This story was originally published on November 1 2021
The Financial Markets Authority boss has left the job after seven years spent cajoling recalcitrant banking and finance executives into behaving better towards their customers. Business editor Nikki Mandow looks at the tough job of being a regulator and what still needs to be done to keep the financial services sector honest.
You don’t have to look far to see why being a regulator isn’t a job for the fainthearted.
“Why regulators think it’s OK to treat businesses like morons,” says an Australian Financial Review article about Australian Competition and Consumer Commission boss Rod Sims, actually a pretty well-regarded regulator.
“Greedy banks and feeble regulators,” the same paper headlined a 2018 story about a Royal Commission report into misconduct in financial services. The regulator, in this case the Australian Securities and Investments Commission (chair Greg Medcraft) was “feckless” (lacking strength of character) dealing with wrongdoing and incompetence, the newspaper said.
The Australian Prudential Regulation Authority, the supervisory body for banking, insurance and superannuation was, if anything, even more spineless. “Regulators’ soggy bus ticket didn’t work,” said an article in Newsroom in 2019.
And regulators in the UK were getting the same very public criticism – just a bit further back. In a story in the Observer newspaper from 2013, journalist Jill Treanor slated the Financial Services Authority and its boss Hector Sants, in the wake of the catastrophic banking meltdown: “It was the watchdog that didn’t bark.”
It wasn’t the only UK regulator in the spotlight. “Danger: Regulator at work”, said one Guardian headline. “‘Dithering’ regulatory bodies criticised for failing consumers,” said another. “FSA regulator: ‘No, I don’t like being called an idiot’.”
An idiot? If that’s the slur, a regulator surely ranks only slightly higher than a politician in terms of being the victim of very public ire. Compared to, say, heading a bank or a listed company, the regulator’s job is head-above-the-parapet stuff.
Oh, and it generally pays considerably less than private sector positions, particularly in the financial services sector.
Regulated, not regulator
So why exactly did UK-born lawyer and Bank of America Merrill Lynch’s top legal guy in Europe decide in 2013 that heading up New Zealand’s new-ish regulatory body, the Financial Markets Authority, was the right step in a high-flying Wall Street/City of London career?
At the time when he joined the Financial Markets Authority as chief executive in February 2014, Rob Everett had spent a career on the other side, as an increasingly senior lawyer working on regulatory and compliance issues, mostly at Merrill Lynch.
“I remember one day arguing with the Bank of America Merrill Lynch CEO and he said ‘Maybe you should go work for a regulator’. And I took that as a massive insult.”
– Rob Everett
In that role, he had plenty of dealings with the multiple, increasingly (and often justifiably) angry regulators trying to clamp down on the bad banking behaviour that had played a significant part in causing the 2007-2008 financial crisis and global economic recession.
“A lot of people I know thought it was hilarious that I was coming to the Financial Markets Authority,” Everett tells Newsroom, in his last two days before leaving the organisation.
“In fact I remember one day I was arguing with the Bank of America Merrill Lynch chief executive about something the regulator had told us to do, and he said to me ‘sometimes I think you’re more sympathetic to the regulators than you are to us, maybe you should go work for a regulator’. And I took that as a massive insult.”
Of course, as is so often the case, there were personal interests at play with Everett’s move to the Financial Markets Authority. His wife is a Kiwi and the couple and their three children, all under 10, were ready for a move back to New Zealand.
“We were preparing to leave the UK, and then right at the last minute I got a call from a recruiter saying ‘What are you planning to do?’ and I said ‘I don’t know yet, I’ll see when I get there’, and they told me the Financial Markets Authority was at the final stages of looking for a new chief executive.”
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As it so happened, Everett was open to the possibility of turning gamekeeper. The GFC and then the Libor (London Interbank Offered Rate) interest rate fixing scandal that came to light in 2012, reinforced that idea powerful bankers playing fast and loose with the markets to boost their banks’ profits and their own bonuses wasn’t just impacting on the top end of town. It could have huge negative impact on ordinary people.
In just one New Zealand example, the interest rate swap disaster, which saw farmers lose millions of dollars, their land and, in some cases, their lives, was a direct result of the actions of greedy bankers at home and abroad.
Poacher turned gamekeeper
In 2013, being in banking was starting to be the sort of thing you didn’t admit to on your airport landing card or to strangers at dinner parties, Everett says. He started telling people he was a lawyer, not a banker, when they asked.
“I thought I was on the side of the angels when I was at the bank because I was in legal control, the compliance department. But no, you’d get comments from your taxi driver, from immigration officials, when you went to a friend’s house. Someone would say: ‘Oh my God, you work for a bank, and I thought you seemed like a nice guy’.”
