Zealand's growth particularly in areas like infrastructure investment and food production.

INFINZ chairman David McLean says the industry group wants to make sure New Zealand does have a thriving capital market.

But McLean warns INFINZ is a bit concerned about the state of the NZ capital markets. "We could risk getting into a bit of a sort of death spiral - with fewer and fewer intermediaries, less and less liquidity in the market and more overseas ownership because New Zealand hasn't saved, or hasn't saved in the right places.

"We've been saving in houses and finance companies instead of the productive sector.

"The danger is if don't have enough savings going into the capital markets, you don't have places where people can go to raise capital. The markets lack liquidity and investors says they don't want to invest in the markets - it's quite fragile.

"A viable capital market is a really essential piece of the infrastructure and it's not appreciated really," says McLean." It's vitally important to the economy that we get things right."

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The New Zealand Herald INFINZ Industry Awards will be announced tonight at a black tie dinner at Auckland's Langham hotel in front of more than 600 guests from the cutting edge of NZ's capital markets. At last year's event, Commerce Minister Simon Power announced NZ would finally get a super-regulator - the Financial Markets Authority. Power will again address tonight's audience of NZ's top bankers, fund managers, brokers, CFOs, treasury heads, finance professionals, and analysts.

The Business Herald Bank of the Year Award will be presented by Business Editor Liam Dann. The finalists are ANZ, Bank of New Zealand and Westpac Institutional Bank.