Outgoing FMA chief says Government may want to look at strengthening prudential supervision of KiwiSaver

Outgoing Financial Markets Authority chief executive Sean Hughes has again posed the question of whether the Government might want to look at beefed-up prudential supervision of KiwiSaver.

Hughes, who announced yesterday that he would be leaving at the end of the year at the expiry of his three year term, has previously highlighted the difference in regulatory regimes between here and Australia.

Across the Tasman there is the Australian Prudential Regulation Authority (APRA), which oversees banks, credit unions, building societies, general insurance and reinsurance companies, life insurance, friendly societies and most members of the superannuation industry. APRA is funded largely by the industries that it supervises. It was established on  1 July 1998.

Valid concerns

Hughes said at the time he made his comments last year the new regime for securities trustees and statutory supervisors had not yet come into effect. His concerns he said were valid at the time because there was no licensing or supervision regime for trustees of KiwiSaver funds. Those changes, however, are now in place. A number of applicants for licences were assessed.

Some were turned down. Any approved were subject to conditions and they are now subject to much closer monitoring and supervision than ever before. 

“But the reality remains that we do not have in New Zealand the same prudential regulatory model as in Australia with a regulator like APRA," Hughes said.

"Now, I’m not criticising the Government. I’m simply making an observation that the two regimes are different. It is a question for the Government as to whether it wants to look at strengthening the prudential supervision of KiwiSaver.

"That’s not for me to say on my way out the door. I’m simply saying it as a question. And now that we have portability on funds between Australia and New Zealand – that’s from the first of July – Australian superannuation funds coming into the New Zealand market and KiwiSaver funds migrating across the Tasman into Australia - the two regimes are not the same.

"And all I’m calling out is, is this a good time to ask ourselves, could we make further improvements?"

No gaps

Minister of Commerce Craig Foss last year told interest.co.nz the FMA is KiwiSaver's sole regulator, and there are no regulatory gaps, with the FMA able to oversee both a fund's market conduct and its competence.

"The Government does not consider that there is a gap to be filled by prudential regulation of KiwiSaver schemes. The FMA will have the tools and powers to appropriately regulate the schemes. The regulation focussed on competence and conduct - which will be squarely within the purview of FMA.

“The FMA is the single regulator for KiwiSaver. The Reserve Bank prudentially regulates certain entities that promise to pay out of the assets of the entity, e.g. banks and non-bank deposit takers have to repay their deposits, insurance companies have to have enough money to pay in the event of a loss," Foss said then.

Hughes reiterated yesterday that KiwiSaver was FMA's number one priority.

"We said that in our compliance focus document, which we published earlier this year.

Largest pot

"The reason we say that is that is the largest pot of money. That is often the only investment that most New Zealanders will have outside their home and for us it is absolutely critical that that pot of money be kept safe, that it be prudently invested and that members know exactly where their money is at all times.  We simply cannot afford to have any loss of confidence in KiwiSaver.

“It is simply a question for the Government.

"I am happy to lend my voice as one of many people who would have an opinion on this subject but for me the most important thing that any New Zealander ought to think about is how are they going to fund their retirement.

"I don’t believe that we can all sit back and take comfort that the Government super will be there to support us permanently into our retirement. Living standards and the cost that will impose on the tax base must be questions that we have to look at.

"So, for me as a markets regulator I would say I would want to make sure that there is a very strong buffer to support the growth of the KiwiSaver market so that New Zealanders have real confidence in putting that money in because they know that when they retire it is going to be there and it is going to be there for them to take out." 

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