The Financial Markets Authority (FMA) remains “very pro innovation”, the regulator’s capital markets director, Garth Stanish, told an Auckland fintech conference last week.
In a panel session at the CFA Institute ‘Disruptive innovation in financial services’ symposium held at the Hilton Hotel, Stanish said the FMA strongly supported “innovation and new technology”.
“It would be ridiculous if we didn’t,” he said. “… The FMA was formed, designed and aligned with the business growth agenda… the desire to make markets work is in our DNA.”
Stanish said the regulator had a proven track record of backing innovation, citing its accommodative approach to crowd-funding, the Lifetime Income variable annuities product, the NZX Next platform, and fintech projects such as the Kiwibank accelerator hub.
He said some overseas regulators had privately expressed “horror” at the FMA’s reasonably liberal crowdfunding regime when it launched but the system was functioning smoothly.
NZ was an earlier-adopter of crowdfunding/peer-to-peer lending regulations, which came into being under the 2013 Financial Markets Conduct Act (FMC).
Next month the FMA will also release a consultation paper on proposals to fast-forward robo-advice capabilities prior to changes already afoot in the Financial Services Legislation Amendment (FSL) bill. The FSL bill, which amongst other major reforms of the financial advice sector, formally removes the legal requirement that retail advice providers must be a ‘natural person’ – clearing the way for automated advice services linked to products.
With the FSL reforms not expected to come into force before 2019, however, the FMA consultation will explore how the regulator can use its existing powers to switch on the robos earlier.
“We have an open mind to new products,” Stanish told the CFA audience. “But we don’t want to see risks being passed on to investors that they don’t understand.”
Despite taking a closer look at special exemptions for robo-advice providers he reiterated that the FMA would not go the full ‘sandbox’ route adopted by many offshore regulators such as the UK and Australia. Under ‘sandbox’ rules of play, eligible start-up firms can operate in business for a limited period without having to fully comply with grown-up regulations.
“We’re flexible, and we can do things quickly [without sandboxing],” Stanish said.
Speaking on the same panel, Mandy Simpson, head of Wellington consultancy firm Cyber Toa, said the sandbox approach had proved effective offshore in fostering innovation in financial services.
Simpson, previously NZX chief operating officer, said the FMA was nonetheless open to innovation despite “having no incentive” to act that way.
She said while the regulator and start-ups were keen to drive change, the “third player” in the game – large financial services firms – were “more risk averse”.
According to Simpson, institutions were worried they could face reputational and legal consequences if a start-up they partnered with went sour.
If the FMA allowed, say, a two-year window where banks, or other institutions, held no liability for fintech partner errors that could unleash more innovation, she said.