All government department heads may face tougher conflicts-of-interest controls following an independent review finding last week of gaps in the Financial Markets Authority (FMA) disclosure protocols.
In a 52-page report published last Friday, QC Kristy McDonald, found the FMA erred in managing and reporting a potential conflict of interest involving former chief executive, Rob Everett and his brother-in-law, Booster chief financial officer, Gary Scott.
However, McDonald says the relationship between Everett and Scott did not influence the appointment of Booster as a default KiwiSaver provider in either 2014 or 2021.
Booster was named a default provider in the 2014 statutory review after bidding the-then lowest fee option in the market. In 2014, the number of default providers jumped from five to nine before falling back to six in the 2021 sequel.
Despite implementing internal measures to exclude Everett from the KiwiSaver default appointment process last year (where the regulator played a limited role), the report says the potential conflict should have been formally disclosed to the board and Minister.
And McDonald says the holes in the FMA chief executive conflict management policy might be a government-wide issue.
“It may be that conflict of interest policies of other public service organisations similarly fail to address the unique position of their Chief Executives,” she says in the report. “That question is outside the scope of my Review.”
The report recommends the FMA should keep formal records of conflicts involving chief executives, give board access to such information and audit conflict-management processes.
But McDonald says calls to disclose chief executive conflicts-of-interest in a public register “would be a significant extension of the conflict of interest provisions in the Crown Entities Act as it presently stands”.
“I have also looked at the policy of the Australian Securities and Investments Commission (ASIC) on Avoiding Conflicts of Interest and Improper use of Information as a comparator on this point. That policy does not require public disclosure of the interests of ASIC’s staff,” she says.
“I recommend changes to the FMA’s Conflicts of Interests policy below, but the issue of public disclosure of FMA member and staff interests is a matter that would have to be the subject of a broader review.”
In one of her first public duties, new FMA chief, Samantha Barrass, took one for the team.
“As the primary conduct regulator of the financial sector, the FMA’s integrity must be beyond reproach,” Barrass said in a statement. “We set high standards for ourselves and are implementing all the recommendations.”
Earlier in the week she outlined the FMA priorities in a Financial Services Council (FSC) webinar, citing advisory regulations, conduct, cyber-risk, climate disclosures and KiwiSaver value-for-money rules as high on the agenda.
Barrass also put the wholesale investment sector on notice for increased scrutiny, flagging a report due later this year. The International Monetary Fund recommended NZ to tighten wholesale investment regulations in its 2017 review of the country’s financial markets.
“We are particularly focused on whether/ the extent to which vulnerable consumers and people who are, in practice, retail investors are accessing wholesale markets and the harm this may cause them and their families,” Barrass told the FSC audience.
She said the FMA would see “substantial change” over the next few years as its ambit and budget expand.
“Our staff will need to develop new skills and we will need to work with you, in industry, to better understand some of the new sectors we will be regulating,” Barrass said.
“Fortunately, I’ve led a number of organisations through periods of change. I don’t underestimate the challenge but I’m up for it.”