And this cut deep because Everett is basically a nice guy, actually a really nice guy – everyone Newsroom speaks to says so. The sort of guy that has taken care of his brain-damaged brother for years, including bringing him to New Zealand when he moved. “Frank and honest,” as one former staffer described him; terms not often associated with big city banking executives at that time.
Everett started wondering if he wasn’t on the wrong side.
“You know, at that time, I think my sympathies were going in the other direction. I was frustrated at having to argue with my own organisation about things the regulators wanted and which I thought were entirely reasonable. I started looking at issues and thinking ‘What the public is going to look at here is not something that we ought to be proud of, or we ought to be arguing for.’”
So Everett told the Financial Markets Authority board yes, he was interested and set about selling his vision of regulation. It wasn’t necessarily complimentary.
“I told the board sort of politely that, given my experience of dealing with so many regulators, particularly through a crisis, I had a fairly firm view of what good regulators look like, and what bad regulators look like.
“And my view of good regulators is that they understood the sector they were regulating, which requires a degree of industry expertise, and dialogue. And that they were willing to listen, when what they wanted just wasn’t going to work, or was disproportionate to what was required.
“And they had to be credible. I’d been in too many rooms with regulators where, within five minutes, I thought, they’ve got no clue what our business is, how it works, or what drives it.
“You’d meet a regulator who’d say, ’Right, this is what you have to do.’ And you’d look at them and you’d think, ‘Okay, why is that?’ And some of them were very happy to explain the why – what the end goal was there. And some of them just said, ‘That’s not your business, we’re just telling you, you have to do this.
“And that was surprisingly common, actually. Which is possibly a comment on the sorts of people who become regulators.”
A short history of the FMA
The Financial Markets Authority was established in 2011 as an Independent Crown Entity as part of the Financial Markets (Regulators and KiwiSaver) Bill. It replaced the Securities Commission, which had been roundly criticised for being toothless to stop the incompetency, misconduct, fraud and personal greed from company directors which led to 67 New Zealand finance companies collapsing between 2006 and 2012, and 150,000-200,000 customers losing more than $3 billion of their life savings.
As Commerce Minister Simon Power said at the time, the establishment of the FMA “is at the centre of the Government’s drive to restore the confidence of mum and dad investors in our financial markets”.
No pressure.
The early mandate for the new organisation was relatively narrow – to regulate the 2013 Financial Markets Conduct Act, which initially governed the “creation, promotion and sale of financial products and the ongoing responsibilities of those who offer, deal and trade them”, and was amended in 2019 to include regulation of financial advice.
But that left gaps. In a practical sense, for example, the authority could look at the KiwiSaver and funds management services banks offered customers, but not at the whole of the banks’ operations.
From 2019, it could regulate life insurance companies giving financial advice, but otherwise had little mandate to check the conduct and culture in the notoriously incentive-orientated insurance sector.
For a while, Everett accepted that was how it was in New Zealand. Until all the news started coming out of Australia about misconduct in the banking, insurance and financial services sectors.
More of that later.
Going beyond the mandate
Murray Jack was chair of the Financial Markets Authority board when Everett was appointed in February 2014. He says the board kicked themselves to check they weren’t dreaming when they heard Everett was interested in the job. “There aren’t many good candidates in that space, particularly in a small country like New Zealand.
“We’d gone through the establishment phase and that was challenging – setting up something with a new mandate,” Jacks says. “We wanted someone that could take it to a new level, position the Financial Markets Authority as a respected regulator.”
He says the board was attracted by Everett’s experience of dealing with different regulators, but also that he wasn’t shy about putting his view across. Not in a confrontational or imposing way, but not leaving any uncertainty as to the message.
One of the first things Everett did when he arrived at the job was tell the then head of communications, Owen Gill, to organise an event in one of the big Auckland hotels to bring the industry together.
“He had only been in the country a couple of months and he’s telling me: ‘I have a strong message and I want to make a big speech to business leaders’,” Gill says. “I thought it was pretty brave.”
“Everyone was very polite, very nice. But I could tell the big end of town didn’t think there was a problem in New Zealand.”
– Rob Everett
The message was about conduct – companies doing the right thing for their customers because it was the right thing. And because, if what was happening in the UK and the US was anything to go by, they were going to be in big trouble if they didn’t. Not just from regulators, but from the court of public opinion.
“I ask that you embed the concepts of ‘interests of the customer’ and ‘integrity’ in all that you and your organisations do,” Everett told the audience at that speech back in 2014. “We will be demanding of the industry in ways that you have not seen before… We will ask ‘What behaviours do you model? Who do you reward? How do you motivate and incentivise? What behaviour do you model?”
