There is also little point in bringing costly civil actions where there are no assets left to retrieve on behalf of investors. But Hughes underlines that if directors' insurance is available. that could influence decisions.
After one year in charge of NZ's beefed-up markets watchdog, Hughes wants a stronger focus on the FMA's strategic objectives. He outlines his five-point action plan.
1 Use litigation to ensure financial intermediaries deliver on their obligations.
There will also be a strong focus on market manipulation and insider trading. Hughes doesn't know to what extent this has traditionally been a significant problem in New Zealand but it will come under scrutiny.
Hughes also plans to publish the FMA's findings from the adviser compliance monitoring visits it has been doing outside of Wellington and Auckland. "We've been to Tauranga and Invercargill and Nelson and flown the flag and said 'guess what we are actually watching you'.
2 Test the FMA's legislative boundaries by taking appropriate legal risks.
Hughes underlines the FMA will not be "foolhardy "with taxpayers' money but there are some entities, individuals and legal issues that potentially require it to stretch its arm a bit. "When I was at ASIC (the Australian Securities and Investments Commission) in the early part of last decade the then chairman Alan Cameron said 'we have a success rate of over 90 per cent - that is too high'," says Hughes. "What he (Cameron) meant by that is if you are only taking the Bernard Whimp-type cases - the low hanging fruit - you are not actually establishing an precedent and potentially there are much more difficult targets and grayer areas of the law that you are not testing and therefore you are potentially letting down a generation by not doing do."
The FMA has given market guidance on how the new disclosure regime will work well ahead of when the Financial Markets Conduct bill kicks in. But Hughes says there will undoubtedly come a time when the FMA's perspective differs from that of an issuer in terms of whether their disclosure is adequate. "If it is a large issuer, somebody may say 'Well the FMA is taking a risk there from taking on the big end of town', but I actually think it is part of our job.
"We need to be visible at both the big end of town and the small end of town."
3 Remain "very open" to news media.
Hughes acknowledges there will be times when journalists take issue with the FMA's approach. But he doesn't want a reversion to the previous approach where the Securities Commission was criticised for "putting the shutters up."
"We are a public agency and have to accept accountability," he says. "And without getting into a finger-pointing exercise, we emphasise what we can and can't do."
He cites media debate over a permanent banning order to stop Bridgecorp boss Rob Petricevic from re-emerging as a company director when he gets out of jail. Under current law, Petricevic automatically faces a five-year ban. The FMA can apply to the court to have this extended to 10 years. If a clause in the Financial Markets Conduct bill survives, the FMA will be able to seek a permanent order. But it doesn't yet have that power.
4 Speak up when we see the need for law or policy change.
Hughes cites the introduction of authorised financial advisers. "If we don't think it's operating as well as it was intended to, we've got an obligation to put our hands up," he says.
The Government and MED have announced plans for a review at the five-year point. But from a regulatory perspective, Hughes says that is five years too late. "For example, if the whole fees versus commissions issue becomes very problematic here in New Zealand in the way that it did in Australia, I think we have an obligation to contribute to that debate.
"Similarly if low-income New Zealanders can't get access to quality financial advice because they can't afford it under a fee-only model, then again, I think we would consider bringing forward that review."
5 Seek out the best talent to build a succession pipeline.
The FMA launched with a mixture of old and new talent.
Inaugural FMA chairman Simon Allen's two-year term expires next year. Other board members will be soon up for renewal and Hughes' own contract is for three years.
Internal governance and delegations have consumed the board's first 12 months. It is only now turning its attention to strategy and what the FMA's focus should be.
Hughes says the FMA board has already had a discussion on a threat assessment on KiwiSaver. At issue is how the current regulatory model for KiwiSaver stacks up; what happens if the number of default providers increases, and what are the implications of providers running too conservative a default model.
Hughes plans to publish the FMA's research into areas of threat or risk to the stability of New Zealand's financial markets. He notes the Reserve Bank also covers this. But Hughes says the FMA has been examining whether there is a risk to stability given widespread assumptions that New Zealand has exactly the same regulatory model as Australia.
He underlines that when it comes to superannuation or retirement savings, Australia has a capital adequacy stability regulator in APRA (the Australian Prudential Regulation Authority) and ASIC regulates market conduct.
"While here we've got a conduct regulator in the FMA but the Reserve Bank does not have a prudential role in relation to KiwiSaver. "
