Shane Jones accuses the FMA of being 'chummy' with banks, the RBNZ of being too independent and the Super Fund of using the wrong investment strategy 

By Jenée Tibshraeny

First it was the banks, now it’s their regulators that Regional Economic Development Minister Shane Jones is having a go at.

Speaking to interest.co.nz in a Double Shot Interview, Jones accuses the Financial Markets Authority (FMA) of being too “chummy” with the banks.

His comments follow the FMA and Reserve Bank (RBNZ) on Monday releasing their report on banking conduct and culture.

He dubs their findings contradictory: “At one level they said there’s no systemic problems and then they said that they lacked the authority anyway if there were systemic problems.”

Asked about whether the regulatory gaps identified around conduct need filling, Jones says that before the FMA asks for additional powers, it needs to ensure it has the “strength” and “institutional fibre” to practice what it preaches.

“Conduct is culture, and the FMA needs to be absolutely sure that its own culture is not too chummy,” he says.

“The evidence is that they very rarely ping the big banks. If they’re not in awe of them, then they probably all came from the same cultural test tube.”

The FMA is responsible for enforcing securities, financial reporting and company law as they apply to financial services and securities markets. It also regulates financial advisers and brokers, trustees and issuers - including issuers of KiwiSaver and superannuation schemes.

RBNZ too independent

As for banks’ prudential regulator – the RBNZ – Jones points to it having more teeth. He specifically notes that it in 2017 told Westpac it must hold more capital until it fixes major errors in its capital modelling.

He’s even an “admirer” of Governor Adrian Orr’s career.

Yet he says RBNZ employees are like “Pharisees”.

“They’re always ticking boxes and crossing Ts and I think they’re calcified in their ways.”

Keeping in mind the fact Jones is lobbying the RBNZ to require banks to keep their regional branches open as a condition of their licences, he says its independence is proving problematic.

“They’re incredibly independent, and I don’t see unfortunately those ways changing in the short term.

“There’s a good reason why they should remain independent, but stability I would’ve thought, has to work for not only metropolitan New Zealand [but also] for regional New Zealand.”

Jones would like the RBNZ to collect a $100 million levy from each bank a year to support the provision of banking services in the regions.

“I think it’s fair to say the banking strategists themselves – they know that something like this could be on the cards… Why should they pay it in their own country [Australia] and not pay it in our country?”

Orr in a media conference on Thursday said he hadn’t been asked for input on the levy idea and didn’t have any thoughts on it.

Nonetheless, Jones has taken the idea to Commerce and Consumer Affairs Minister Kris Faafoi.

Payments NZ in Jones' sight  

Turning from conduct to competition, Jones believes the banking sector is ripe for disruption.

He wants the RBNZ to look at potential conflicts of interests around banks owning their own local clearance system through the organisation, Payments NZ.

“It may be that it’s not really an impediment to more competitiveness, but I think we should be reassured [of that],” he says, pointing out this is something he’s also raised with Faafoi.

Furthermore, Jones says the Government needs to do what it can to expedite open banking.

Open banking sees banks share their customers' data with third parties on their customers’ request, so they can make payments and manage their money via institutions other than that of their bank.

Faafoi has tasked Payments NZ with creating a framework for this to happen. He has warned that if the industry doesn’t make the shift itself, he’ll follow UK and Australian authorities in forcing their hands through regulation.

Prioritising local investment

Finally, Jones wants to see banks invest more of the funds they collect through savings and KiwiSaver in New Zealand.

New Zealand First’s dream of creating a government-owned and operated KiwiSaver scheme that prioritises investment in New Zealand had seemed a step closer to becoming a reality when Fletcher Tabuteau’s KiwiFund Member’s Bill passed its first reading in February.

However in the face of criticism, the Bill was withdrawn in August, Tabuteau saying the Government will investigate issues the Bill raises – fees and investment practices – through its Review of KiwiSaver Default Provider Arrangements.

‘Mr Whineray should never think that he is beyond criticism’

While it has a mandate to operate independently, Jones would also like to see the New Zealand Superannuation Fund direct more of its $41 billion of funds to “productive areas in regional New Zealand”.

“I’d like to see them dedicate some of that capital to that end, rather than believe in their own magic that they caught the uprising tide of asset values over the last four, to five, six, seven, eight year – don’t for a moment think that’s a recipe totally for the future.”

The value of the Fund’s New Zealand investments currently sits at around $6 billion.