Did the message get through? Did it heck. Mostly, Everett says, the industry leaders smiled, agreed with his sentiments (I mean, who wouldn’t?), and carried on doing much what they had been doing before.
“Everyone was very polite, very nice. But I was a bit startled, because I could tell the big end of town didn’t think there was a problem in New Zealand.”
The executives of the banks and insurance companies wagged their fingers at those naughty finance companies operating, as they saw it, outside the well-operated mainstream financial system. But their own conduct?
“They didn’t see the need for any dramatic change anytime soon.”
Given the bad stuff going on elsewhere in the world, and the authority’s mandate to restore customers’ confidence in the financial system, that was a quite a problem, Everett says.
“I realised there was a huge job to do. And if I was lucky, I would, through the Financial Markets Authority, help the industry pull itself away from the precipice before it was too late.”
The power of the threat of a Royal Commission
And then the shit hit the fan in Australia and everything changed. The revelations of the 2018 Australian Royal Commission into banking and finance sector misconduct led the authority to team up with Reserve Bank of New Zealand to investigate conduct and culture in the retail banks (report released November 2018) and the life insurance sector (report released in January 2019). And suddenly, it was impossible for at least those sectors of the financial services sector directly involved to ignore what Everett was saying.
It even stopped being important that the authority didn’t actually have a mandate to investigate the banks and insurance companies.
“None of the market participants wanted a Royal Commission in New Zealand, so they saw cooperation with the regulators and opening up their operations to scrutiny was in their best interest,” says Jacks.
“We were pretty happy with the way it worked out. There was a genuine shift in behaviour in the banks and insurance companies as a result of the work the Financial Markets Authority and Reserve Bank did, and subsequently there has been an extension of the Financial Markets Authority mandate.”
The Financial Markets (Conduct of Institutions) Amendment Bill, more commonly known as the Conduct of Financial Institutions bill, or CoFi has been stalled in Parliament since 2020 because of Covid. But once it gets passed, hopefully next year, it will see the authority take responsibility for regulating the conduct of banks, insurers and non-bank deposit takers.
Everett says banks and insurance companies should be getting ready for CoFI legislation now, not waiting until the bill becomes law.
“Enough warnings already. We’ve been talking about this since 2018, or before, and the Royal Commission put it front and centre of what they are doing.”
A particular bugbear is so-called accidental misconduct – when customers lose out because a bank or insurance company makes a mistake or, most commonly, because their computer systems aren’t good enough to prevent harm, and no one cares enough to check.
“There’s not enough impetus from board and senior management to say ‘Sorry guys, let’s pause on that new product development thing that’s very sexy and exciting and is going to get us lots of new customers. Instead let’s go back and check what we already do’.”
– Rob Everett
“One of the responses we hear all the time is ‘Oh, but that was just a system failure. We didn’t know that was happening, and this was just a cock-up, and someone over there flicked a switch and all those discounts went this way rather than that way. And so that’s okay, right?”
Wrong.
“One of the things far too many companies are still not doing is going back and scrubbing their old products and their old systems and just making sure bad things aren’t happening. Maybe looking at those old complaints about someone getting charged twice and making sure it really was just a one-off.
“There’s not enough impetus from board and senior management to say ‘Sorry guys, let’s pause on that new product development thing that’s very sexy and exciting and is going to get us lots of new customers. Instead let’s go back and check what we already do’.”
Oh, and another thing Everett doesn’t like much, is companies glossing over problems because they involve only small amounts of money for each customer.
“There’s also a school of thought, which I was used to from the UK, where the bank says ‘Well, the damage to you is only 100 bucks. That’s not good, but it’s not the end of the world, right?’
“Actually, if there are 400,000 people in the same situation, that’s a lot of people that you’ve done a little bit of harm to.”
Just don’t expect any leniency when the CoFI bill finally comes in, Everett says.
“Normally when you bring in new legislation, a good regulator will say ‘We’ll all learn a bit, we’ll be patient and facilitative. And then we’ll start to get a bit more impatient and then really hard nosed and start reaching for the stick.
“That shouldn’t be necessary. What we’re trying to say to the industry is when that legislation becomes effective, we expect you all to be running already, you won’t get lead time because you shouldn’t need it.”
‘No more than half way there’
Seven years after joining the authority, Everett told the Financial Services Council conference last month that New Zealand’s financial institutions were “no more than half way” along the conduct journey.
What did he mean?
Basically that some sectors, particularly the ones the auhtority has been regulating for the longest, like bits of the advice and fund management sectors, have made big strides, he says. Others aren’t remotely half way there.
“When Rob was cross, he was cross in a very professional way.”
