Regulators Report card: "Should do better"
Compliance & Strategic Issues

Regulators Report card: "Should do better"

November 24, 2011
 by Tony Vidler.

What should we expect a regulator to regulate?

We (advisers and other industry stakeholders) presume that the regulators role logically is to administer the law (and regulations relating to the implementation of the law that the regulators themselves write) that they have been tasked to manage.It would seem to follow therefore that they must know that law and their regulations.You’d think they should have a clear idea as to how they intend to apply, or interpret, the rules and regulations on the sector they regulate.
So why isn’t that quite happening?
At the outset and for the record, this is a not an anti-regulator rant.  In the main I have felt that the various departments and government bodies involved in implementing new regulation in the New Zealand financial services sector have done a difficult task pretty well thus far as I have dealt with them.  I don’t have any particular issues with how the FMA, or the Companies Office, or Ministry of Consumer Affairs (etc, etc) have gone about their jobs.  Quite the opposite generally.  My involvement with each of these groups at different times have been polite, business-like, engaging and friendly.  They are generally staffed by very able people that take their roles seriously, and who are trying to do the best they can from what I have seen.  The report card (from my perspective) is generally positive.
Despite that, there is a really awkward and dissatisfying element to regulation work thus far causing disproportionate frustration.  The lack of “market guidance” is beginning to look like the most significant “cost of compliance” for industry, and is a source of teeth-gnashing that could so easily be avoided.
Most industry participants understand and accept that strict interpretation of new laws will largely come about as a result of future court actions providing case law.  That is not a regulators job to pre-empt, as it is the domain of the courts to strictly interpret the meaning of law when that meaning is contested.  Taking it a step further back from that, we generally accept also that a regulator may not wish to pre-empt the outcome of their own market complaints or disciplinary functions by advising the market of expected behaviors or business methodology.  Perhaps an arguable point there to many, but one I am personally willing to give regulators the benefit of the doubt upon, as their position makes sense from the perspective of maintaining judicial independence in the event of complaints that they must manage.
One area where most industry participants DO expect clear regulatory guidance though is on the basic “ticket to the game” elements of the industry structure that they govern.  The rules of entry and participation as financial services providers, and as RFA’s or AFA’s for example.
There should be no doubt at all for instance on the part of the FSP Registrar regarding what any business or individual must do to register as a Financial Services Provider legally.  It is ludicrous that the very people in charge of administering the process and accepting registration on the part of applicants cannot themselves tell applicants what needs to be done in order to satisfy the Registrars requirements.

It is decidedly unhelpful, and a direct cost imposition on business, to respond to such questions by suggesting that external legal advice should best be sought by the person being regulated.  Imagine if we actually replied to such suggestions as we truly felt:

“Pardon?  You want me to go and pay a lawyer to guess what your thinking might be in the future when you clearly cannot work out what your own thinking is at the moment?  And you are supposed to be in charge of understanding what the rules are?  Do you seriously want me to go and pay for an  opinion from someone who probably understands it all less than I do, and who is at best only going to be trying to guess what decision you’ll come to?  Why can’t YOU just tell me what your thinking is – you’re supposed to be in charge anyway?”
I have had similar experiences with several departments now as we have tried to get to the bottom of how to successfully apply new rules, or understand what is expected of industry participants.  Suggestions that market participants head off and get opinions that provide no certainty whatsoever merely puts up a barrier and a cost to business, and achieves precisely zero.  It doesn’t positively contribute to what could be a healthy partnership on the part of professional market participants and regulatory authorities.  I’m reminded of the old school reports that I seemed to continually receive for years, which could be summarised as “smart, and doing ok.  But really should do better”.  That’s about where the regulatory report card sits currently I suspect.

What the industry needs, and what the authorities must do if they wish to create an efficient and professional market place here is to make their own rules regarding participation in the industry clearly understood by everyone.  Greater clarity via market guidance will promote confidence in the authorities, it will promote confidence in advisers, and that will flow through to greater confidence in the industry by consumers.  That of course was supposed to be the objective of all the reform wasn’t it?

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