We’re all here today to look to the future.
As the parent of two ‘tweens’ the pace of change can feel both exciting and terrifying in equal measure, both professionally and personally.
I’ve spent more than twenty years as a financial regulator. During my career, both here, and in the UK, I’ve seen a lot of changes in our industry and in the way it is regulated. I think much has been achieved, but there have also been plenty of lessons to learn along the way.
Regulation can often be seen as a response to the last crisis rather than looking to the future. Which can be as frustrating for us in practice as it is for you when there are unintended costs and negative consequences in the real world.
That is not where we want to be. In my experience, conduct regulation works best when we understand what has gone before - to understand where we have come from – but just as importantly looks ahead.
Ahead to what future risks should be managed and what opportunities there are to take advantage of.
At the FMA, we want a strong financial services sector that investors and consumers can have trust and confidence in. New Zealanders should have access to the best products and fairest financial services.
We see digitisation, innovation and growth as necessary to achieve this ambition. We want to understand how regulation can support this, while also ensuring appropriate protections are in place.
So I want us to work together more to tackle some of the big issues that cannot be solved by either regulators, or governments, or industry alone.
A regime that has strong governance and risk management at it’s core, while also providing flexibility for varied business models and innovation, offers the potential to not just lift the financial services system, but productivity across New Zealand.
But I’m not naive and have seen many examples of poor practices in my time. Some have been driven by complacency or underinvestment in appropriate systems and others by fear or self-interest.
Regardless of the driver, it is critical to the integrity of the market that we continue to provide a credible deterrence and take enforcement action for the most significant cases.
But I believe the majority of people want to do the right thing for their business and their customers. And so I want to foster an environment where we can make great progress for the sector by having open, honest and impactful dialogue about what will deliver better outcomes.
Over the past few months, we’ve either run or been part of others’ roundtables, focused on a number of topics.
From KiwiSaver investment in private assets, to the smallest of non-bank deposit takers, to private market participants, to life and health insurers.
Why are we, as the regulator, and Government, as policymakers, spending all this energy and all this effort, to get everyone in a room together and to look each other in the eye?
Because all of us have realised that if we want to deliver the right outcomes for New Zealand, for its consumers, for its businesses, then it requires all of us to reflect on the part that we play, and how we interconnect.
As a regulator we have to make space for innovation to thrive, for businesses to be able to take risks, while also balancing the need to avoid consumer harm.
Our fintech regulatory sandbox work is a real example of our approach to enable innovation.
Six companies were selected to be part of the pilot, which enables fintechs to test new products and services in a controlled environment, whilst helping them to obtain a deeper understanding of supervisory expectations.
The opportunity to adjust a product or service before full commercial launch may also help reduce costs for firms and have clear benefits for us.
By working closely with firms during their time in the sandbox, we are gaining greater insights into the benefits and risks of financial innovation and new technologies.
We are also gaining valuable insights into the costs facing smaller firms as they bring new services to market whilst ensuring they meet regulatory and licensing requirements.
We are constantly keeping an eye on emerging trends around the world.This allows us to be attuned to the risks and opportunities in the market, including when new financial products surface.
One trend that we are learning more about is tokenisation and its potential for New Zealand markets. And you’ll soon be seeing a discussion document from us on this topic.
Globally, we’re seeing some jurisdictions and companies investing heavily in virtual asset infrastructure and developing comprehensive frameworks for crypto assets.
These global themes blur many areas of traditional finance - in securities, payments and currencies. They change the role of intermediaries and how consumers access products and services in ways that don’t fit neatly into traditional policy and regulatory remits.
The key for us is getting input from the sector about what is helping and hindering the use of blockchain in financial products and services, understanding whether the current regulatory environment is suitable to encourage responsible innovation, and what benefits tokenisation might bring to consumers and financial markets.
We aren’t just looking at innovation and collaboration opportunities on the perimeter of our remit. This approach also applies to our core regulatory sectors, like financial advice.
We’ve asked financial advisers to tell us about issues they see as impacting access to financial advice.
We have a new regime that is bedding in. We want to know what advisers are seeing, and how we need to reflect this in how we monitor and supervise firms.
Where we identify these issues, we’ll consider the best steps to address these – it could be issuing new guidance, evolving our monitoring focus, making recommendations if we identify gaps or potential improvements that need to be addressed, or improving consumer awareness.
This approach is driven by looking to achieve better outcomes for both consumers and firms; by enabling consumers to access advice, and for a long-term viable financial advice sector.
Clearly the rise of Artificial Intelligence is now a topic on everyone’s agenda.
We know firms are now using AI to automate internal operations, such as code generation, document processing, and customer service.
But probably of more interest for us are moves to integrate AI into core financial decision-making, which includes credit underwriting, pricing, and capital allocation.
AI is no longer just an efficiency play; it's increasingly becoming a driver of strategy for financial services.
AI was a theme across all the applications for our sandbox pilot and we’re using what we’re learning from this to understand the risks and opportunities it offers. It’s also a major topic when we’re out meeting Boards and Executives, as both we and industry consider how it will change financial services.
Our focus is on on responsible innovation. AI has great potential to improve customer and market outcomes, but we are looking for the firms we regulate to remain proactive in understanding and addressing the risks.
Firms using AI should be considering the appropriate level of governance and oversight, ensuring AI outputs and decisions continue to be reliable, explainable and contestable, and that sensitive information continues to be protected.
We want providers to be more confident when considering and using AI in the whole life cycle from deployment, application, to evaluation. We are considering how we can provide some general information and principles on AI use to the market that will assist providers with good practices and to continue meeting their existing obligations.
And, as you would expect, we are also using AI to support our regulatory activities by deploying traditional and generative AI across the FMA. The goal here is to raise productivity and ease regulatory burden.
We’re using AI to assess risks to help inform our supervisors’ work plans, as well as streamline internal reporting and summarise documents. A particularly helpful tool is using AI to look across our engagements across a sector, and summarise the key themes or issues we hear from you.
At its heart, we want to use AI to enable staff to focus on their most valuable, high impact work.
In my time in regulation, I’ve seen both the skills that supervisors use and the questions they ask change. And that will need to continue.
But at its heart our work will continue to be indentifying and tackling where harm to consumers and market integrity can occur.
Our goal is not to regulate for the sake of regulating, but to focus on the outcomes of what regulation is trying to achieve.
Our approach means you’ll see us using our influencing and collaboration tools, like the recent public Dear CEO letter on the rise in mortgage fraud. Here we’re trying to highlight an issue that we can see growing, and work with all providers to try to prevent further fraudulent activity.
Our approach means using exemptions to relieve regulatory burden, and supporting industry through the likes of our climate related disclosures updates, helping firms in a novel, new and complicated area.
It means working with the NZX to make it easier and less costly for firms to list. And also speaking to private capital firms to understand their sector and how they can help New Zealand grow.
It means working with industry bodies to make sure our financial advice review is looking at the right issues and tackling the right problem. With a focus on ensuring more New Zealanders than ever can access the advice they need.
It’s about ensuring regulation is focused on what it is trying to achieve.
Balancing innovation, conduct and confidence isn’t always obvious or simple.
But trying to find the right balance is what we, as a conduct regulator, do.
And while the product might change from being a share, to a token, or a virtual asset, or something else, our approach will remain the same; working with industry to ensure Kiwis have trust and confidence in the financial services sector.
Thank you for inviting me to speak and I’m more than happy to take any questions.