– Tim Grafton, Insurance Council
The fire and general insurance companies come in for Everett’s strongest criticism – they are still on step one of a 10-step process, he says. And the retail share trading platforms (companies like Sharesies and Hatch, which have seen business explode over the last couple of years) are an area regulation is only starting to touch.
“I’m not sure any of the industries are knocking it out of the park yet,” Everett says. “But some bits are way ahead of others.”
What does the industry think?
Was Rob Everett a good regulator? Newsroom approached more than a dozen people and organisations to answer the question. The banks didn’t want to talk, but Tim Grafton, chief executive of the Insurance Council, whose members were recipients of some of Everett’s harshest recent criticisms, has almost nothing but praise.
“When Rob was cross, he was cross in a very professional way,” Grafton says. “He’s a thoroughly nice guy, gives a clear outline of the Financial Markets Authority’s expectations, and is always accessible.”
Everett doesn’t mince his words, Grafton says, and the Insurance Council and authority had their differences of opinions – not least about some harsh findings in the 2021 general insurance conduct and culture report.
“But that didn’t get in the way of having a good professional relationship. You’d expect regulator and regulated to have different takes on issues; clearly he’s been given a mandate to address conduct issues across the financial sector, and clearly the sector has fallen short.
“But Rob was always open to having a discussion. Unlike other regulators, he has operated on both sides, so he really understands about being a regulated entity.”
There’s a similar message from Elaine Campbell, a lawyer who spent almost four years working under Everett heading up compliance teams at the authority, before moving to join the ranks of the regulated, first with AMP and now Chorus, where she is chief corporate officer and general counsel.
“Having been on the street side for a long time gave Rob a particular perspective,” Campbell says.
“Plus he was an effective communicator and quite clear around his expectations at C-suite and board room level – that’s where he targeted his efforts. His message was simple: you have to do the right thing for your customers. And when you condense it down to a simple message it’s hard to ignore.”
What Everett did differently from many other regulators was he started with a position of moral persuasion, rather than just a rule book.
“It’s a pretty thankless task, putting your head above the parapet for people to take potshots.”
– Elaine Campbell
“Others start with 44 clauses, he started with a statement of principle. And he had a particular willingness to engage that I have not necessarily seen in other regulators.”
Which doesn’t necessarily make it easy to be a regulator. “It’s a pretty thankless task, putting your head above the parapet for people to take potshots,” Campbell says.
Across the Tasman, consumer watchdog Rod Sims, head of the Competition and Consumer Commission, has taken a similar approach to Rob Everett, in terms of setting clear and public targets for companies on his watch. He called himself “the most hated regulator in Australia”, only partially tongue-in-cheek, because of his insistence on consumer protections against companies’ monopolistic behaviour.
Paul O’Neil, former head of enforcement at the Financial Markets Authority, now chief executive operations and general counsel at the Serious Fraud Office, says despite Everett’s willingness to publicly wave a stick, he’s “one of the most universally popular chief executives”.
Under his watch the authority took the first market manipulation case in New Zealand, and the first insider trading case, among others, and people on the other side of enforcement action weren’t happy.
“But he was seen as knowledgeable and credible and in touch with markets, and even his critics accepted the Financial Markets Authority as a credible regulator with real impact,” O’Neill says.
“He handed out tough love and people respected him for his frankness and his honesty.”
And Everett, how did he handle the criticism?
The now-former Financial Markets Authority boss says he’s a “relatively self-confident individual”, and instilling a similar confidence in staff who might not enjoy being at the wrong end of sometimes very public criticism, has been a big part of his role.
“You don’t survive 20 years in a US investment bank without being reasonably bulletproof,” he says. “And I have worked hard on the organisation I inherited to give others that sense of confidence.
“You’ve got a bunch of people, lawyers and accountants and people who don’t like to be told they are wrong, don’t like to be criticised, whose self-worth is based on being right. And while on the one hand, you don’t want to be over-confident as a regulator, where you go in saying you are always right. But on the other, if you get criticised, you can’t go into your shell and stop taking risks.
“My goal was to build a confident, capable organisation which wouldn’t be swayed from its path by a bit of criticism.”
And you have to do that as a regulator, because it’s part of the job description that someone, probably multi-people, are bound to be unhappy at any one time. Often its the industry being regulated, sometimes the media, sometimes the politicians, usually the law firms. So it pays to toughen up against criticism.
“So you have to be comfortable saying ‘Yeah, that’s what they think and that’s a totally valid viewpoint. But that’s not the view we took. And that’s not the path we’re taking.”
So there.
Rob Everett will take up his new job as chief executive for the government-backed venture fund New Zealand Growth Capital Partners at the end of January. He will be replaced at the head of the FMA by Samantha Barrass, the New Zealand-born former chief executive of the Gibraltar Financial Services Commission.