A third of these have funds have been invested in timber (primarily Kaingaroa Timberlands), 27% in New Zealand listed equities (excluding Metlifecare), and the rest in the likes of Fidelity Life, Metlifecare, Kiwibank, Hobsonville, Datacom and rural farmland. 

While the Fund targets $100 million-plus investments and aims to have a 20% to 50% stake in whatever it invests in, Jones says it should be looking to New Zealand start-ups on the hunt for capital.

He specifically points out: “I fail to see how the Cullen Fund should continue to be allowed to buy farms for example in the South Island… and then employ corporate management techniques, pouring all the nitrates and kind of worsening the situation of the negative [environmental and community] externalities from farming…

“[Super Fund CEO] Mr Whineray should never think that he is beyond criticism.”

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19 Comments

I have a very uneasy feeling when I hear this politicians' thoughts.

He is a dangerous bully. Some of what he says is interesting though. It's just a mish mash of ideas, some of which may have merit, but he strikes me as a disruptive type not balanced by good judgement. Still, people who change things for the better often also make big mistakes along the way. He has cunning and a thick skin, two major strengths in a politician.

Trump-like

up
10

I'd say everything he said in that interview made sense. In particular, I had no idea the Super Fund was buying up farms in Southland and implementing a corporate management model that sees ever greater amounts of nitrogen entering the environment.

Why do you think he's a dangerous bully?

Kate
Why do you automatically assume corporate farming is worse for the environment ?
Fact is the aleldged offender is not and are leading the way to sustainable models of staying with grass curve with very limited inputs

All big beast farming is an unsustainable pollution. We'd be better off as a country to grow pot n other useful plants. It's way past time nz grew a backbone n relied less on cattle farming. We don't need beef to live. I do like my steak tho, but I don't need it

It was a comment made by SJ in the clip. But good to hear they are in to low-impact farming techniques. Great.

Uninterested
I agree with you; Jones is cause for an uneasy feeling.
I suspect that there is a little bit of all of all of a sudden having a bit of ministerial power and being a little drunk on an over valued sense of self importance and ability. Such people are prone to major errors of judgement.

Would like more kiwisaver and superfund invested back into making NZ productive...

The point is there are no opportunities for capital allocation in New Zealand. The economy is based on low productivity, low profitablity, high capital intensity businesses such as selling houses to new residents, tourism and dairy. The traditional high profitability, high capital intensity businesses like mining are effectively banned, despite the fact that they helped build the country and it's infrastructure. There doesn't seem to be an answer to this, which is why Labour under Clarke and Cullen, and National under Key and English, have sponsored high immigration, and why Labour under Peters and Ardern have done as little as possible to reduce it.

Can't have an elected government going around DOING things can we?
Especially if it upsets people who own most of the land and capital.
diddums.

I think Mr. Jones is too clever to be a buffoon - his buffoonery is part of his act. He knows most of what he said is complete nonsense and none of the ideas will get implemented. Rather, he wants to push the finance sector into doing something; move it a little closer to his preference without actual regulation.

Will he return to his previous campaign re the grocery duopoly in NZ? Or the Building Supplies near monopoly?

oh god -- the super fund has delivered returns way over the market year on year - whatever the strategy -- its been working for all New Zealanders in a big way -- lets not change because a tub of lard wants to invest in more free porn channels

It’s not the Labour Party causing low business confidence results!

SJ is a useful provocateur for the pollies. He gets headlines, which provide the appearance of Getting Stuff Done. But NZSF was established for a single financial purpose: to bridge the gap in superannuation payments between the boomer bulge, and the point at which KS funds take over from National Super. NZSF would be expected to be mostly drawn down by, say, 2050. As an investment strategy with that end in mind, diversity and high returns are paramount.
It was always the risk that having billions 'just sitting around' would attract demagogues eager to divert it to other purposes. SJ is running true to form here. Regional startups , indeed startups anywhere, have success rates in the low single digit percentages plus burn cash for years if not decades, see Xero. For Regional Startup, read Boondoggle.....

I think the word he is really looking for is "complicit". The negligence and corruption of the regulators in overseeing the banks behaviour was the main takeaway of the Australian Banking Royal Commission. Anyone who thinks its not the same on this side of the ditch is dreaming.

I like that. Complicit. What a great word. And so true of many things including the banksters & their friends the regulators. In fact, the more I look into the practice of regulation, the more I see incompetence. Our friends dealing with our primary industries seem to be scrambling a fair bit these days. Regulation of businesses is what every Labour Govt loves to do. But the enactment of some of those rules leaves a little bit to be desired.