Tēnā koutou, tēnā koutou, tēnā koutou katoa
Ko Samantha Barrass toku ingoa
Ko taku mahi ki Te Mana Tātai Hokohoko
Ko te Mana Whakahaere
Tēnā koutou, tēnā koutou, tēnā tātou katoa.
Hello everyone. It is, as always, a pleasure to be here at the FSC annual conference.
In preparing my remarks today, I've been thinking about the future - about what's around the corner for the financial services sector. It's important that the FMA is forward-looking and nimble, so that we can anticipate the challenges and opportunities that lie ahead for financial markets.
There is probably no other financial product that is so closely associated to the future financial wellbeing of New Zealanders as KiwiSaver.
Today, I'm delighted to be releasing our annual KiwiSaver report. Now in its 18th year, KiwiSaver has come of age.
Like all 18th birthdays, there's much to celebrate:
- Total funds under management grew 10 percent to 123 billion dollars, driven by a year-on-year increase of 12.2 billion in contributions, and 6.4 billion in investment returns.
- Just under half of members are now invested in growth funds, with diversified funds continuing to comprise the vast majority of KiwiSaver assets.
- And over 65s appear to be managing their nest egg carefully, rather than withdrawing it all at once.
It's clear from these results that KiwiSaver remains resilient amidst economic volatility and uncertainty. But there is, of course, room for improvement.
The number of non-contributing members continues to rise, with 30 percent of members of working age not contributing. That's up from about 20 percent in 2010. Even among active choice members, there are 1.2 million who are not currently contributing.
I don't have to tell a financial sector audience about the long-term opportunity cost of foregoing retirement contributions. If this trend continues, we risk a stark inequality
between the contributing and non-contributing members of our national retirement scheme.
Many of these non-contributing members may well reflect the economic headwinds currently impacting New Zealanders. The rise in hardship withdrawals is also noticeable.
There is no simple fix. All of us - policy makers, politicians, regulators, KiwiSaver providers and financial advisers have a role here. That's why we're launching the report here this year - all of us in the room have some sort of stake in the future of KiwiSaver.
For default KiwiSaver providers, there are obligations to engage with default members throughout their retirement savings journey, including during times of volatility, and near the end of a member's savings suspension.
For us, we are looking for firms to use all the options available to engage with their members about their contribution options and planning tools available to them to ensure KiwiSaver delivers on its core purpose.
In keeping with the 'future' theme, another issue that is front of mind for me is the accelerating pervasiveness of technology in financial services. We continue to see ever greater capability from generative AI, with the opportunities to lift productivity and effectiveness.
For me, my 'aha' moment came while observing my daughter using AI in her work when she was in New Zealand at the end of last year. Back-to-back meetings meant no time for note taking. No problem - her AI tool was doing it for her, and the number of meetings she could take each day had doubled.
I've since been using generative AI and large language models in my own work, as well as at home, and can see that it will be truly transformative.
Many firms have been talking to us about our expectations about AI. Our role is to strike balance: enabling innovation that improves outcomes for customers while maintaining trust, transparency, and integrity in the system.
Used well, we believe it can make a positive impact on consumers, helping to lift financial literacy, lowering costs, and personalise services.
But it must be deployed responsibly keeping the consumer impact front and centre, enabled by appropriate governance, risk management, controls and policies.
So what's the ask here? Share what you're experimenting with. Tell us what's working, and what isn't. Let us know what it's like trying to embed AI into legacy systems. And help us understand how we can best support responsible innovation.
But the future isn't just about AI. Technology as a whole is changing the landscape of New Zealand's financial services, be it open banking, the digitisation of assets, or the increasing interest in crypto as an investment option. With all these developments, it is important the regulator is cognisant of and adapts to these changing times.
And we are up for the challenge.
Our fintech sandbox pilot includes a number of firms dealing with stablecoins and tokenisation, which will provide helpful insight into how these innovations might operate in the New Zealand market.
And just last week, we released a discussion paper on tokenisation. We've received an increasing number of enquiries on this topic, but these are not translating into firms bringing tokenised products and services into the market. We're excited to get this conversation started and look forward to hearing a wide range of views on the topic.
At the FSC Outlook event at the beginning of the year, I talked about a new publication we would be producing on an annual basis - the Financial Conduct Report. I'm pleased to have delivered the inaugural Report to the market in June of this year. I hope the Report has provided some clarity and focus for your engagements with us.
Our engagement-led approach means that we aim to be the fence at the top of the cliff, rather than the ambulance at the bottom. We have particularly stepped-up engagement with insurers in recent months.
This reflects that for many insurers, this is the first time they have been regulated by the FMA, and the CoFI regime is new. It also reflects that new Insurance Contracts law is on the horizon. We are mindful of the need to balance quality over quantity of engagements as we work with insurers to navigate these changes.
When it comes to our enforcement priorities it should come as no surprise to you that these are informed by our regulatory priorities. This means we will be keeping a close eye on issues such as conduct impacting consumers in vulnerable circumstances, misleading disclosure by wholesale issuers, and insider conduct and continuous disclosure. We will also be checking that consumers are treated fairly when things go wrong - and know how to complain about it. This will be a particular focus in the deposit taking and insurance sectors.
Of course, this does not preclude us from considering misconduct outside of our regulatory priorities where it is serious enough to warrant us taking a closer look. At the end of the day, we continue to be a risk-based, outcomes-focused regulator, meaning we can (and will) act if we identify actual or potential harm for consumers or investors.
One of the issues that has been regularly raised with us around our enforcement approach has been our response to issues that firms have self-disclosed and remediated.
I acknowledge many of these issues have been self-reported and where remediation is or has taken place. But I want to be very clear - the mere fact of self-reporting and remediating does not mean we will always provide a light-touch response. The nature of the underlying misconduct itself will always be the driving factor in assessing the appropriate response. The more serious the misconduct - to consumers or to the market - the more likely we will take enforcement action, irrespective of how it was reported.
The point at which firms self-report to the FMA is also important. The CoFI legislation is clear on this point; material contraventions are required to be reported to the FMA. While we understand it may be tempting to wait until the problems have been fully unravelled, we consider it better to prioritise early engagement with us.
We have seen significant positive change since the conduct and culture reviews, now seven years old. Many of the recent issues have been able to be resolved through enforceable undertakings, rather than the Courts, and we have seen substantially improved engagement from firms on remediation issues. I want to acknowledge that, and it is important we do so.
In closing, as the FMA looks at what's ahead for the financial services sector, we know that we cannot stand idle. As I hope I've demonstrated through our forward look at KiwiSaver and discussion paper on tokenisation, we are leaning into the issues that are ahead of us, for the future.
And with everything we do, whether it is our supervision and monitoring work, or our enforcement action, we remain focused on fair outcomes for investors and consumers.
Thank you again for having me here today, and I'm very much looking forward to the upcoming panel discussion.
