Prudential regulation of KiwiSaver providers 'bit that's missing,' FMA CEO says of scheme govt, regulators have 'paramount duty' to ensure works for members

Prudential regulation of KiwiSaver providers 'bit that's missing,' FMA CEO says of scheme govt, regulators have 'paramount duty' to ensure works for members

By Gareth Vaughan

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KiwiSaver is both a great opportunity for investors and a regulatory risk for the likes of the Financial Markets Authority (FMA), says FMA chief executive Sean Hughes.

In a Double Shot interview with interest.co.nz Hughes pointed out there's no prudential regulation of KiwiSaver providers in stark contrast to Australia where the Australian Prudential Regulation Authority (APRA) oversees superannuation funds in areas such as capital adequacy and governance.

"I see KiwiSaver as not just a great opportunity for investors in terms of their retirement future, but also a regulatory risk for us to focus on," Hughes said.

"There isn’t the same regulatory regime for retirement savings as there is in Australia where you’ve got a very significant prudential regulator in APRA and then you’ve got ASIC (the Australian Securities and Investments Commission) as the conduct and disclosure regulator," said Hughes.

"Here we have a slightly different regime in that you’ve got the IRD doing the administrative regulatory piece, you’ve got FMA doing the disclosure and conduct piece – and also we’ve got a role in terms of licencing and oversight of the trustees - but that prudential piece is the bit that’s missing."

"And I think KiwiSaver, and the risk around KiwiSaver, is something that I think not only government but we as regulators, have got a paramount duty to ensure that it’s working well for members."

The latest figures show KiwiSaver has 1.9 million members and about NZ$12 billion of funds under management. See details of all the KiwiSaver providers here.

The Reserve Bank, prudential regulator of New Zealand's banks, has also assumed the prudential regulation of finance companies and insurers in recent years.

The central bank, also responsible for monetary policy, took over regulation of non-bank deposit takers including finance companies, building societies and credit unions following a decision by the previous Labour-led government as finance companies began collapsing like dominos. See full details of the collapsed companies in our Deep Freeze list here. More recently the Reserve Bank has also taken over as prudential regulator of the insurance sector with a licencing regime in place from March 7 this year.

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Can someone give a quick cheat sheet on what the purpose is of a "prudential regulator", perhaps with a couple of examples.
 
I went to the Australian Prudential Regulation Authority site and am none the wiser.
 
Cheers

Seperation of Powers. The RBA has no control over the banks. APRA is the supervisor. ASIC is the enforcer. The ACCC has a watchdog role over credit card charges and other bank-fees.

But what is it that they actually do/check?

Cant give you an authoritative answer, because APRA travels below the public radar, but they mainly do probity checks and ensure reserve ratios are being complied with.

Just as an aside: The Government Bank Guarantee was limited to organisations that were APRA supervised.

Andy,  As I mentioned in the story prudential supervision covers the likes of capital adequacy and governance. For finance companies it also includes risk management, related party exposure limits and liquidity.
The RBNZ is NZ's sole prudential regulator, overseeing banks, non-bank deposit takers such as finance companies, credit unions and building societies. It has also recently taken on this role for insuers.
There's some detail as to what this means on the RBNZ website here - http://www.rbnz.govt.nz/finstab/insurance/3197839.html
And here - http://www.rbnz.govt.nz/finstab/nbdt/requirements/3857992.html
And here http://www.rbnz.govt.nz/finstab/banking/
And here are APRA's superannuation prudential practice guides - http://www.apra.gov.au/Super/PrudentialFramework/Pages/superannuation-pp...
APRA's guides cover: Capital, risk management, adequacy of resources, pandemic planning, management of security risk in information and IT, contribution and benefit accrual standards, and payment standards.
 

So is it or is it not the case that, as Hughes says, "there's no prudential regulation of KiwiSaver providers"?  This seems to imply that in fact there is, it's simply that it is done by the Reserve Bank, unlike in Australia.

The Reserve Bank here is prudential regulator of banks, non-bank deposit takers & insurers NOT KiwiSaver providers.